Payroll Software

Payroll software is the name given to software solutions that assist businesses in managing the process of paying employees' wages, salaries, and bonuses. Most payroll solutions are intended to automate as many of the associated tasks as possible, and this could include making accurate deductions and actually processing payments so that money arrives into employees' accounts reliably and on time. For businesses, payroll software can improve both efficiency and compliance with tax legislation while freeing up staff to focus on more complicated work tasks.

In addition to automating core tasks, payroll software will typically allow users to track relevant information about individual employees, such as the benefits they are entitled to, the amount of absences and time off they have had, and their holiday entitlement. This not only helps to ensure payroll is accurate but also allows businesses to resolve payment disputes more easily. Companies can also provide employees with limited access to some of their payroll information, which then enables self-service, such as employees opting in and out of optional services.

Through the use of payroll software, businesses can establish and maintain a culture of transparency. At the same time, use of the software can help to avoid the need to outsource responsibility for many of the related tasks and this, in turn, means personal data is kept in-house. Payroll software can come in the form of standalone packages, which are often able to be integrated with other software solutions, or as part of a suite of HR or accounting applications.

The nature of payroll software and its functionality means it is often compared with or categorised alongside solutions like human resources software, clocking systems, and workforce management software. Generally, payroll-focused software solutions can operate alongside these other programs, although all-in-one packages are available, and there may be some significant crossover in terms of the features provided.

While some of the supplementary or bonus features can vary substantially from one solution to the next, most payroll software will have similar core features, even if the quality of their implementation ultimately differs. With this in mind, generally speaking, acquiring payroll software will allow users to:

• Monitor attendance, track absences, and calculate how much staff should be paid
• Digitally transfer money from company accounts into employees' personal bank accounts
• Store important information about employee benefits, salaries, and holiday entitlement
• Ensure compliance with employment and tax legislation, and create relevant reports

What is payroll software?

Payroll software is designed to help businesses, their managers, and their finance departments to manage all of the core tasks associated with the calculation and payment of staff salaries, wages, and bonuses. At the same time, payroll solutions are intended to help businesses to keep pertinent information organised and easily accessible so that it can be referred to when needed and the company can deliver greater transparency.

One of the biggest reasons why companies invest in payroll software is to automate many of the tasks associated with payroll. When configured properly, the software can automatically calculate how much each employee should be paid and deposit that money into their account on the specified date, without any need for major involvement from human users. However, on top of this, the software does also provide options for users to take a more hands-on approach when needed, such as accessing relevant data and manually issuing payments.

Generally, payroll software is used by businesses and other organisations that are required to pay staff and keep records of their payments. With that being said, the functions of some payroll software solutions may make them useful for others, such as individuals who are looking to ensure compliance with tax rules. Payroll software often comes as a standalone package, but it may also be sold as part of a larger suite, containing a variety of other business management or finance applications that can be used in combination with each other.

What are the benefits of payroll software?

The benefits of payroll software are primarily focused on the ability to carry out a wide range of different payment and salary-related functions from a single application, eliminating the need to move between multiple software solutions. However, there are a number of specific advantages stemming from the use of this software, and it can be important to evaluate some of these benefits in greater depth. Payroll software allows businesses to:

• Boost Accuracy and Efficiency: businesses are constantly striving for ways to enhance efficiency throughout their organisation, and the use of payroll solutions can contribute significantly to this. The automation on offer means that many of the processes that need to be carried out every month—or at regular intervals—can be achieved without anyone having to manually perform them. On top of this, the software can also be used to automatically calculate what each employee should be paid, based on their base wage or salary, the number of hours they have worked, and any bonuses or deductions that may apply. Not only can this further aid efficiency, but it can also boost accuracy by avoiding some of the human error-related issues that may otherwise arise.
• Improve business compliance: one of the biggest potential benefits associated with using payroll software is the ability to improve overall business compliance in a number of key areas. The main area where this is likely to be relevant is with regards to tax, and a payroll application can help companies to manage their tax affairs, ensure that all payments are made on time, and serve as an easy-to-use repository for past records and reports. However, the software can also potentially assist businesses in other areas too. For example, regulations like GDPR can be relevant for many employers because companies have obligations to protect the personal data of employees, and payroll software could potentially assist with this by keeping data safe and secure.
• Provide self-service tools: In many organisations, a significant amount of time and effort goes into responding to requests from employees for access to information related to their pay. This can be especially challenging when the employee needs information related to a past payslip or historic deductions that may have been made. With that being said, a great benefit of payroll applications is the opportunity to provide access to a self-service employee portal. Employees can be provided with limited access to the information contained within the database, such as their own payslips, while also being given options to make adjustments to any opt-in schemes. This then frees up time that otherwise would have been spent on responding to their requests and also means employees have the ability to access their personal details quickly, at any time of the day.
• Reduce or eliminate outsourcing: many businesses that do not have access to payroll software will instead opt to outsource responsibility for payroll to a third-party organisation. Although there are advantages to this outsourcing, there are clear risks too, with one of the biggest being the need to trust an external business with the personal data of staff. By handling payroll in-house, the security risks associated with outsourcing can be avoided, while the costs linked to outsourcing can also either be eliminated entirely or substantially reduced.

What are the features of payroll software?

The features of payroll software tend to be focused around making it easier to manage the process of paying employees accurately while automating as many of the more predictable or repetitive tasks as possible. Although there can be significant variation between different software solutions in terms of the supplementary or additional features they include—as well as in the quality of feature implementation—most products in this category share similar core functionality. The most common and important features of payroll applications are:

• Payroll management: maintain a payroll database containing all of the crucial information that will inform staff pay and how those payments are actually calculated and processed. Data that will typically be contained within a database of this kind includes, but is not limited to, the names and contact details of each employee, their base salary or wage, their employee benefits, tax information, and information on pay advances or reimbursements. Individual entries within the database can be easily amended, while changes can usually be made to entire sections of the database at once, making it easy to apply, for example, a percentage increase in annual salary for an entire department or a wage increase across the whole company. In addition, many solutions will allow businesses to provide employees with limited access to their own information, as well as controls over some of that information. This could allow a worker to make adjustments to their participation in workplace pension schemes or update personal details.
• Payroll reporting: track key metrics, store useful information, and use this data to automatically generate reports, which can be sent to employees, senior management, the HR department, or anyone else who may require access. The reports generated through the payroll reporting function of software solutions of this type can usually be tailored so that they meet the needs of each individual business. Using this feature can also help businesses and their financial or legal departments to ensure that they produce all salary statements, benefit reports, and other similar documents in a standard format, making them easier for all parties to understand.
• Tax compliance: process any transactions related to tax, automatically schedule tax payments that need to be made by a specific date, and store important information that may need to be referred back to, such as relevant legislation, tax records, or receipts. Having access to multiple years' worth of tax-related documents and information in a single, centralised location can be invaluable for ensuring a business is fully compliant and able to fully cooperate with any audit requests that may arise. Furthermore, storing tax records can assist with any queries from employees about tax deductions that have been made from their salary.
• Calendar management: view and update a business calendar, which can be used to store relevant information so that it is easily accessible and organised in a logical way. The calendar can contain the dates when payments will be made, the dates when employees are off on holiday, important deadlines for filing tax information or making important payroll decisions, and more. In many cases, calendar features can synchronise with other external calendar apps, while alerts can also often be set up so that businesses do not miss an important event.
• Direct deposit: transfer wages or salaries to employees through the software, using a digital direct deposit function. Through the use of this feature, money can be easily moved from company accounts to the personal bank accounts of each employee. Banking information for every individual employee can be stored and amended as needed. Meanwhile, the actual process of sending payments to workers can be carried out manually or can be scheduled and fully automated. Through this kind of automation, businesses can ensure that their employees are all paid on the same day, at the same time. Each employee is automatically paid what they are owed at the time the payment is made, based on the information contained within the database. In many cases, this feature can also be used to move money to other accounts, such as those belonging to business partners.
• Attendance tracking: monitor employee attendance over time, track the total number of hours that have been worked and record other important information related to attendance and payroll, including staff absences, unpaid leave, and employee holidays. Attendance tracking can include tracking company-wide statistics, such as the average level of attendance in the business or the average number of hours being worked by employees. However, it also includes the ability to record information on each individual employee. Referring back to this data can be crucial in the event that a pay dispute occurs or in the event that the accuracy of an employee's pay is questioned for any other reason. In some cases, this feature can also be integrated with workforce management software.

Using Capterra's payroll software directory, it is easy for users to filter the available options so that they only see solutions that include the precise features they need. This makes the entire process of acquiring the right solution much easier and allows businesses to identify the best possible solution for their needs.

What should be considered when purchasing payroll software?

When investing in a software solution for payroll, there are a number of different issues that need to be carefully considered. After all, businesses do not simply need to find the best all-round payroll solution on the market. Instead, they need to find the software package that is most likely to cater for their individual requirements. A good way to work through the main considerations is to ask a series of questions and come up with clear answers to them. Some of the most important questions to think about are explored below:

• What are the payroll software features? The first and perhaps most significant consideration when selecting a payroll solution is the precise range of features that are on offer. While the core features outlined are likely to be present in many of the best solutions, the very best options sometimes stand out because of some of the extra features available. Even when business requirements are fairly basic or modest, it is important to take the time to find the best possible option based on what is required and what each application can actually offer. It is also crucial for businesses to understand that the best program for their needs could differ from the best solution for another business because the ways in which the application will be used could be vastly different.
• How much does payroll software cost? When selecting software, businesses need to be clear on the available budget, and this could be a range, from the absolute maximum amount the business can afford to the amount the business would ideally like to keep the expenditure down to if at all possible. However, while the cost of software is always going to be a major consideration, companies need to look at this issue in the right way by thinking about the total cost involved in acquiring the software, setting the software up, training employees to operate it effectively, and continuously using it over time. Some software can be purchased outright, with the buyer gaining full ownership and control over how the software is used, whereas other solutions are sold via a subscription-style approach, where the business pays for access to an ongoing service. An organisation will also need to take the time to research whether there are going to be costs involved with storing the associated data. Furthermore, there could be long-term costs, such as those linked with keeping the software up-to-date.
• What integrations are possible? Next, buyers need to think about how the payroll software will form a part of their wider software strategy and, more specifically, how it will integrate with other solutions. Many applications within this category can be fully integrated with a variety of other programs, including human resources software, calendar software, accountancy software, and workforce management software. Yet, some businesses may have other tools that are critical to their work and which will need to integrate with their chosen payroll program. In a broader sense, it is also vital that companies look into whether options are compatible with their devices and the operating systems they utilise and whether or not some programs or tools may need to be changed.
• Are there regulatory compliance tools? Organisations and their accounting departments must contend with strict deadlines when it comes to filing tax payments and meeting social security requirements. Not only can failing to meet deadlines or file accurate reports be costly in terms of fines, but the specific requirements can also vary from location to location and are likely to change over time. For this reason, businesses may wish to prioritise the solutions that provide compliance tools. Crucially, however, these tools need to be tailored to local rules and regulations, and there needs to be a facility for updating software if and when legislation changes.
• How easy is the software to use? The capabilities of an application are a key differentiator, but for many organisations, the user interface can be just as important. The more user-friendly a software package is, the easier it will be for employees to use, and this has knock-on effects, such as keeping investment in training to a minimum, avoiding unnecessary errors, and making the onboarding of new recruits easier. Acquiring user-friendly software requires companies to take the time to fully research the available options, capitalise on free trial offers where they exist, and read reviews and other feedback produced by existing users of the software.
• Can the software be used remotely? Finally, it is more important than ever for software packages to be accessible remotely. The general trend for businesses to have more of their workforce operating remotely was visible over recent years, but was boosted by the COVID-19 pandemic and subsequent restrictions on workplace gatherings. In the aftermath of the initial crisis, many companies continued to embrace either remote or hybrid work models, but this shift has required real planning. In fact, Capterra research shows that 51 percent of businesses had to implement new software due to the pandemic and 77 percent of companies adapted their offerings so they could be provided virtually. With businesses keen to avoid such upheaval and unplanned expenditure in the future, many are prioritising software solutions that can easily be utilised remotely as well as on-site as needs shift.

What are the most relevant payroll software trends?

The most relevant payroll-related software trends are also a crucial topic to think about before making a final purchasing decision. Businesses need to try to invest in software that will remain useful for the foreseeable future, either because it has been intentionally designed with an awareness of payroll trends and the current trajectory of business needs or because the software is regularly updated to accommodate emerging trends. Some of the specific trends related to payroll solutions that companies and their decision-makers should be aware of include:

• The growth of cloud-based software: One of the single biggest trends related to payroll applications has been the rapid growth in both the development and adoption of cloud-based software solutions. Software of this kind is generally paid for through an ongoing subscription, with a third-party service provider taking control of handling data, keeping the software up-to-date, and ensuring the software is continually functional and available. Arguably the single biggest advantage of the cloud-based, Software as a Service (SaaS) approach is the ability for multiple users to access software at the same time, regardless of whether they are working on-site and remotely, and share any amendments made to data instantly with the entire company. Cloud-based software also offers advantages in terms of accessibility because many of these options are browser-based, meaning they can be accessed on a huge range of internet-enabled devices, often without the need to install software.
• Increased reliance on artificial intelligence: Artificial intelligence and machine learning provide businesses with the ability to carry out seemingly intelligent actions without the need for human intervention, and this can greatly aid efficiency. Within payroll-related applications, there is a growing demand for AI-powered support features. For instance, a chatbot could potentially answer many of the most common questions employees have about their payslips or about company pension schemes. This then saves time that an employee would otherwise have to spend responding to these queries, and it also makes this support available around the clock.
• Heightened demands for integration: Finally, companies are dealing with more data than ever before, and this can easily lead to confusion and irregularities if sensible measures are not taken to keep data consistent across the organisation. The value of integration is only growing, with businesses wanting to be able to easily share data between HR, accounting and workforce management solutions. Where integration of this kind is possible, it can help companies to avoid unnecessary data duplication. Furthermore, data that is updated in one application is then applied across the board, which can be especially useful for cross-departmental collaboration.

Sources:

The features highlighted were identified based on their relevance and the percentage of products in Capterra's directory that offer them. The following sources were used for this document:

1. GDPR after Brexit – what’s next for SMEs? - Capterra Blog (Date accessed: Wednesday, January 5, 2022)

2. COVID-19 forces UK SMEs to invest in software purchase - Capterra Blog (Date accessed: Wednesday, January 5, 2022)

3. 5 Key Takeaways From The Switch To Remote Work In the UK - Capterra Blog (Date accessed: Wednesday, January 5, 2022)