Small business payroll services

All businesses, irrespective of size, must operate a formal payroll system.

For those business owners able to count their employees on one hand, it may be tempting to keep things top-line, issuing payment on an almost cash-in-hand basis by writing cheques or issuing bank transfers for salaries at the end of the each week or month.

But this leaves both business and employees at risk of falling foul of HMRC regulations at the end of the financial year.

Small business owners will already have plenty to think about with the day-to-day necessities of keeping their company profitable. Thankfully, an investment in a payroll service will take a great deal of this strain away.

For personalised guidance with finding the best payroll service and/or software for your business, tell us a little but about your requirements, and we’ll match you with providers that make sense.

Or, find out more about the range of options on this page, with information about the various service types. This includes the payroll software options available, as well as advice on outsourcing payroll services.

What are small business payroll software services?

A payroll software service is a piece of software, managed in-house by a business or outsourced to an external specialist, that tracks and records the data of all employee salaries and payments.

Utilising a payroll service ensures that tax and NI deductions are automatically applied to an employee’s gross salary, confirming that their take-home pay is accurate. It can also help you file your salary-based paperwork online with HMRC.

Investing in a payroll service ensures that your staff will be paid in a timely fashion, and any reports generated are done so by the relevant software. Small business owners may balk at the idea of paying for a payroll service, but the investment pays for itself multiple times over in terms of time and reassurance.

Many payroll software solutions also incorporate Human Resources management, such as holiday and sick day tracking – particularly helpful to some businesses, for whom these matters are intrinsically linked to an employee’s eligible wage.

The tax landscape changes constantly, as do other elements of finance that pertain to an individual’s take-home pay. Correcting mistakes after the event can prove to be costly for a small business, and bringing in a payroll service minimises this risk. And, best of all, a payroll service will also complete your online filing at the end of the financial year – no more fines for a delay in registering your paperwork!

Many employees will also appreciate a breakdown of their gross and net salaries on each payday, which can be provided by a payroll service in the form of a payslip. A payroll service will also be able to produce essential documentation, such as P60s.

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Outsourced payroll services for small business

Outsourcing the payroll of a small business involves handing over control of the process to an external source. Outsourced payrolls for small businesses come in many formats; a business can have as little, or as much involvement in the process as it feels comfortable with.

The biggest advantage of outsourcing your payroll, especially if you operate a small business, is that the burden of responsibility falls on the company handling the tasks. This means that any errors are handled by the payroll service provider – a huge relief for any small business owner, especially one who may not have direct experience in accounting.

The outsourced elements of a payroll are a matter of personal choice. The remainder of this guide will talk you through the many choices that small business owners have when it comes to enlisting the services of a payroll service provider.

Fully-managed small business payroll

A fully managed payroll solution will involve taking all elements of administration involved with the payroll process and handing them over to an external provider.

Given that managing the payroll can be a taxing task – as well as being hugely laborious if you employ a sizable number of employees – fully managed payroll solutions are hugely popular with larger companies and multinational corporations. This begs the question – is this service necessarily a good idea for a small business?

The answer to this depends largely on the business’ pre-existing team, and how much responsibility a business owner wishes to take for any payroll legalities and foibles.

A business that does not employ a bookkeeper, for example, may be well advised to look into a fully managed payroll service. The management of such a project is not simple, and may well be intimidating to an unskilled staff member such as an administrator or office manager – not least because a working knowledge of the ever-changing tax laws is required, as well as the ability to keep on top of them.

A fully managed payroll service will take the details of employees from the business and apply all necessary deductions from their gross salary, from basics such as tax and NI to Student Loan reductions and pension contributions. This ensures that any changes are dealt with in a timely fashion.

Obtaining a fully managed payroll service will also see an external body handle all BACS (Bankers’ Automated Clearing Services) runs, as well as the printing of payslips and other essential documentation. A dedicated account manager will also be at the business’ service for any queries, and for complete transparency on all costs – clients will be invited to run or request full reports on their business payroll at any time.

Most of all though, paying a fee to a fully-managed payroll service provider will offer the twin gifts of time and peace of mind, leaving any business owner to focus on the day-to-day maintenance of their company.

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Part-managed small business payroll

A part-managed payroll solution is a popular choice for many small businesses – especially those that already have financial professionals among their staff.

Cheaper than outsourcing payroll duties in their entirety to an outside provider, but still offering a degree of protection in the form of professional assistance, part-managed payroll services involve dividing up the tasks between in-house and external companies to a point that the business owner feels comfortable with.

Part-managed solutions may be particularly effective for a small business that wishes to manage its own data entry when it comes to running a payroll.

If, for example, a company needs to make regular additions to a regular salary because the employee has achieved a contracted target, or overtime or holiday in lieu is required, some businesses may find it easier to deal with this themselves, before passing the information over to an outsourced supplier to handle the necessary amendments ahead of a BACS run.

You can often pick and choose what services you actually require from a service, and obtain a bespoke quote accordingly. Required services might include the printing of payslips and documentation, regular checks of changes to tax law, or a dedicated account manager to assist with any complications that may arise from payroll software.

Many part-managed services will offer to take care of a company’s year-end payroll filing, which is a weight off the mind of any business owner. At the same time, an experienced financial officer may appreciate simply having the security of an account manager at the end of the telephone to help with any technical issues or complex queries.

A very useful middle ground to work alongside an accounts team, a part-managed payroll service will give your small business choice and flexibility. However, this option is not advisable if nobody within the company has the time or experience to conduct payroll duties.

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Hosted small business payroll service

Hosted software is the answer for those businesses wishing to deal with their own payroll service entirely in-house. It is often referred to as cloud software, meaning that there is no need to install a running program on company equipment since everything is held and hosted online. A hosted service is suitable for a business that has already has a payroll expert on the team.

Conducting payroll operations in-house will grant complete control over the data entry and report running of a business payroll. That being said, you’re not completely alone, as most software purveyors will offer technical support in the event of an emergency.

Using software connected to the internet means that it will be factually up-to-date at all times, and a business should be able to file their own accounts with HMRC using the programme. The only concern is that the onus is on the business to do so accurately and on time. Hosting payroll software and taking a DIY approach offers no safety net in the form of an outsourced supplier, meaning no one is there to offer reminders and take urgent action where necessary.

Hosting services are useful for any business that knows its way around a payroll, and has the time to perform such duties. Typically, the hosted software will include the opportunity to perform anything that an outsourced service would offer, and it’s certainly cheaper on paper than paying a monthly or annual fee to an external body.

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Pay-as-you-go small business payroll

Pay-as-you-go payroll services can be an invaluable resource for any small business that needs the abilities of an external service on a short to medium-term basis, such as to cover staff leave or process a particular influx of new employees.

Employing the services of a pay-as-you-go payroll solution will bring all the benefits of a fully managed service, without the need to sign up to an ongoing contract that may be a daunting expense to a small business.

These services can be opened and dissolved without the need to give notice, although the price point may be a little higher to compensate for the lack of guaranteed income for the provider.

This solution could be ideal in the case of a temporary workforce expansion. For example, if a company needed 20 new heads to work on three-month contracts before moving on, that would lead to a lot of paperwork and administration to manage.
A pay-as-you-go service would see the salaries of these temporary employees paid promptly and accurately, before cancelling the service as business returns to its previous payroll status quo.

Alternatively, if a company’s finance clerk became suddenly unwell and could not work for several weeks or months, would anybody else in the business know how to process the payroll?

Calling on a temporary pay-as-you-go service in times of business need will prevent any of the troubles that could arise from employees not receiving their salaries when expected, or erroneous filing with HMRC. It will also allow the business to terminate the relationship once the natural order of payroll processing is restored.

Small businesses will always be understandably cautious of where and how they spend their funds, but some kind of payroll service is always advisable. Mistakes that lead to government fines can be considerably costlier than a monthly or annual fee paid to a specialist in this field.

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Free Payroll Software for small businesses

Most major payroll software services offer a free trial period, typically lasting 30 days. This gives you a great opportunity to explore the software and discover whether or not it will work for your business.

However, after this trial period, many software solutions involve a monthly or annual fee
Although the payments involved in paid-for payroll software can be extremely affordable, if you really don’t want to pay, there are a number of totally free software solutions on the market.

However, it’s important to note that these free solutions usually only cater for up to 10 employees. In addition to this, paid payroll software solutions usually offer a number of benefits over free payroll software, including:

• Greater reliability
• More high-performance features
• Can be used for more employees – free options usually have a low limit
• No limits – many free payroll software solutions have limitations that lead to unexpected or hidden costs further down the line

Of course, fee payroll systems can be hugely beneficial if you’re a small company that simply can’t afford to invest in a paid-for system yet. However, it’s well worth considering the benefits that this investment can bring to your business.

For a more detailed account of the associated costs of a payroll service, take a look at our page on payroll service prices.

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HMRC Payroll Software

When choosing a payroll service – be that in-house software or an outsourced company – it’s important to look out for a solution that is HMRC approved.

As part of the approval process, HMRC tests payroll software to ensure that it can report PAYE information both online and in real time (RTI).

Under HMRC guidelines, you must collect and keep records of:

• What you pay your employees, and the deductions you make from their pay
• The reports and payments you make to HMRC
• Employee leave and sickness absences
• Tax code notices
• Taxable benefits and expenses
• Payroll Giving Scheme documents, including the agency contract and employee authorisation forms.

Your records must show that you’ve reported the necessary information accurately. You also need to keep your records for three years from the end of the tax year they relate to. The penalty for not doing so can be up to £3,000.

Investing in HMRC approved software ensures that you will be able to comply with the above guidelines and regulations.

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Payroll services for small business: Next steps

The information on this page should help you to understand what sort of payroll services your small business might require. Clink the link for a comprehensive breakdown of the top payroll service providers currently on the market.

Or, fill in the form at the top of the page to start comparing top UK payroll providers.

For more information on the costs you can expect to incur from outsourcing your payroll services, take a look at our page on payroll service prices today.