e-skills UK Guide

Payroll management

Payroll Management

Payroll is yet another important task for the small business owner. It is possible to do payment runs yourself if you have a small business, but the problem comes with calculating National Insurance and PAYE deductions. Unless you are fully up to speed on such financial technicalities it is very easy to make an horrendous mistake and pay your staff too much or not enough. Reclaiming overpayments is not as easy as it may sound, and can have a very bad affect on staff morale.

This guide explores the basics of setting up a payroll system. Please note that this is a business IT guide and we strongly recommend that you seek professional advice when dealing with accountancy related issues.

The cost of a payroll system can vary.

You may find that your accountant will process your payroll as an added value service for no charge, if you have one or two employees. As you grow you will need to invest in a payroll system, and for most small businesses the best route would be to an outsourced solution, leaving the technicalities to payroll experts.

An outsourced payroll system will often be priced on a monthly administration fee plus the number of payrolls processed in each batch. There may also be a charge for setting up the payroll system.

Small business payroll software can cost between £50 and £500

By implementing a payroll system you will save time and money by improving your efficiency and effectiveness of your staff payments.

What is a payroll system?

A payroll system is a computerised payment system that automates a lot of the monthly tasks of paying staff. Once the system has been setup payments can be transferred automatically and payslips generated with accurate and detailed break downs of the employee’s salary and deductions.

Many larger corporations may choose to run their own payroll system “in house”, so that their own computers and staff manage the payments. This is probably not suitable for small businesses that are generally encouraged to “out source” the solution to a third party company. This third party would complete the payrolls for many small businesses and would have the people, processes and infrastructure to manage these operations.

Why bother with a payroll system?

Here are three considerations that need to be thought through when thinking about a payroll system:

• As a small business owner you need to be selling, marketing and developing your product range. Payroll is an overhead that can use up time that is best spent on developing your business.
• Employing the people to manage your payroll can be expensive. Maybe you start to use accounts staff to run the payroll, but then they are not chasing up payments or running your accounts for your business.
• Payroll is also quite complicated and needs specialist advice in setting up and managing changes due to legislation or policies that can affect staff pay.

If I want to buy a payroll system what features should I look for?

Buying software can be a complex task. We offer general advice on how to buy software and the hardware to run it in these guides. You may benefit from reading these guides first.

Typically a small business payroll system will have the following features or capabilities:

• Employee personal records so that all of your team’s data is in one place.
• Holiday and sickness records for all your employee absences from work and detailed reports for management purposes.
• Payments and deductions records which are maintained automatically.
• Year end processing for tax purposes.
• Sick pay, maternity pay and paternity pay.
• Holiday pay record keeping.
• Pension contribution and tax credit records, where appropriate.
• Student loan repayments.

Products will vary and it is important that you get the help and support you need to setup the system in the first place and then ensure it keeps running. Computer backups and data security are vital when dealing with pay issues. Check out these guides for more information:

Assigning Data Access, Backing Up Data, Computer Viruses & Malware, Controlling Access To Data, Creating IT Security Policies, Data Security Training, Preventing Hardware Theft, Protecting Important Data, Remote Data Access, Securing Computer Data, Securing Laptop Data and Securing Data On The Move.

More information on payroll

These sites may help in selecting a payroll partner or software for internal use;

MoorePay

Sage

Iris

Andica

Commercial suppliers

We do not recommend specific products or suppliers; instead we provide you with a representative sample which covers the range of suppliers/products available. You may choose to look at these suppliers or products but this is entirely at your discretion.