Guide to payroll software: what it is and how it works

Your staff are all eagerly awaiting the next payday, but if you’re juggling a host of rules, regulations, deductions, and unique employee circumstances, things can quickly go astray. Staying on top of things isn’t just about convenience either—the right payroll software can save you time, money and reduce the risk of compliance headaches.

But not every business is built the same. That’s why we’re here, to help you understand what solutions are out there and when they might be beneficial.

Get on a roll with your payroll, with this handy guide to payroll software from QuickBooks.

Payroll Software: in summary

• Payroll software makes paying your employees quicker, easier and more efficient, doing much of the calculation for you.

• Using payroll software can help to improve your record keeping, accuracy and compliance, which may be important when audits are concerned.

• Make sure to pick a payroll software tool that matches your business size, needs and potential future size, to ensure it can continue to grow with your organisation. 

What is Payroll Software?

Payroll software is a digital tool that eases the logistical demand of paying employees. It can manage, automate, and streamline the process, freeing up bandwidth for other tasks. While it may seem daunting to use a new system, payroll software is often designed to be easy to get to grips with, and it can reduce the potential for user error compared with putting data into spreadsheets.

What does payroll software do?

Payroll software has several core functions, including:

• Calculating employee wages

• Adding deductions, such as PAYE or National Insurance and Student Loans

• Determining any bonuses

• Generating reports for compliance or auditing 

• Creating payslips for employee self-service

With the right payroll software, the right data, and careful setup, payroll software ensures employees get paid correctly and on time, and that you remain compliant. 

How Does Payroll Software Work?

Payroll software automates the process of paying employees, and everything that entails. With the right system, you get more than a simple calculator, though. One of the best ways to understand how payroll software works is to break it down into components:

• Data Input: Employee data is put into the system—that’s hours, salaries, bonuses and deductions. Sometimes, these are entered manually, other times digitally through integration with other systems.

• Calculations: Once it has the correct data, the payroll software can automatically calculate gross pay, PAYE, National Insurance contributions, pension contributions, and other deductions to arrive at net pay.

• Payslip Generation: Payroll software can generate payslips, giving employees access to pay information online. 

• HMRC Submissions: Important or required information, such as Real Time Information (RTI) submissions, can be sent directly from your payroll software to HMRC. Learn more about Tax Software with QuickBooks.

• Reporting: With payroll software, you can access important data and generate accurate, real-time, and compliant reports. Whether that’s producing a P45/P60 form, tax reports, pension details, or forms for auditing, budgeting, or to get a sense of your labour costs.

• Payment Processing: Users ultimately carry out the final payment action, but many types of payroll software integrate with banking for direct payments.

Key features of payroll software you need

Knowing what payroll software features you need can be the difference between a great, time-saving solution and a piece of software gathering dust in the corner of your desktop. For the biggest impact, you should look out for the following features:

• Automated gross and net pay calculations. By automating the gross and net pay calculations, you reduce the risk of human error and save time.

• PAYE and National Insurance calculations and reporting. With this feature, payroll software can calculate PAYE and National Insurance for each employee and report them to HMRC as required. Two birds, one system.

• Pension scheme management and auto-enrolment compliance. The correct payroll software can auto-enrol new employees, ensuring you remain compliant with auto-enrolment practices. It can also help you and your employees manage their pensions and calculate the necessary deductions.

• Statutory payments (e.g., sick pay, maternity pay). By integrating your payroll system with your hours tracking software, you can easily calculate and track sick pay or leave, meaning nothing gets missed.

• Payslip generation and distribution. Automatically generate payslips and send them to the right employees the moment their pay is finalised.

• Real Time Information (RTI) submissions to HMRC. Create and send electronic reports to HMRC on or before payday, as required, without the extra busywork.

• Year-end reporting (e.g., P60s, P11Ds). With year-end reporting, you can get those important P60s and P11Ds filed and distributed as required.

• Integration with accounting software. Payroll software works better when it can integrate with other systems, such as accounting software. This feature ensures that less data is at risk during the transfer of key information.

• Employee self-service portals. Save time hunting for old payslips by giving employees access to self-service portals. This lets them access their payslips whenever they need.

• Secure data storage and compliance with data protection regulations. Payroll software ensures that you’re compliant at every step. Secure your data and bolster your compliance with data protection regulations with the right payroll software.

Discover more about QuickBooks features.

What are the benefits of using payroll software?

To determine if payroll software is right for you, it’s important to know what the benefits are. We’ve compiled some of the pros of payroll software, so you can decide if it’s right for you at a glance:

• Time saving: automating complex calculations and administrative tasks reduces the time spent.

• Accuracy: reducing human error in calculations and data entry.

• Compliance: helping businesses stay compliant with HMRC rules and regulations for PAYE, National Insurance, and pensions. QuickBooks helps with compliance; it doesn't ensure it.

• Cost-efficiency: potentially reducing the need for external payroll services.

• Improved record-keeping: maintaining organised and accessible digital records.

• Enhanced employee satisfaction: ensuring timely and accurate payments and easy access to payslips.

Choosing the right payroll software for your business

Learning how to identify the right payroll software for your business needs is easy if you know what you’re looking for. Before you make your mind up, here are some things to consider:

• Business size and complexity. Consider the number of employees and the intricacy of your payroll needs. If you’re a large organisation, some payroll may not be able to scale to the degree you need. If you’re a smaller organisation, you may not need something designed for a hundred employees.

• Features required. Match the software's capabilities with your essential feature list—consider things such as HRMC-recognised payroll software, different integrations, self-service payslip access, and more.

• Ease of use. Look for intuitive interfaces and straightforward workflows; after all, training your employees is going to be a barrier you need to overcome to introduce the software.

• Scalability. Can the software grow with your business? Both in terms of the pricing structure and the software’s capabilities.

• Support. What kind of customer support is available? There may be questions or support you need, especially while introducing the system. Consider what options there are to assist you.

• Integration. Does it integrate with your existing accounting software? This is essential, as changing multiple systems can be a tricky endeavour. 

• HMRC recognition. Ensure the software is HMRC recognised for payroll submissions.

How much does payroll software cost?

There’s no catch-all cost to payroll software, and it’s not just your chosen provider that impacts your pricing. Costs can vary significantly, based on the features you choose and the number of employees you have.

Many payroll software providers offer various pricing models, such as:

• Per-Employee (PEPM). A scaling cost is determined by the number of employees you have on the payroll system. 

• Flat-Rated Monthly Fees. This is a single, fixed fee for a set period, regardless of the number of registered employees.

• Freemium. Free, but with limited features and additional costs for accessing additional tools.

• Modular. Pay for the specific modules you need, e.g., payroll without benefits.

• Enterprise. Usually reserved for large organisations with a significant number of employees or intricate needs.

While these pricing models aren’t absolute, they’re some of the more common approaches to service payment you’ll find. Businesses should consider the total cost of ownership, including potential setup or training fees, versus the potential savings, both in terms of money, time, and stress.

Explore plans and pricing to suit you with QuickBooks.

Simplify payroll with QuickBooks

QuickBooks’ HMRC-recognised payroll software assists businesses in managing their payroll efficiently and accurately. You’re busy enough, and payroll can be complex—but QuickBooks can help. Get the support you need to help you remain compliant with PAYE and National Insurance Obligations, pay employees correctly and on time, and don’t let payday get in the way of your other tasks.

Handle payroll management with ease, with QuickBooks today.

Payroll Software FAQs

Do I need payroll software if I only have a few employees?

Payroll software is a choice, and only you can determine if you need it based on the number of employees you have. HMRC-recognised payroll software such as QuickBooks can help you keep on top of payroll and any HMRC compliance obligations. Even with a few employees, manual payroll can be prone to errors and increase your workload. Try to weigh out the pros and cons of using payroll software and see if it’s worth it to you.

Can payroll software handle different types of employee contracts?

Yes, payroll software can handle and account for an employee’s unique circumstances, such as pay structures, benefits, deductions, bonuses, and more. With payroll software, you don’t need to manually consider exceptions or unique arrangements.

Is payroll software secure for sensitive employee data?

Yes, most modern, reputable payroll software should be secure, with robust protection for sensitive data. With encryption, authentication, and regular security patches, your data should remain safe, especially compared to manual, spreadsheet methods. However, to understand what security methods a specific payroll system uses, you need to do your research. Learn more about software security with QuickBooks.

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