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19th March 2024

What is a Payroll System and How Does it Work?

Every organisation, no matter how big or small, needs to run payroll. Without payroll, employees and tax don’t get paid, which can be bad for business. In this post we will go into detail on what Payroll Software is, and how a payroll system can help your business.

What is payroll?

Payroll is the process through which a company calculates and distributes financial compensation to its employees for the work they have performed within a specific pay period. It's essentially the mechanism by which employees receive their wages or salaries, including any additional compensation such as bonuses, commissions, or benefits.

How outsourcing payroll can benefit your business

Many businesses find great value in outsourcing their payroll due to saving money and time. Below you can see the main admin areas that are included in Payroll management.


The process often begins with employees recording their work hours. This can be done through various methods such as manual timecards, electronic timekeeping systems, or biometric scanners. Payroll systems remove the need for manually calculating how much employees need to be paid based on their hourly or salaried wage and holiday pay. The software alters gross pay by calculating and subtracting taxes, National Insurance and more. Employees are automatically sent payslips with a clear breakdown of this information. At Payescape we not only provide excellent payroll services, we also offer Time management and HR solutions to support your business too.

Calculating Gross Pay

Once the hours worked are recorded on the payroll system, the next step is to calculate the gross pay for each employee. Gross pay is the total amount earned before any deductions or taxes are withheld. For hourly employees, this is typically calculated by multiplying the hours worked by the hourly rate. For salaried employees, the annual salary is divided by the number of pay periods in a year. When choosing a payroll system provider this is done automatically with the use of third party payroll experts. Saving time and money for your business in the long run.

Pay Deductions

Once the payroll system has processed gross pay, deductions are subtracted to arrive at the net pay, which is the amount employees actually receive in their paychecks. Deductions can include NI, HMRC taxes, as well as contributions to pension, health insurance, and other voluntary deductions like charitable contributions etc. Managed payroll services ensure pay deductions are dealt with under one roof with accurate compliance for each employee.

Withholding Taxes

Tax obligations are calculated within the system, along with the deductions. This ensures complete calculation accuracy and significantly reduces the risk of any errors. By automating tax calculations and HMRC submissions the risk of non-compliance and associated penalties is also greatly reduced. The amount of tax withheld depends on factors such as the employee's filing status, number of allowances claimed, and any additional income or deductions they may have.

Employee Benefits

In addition to wages or salaries, many employers offer various benefits to their employees, such as health insurance, pension schemes, paid time off, and bonuses. The cost of these benefits may be shared between the employer and the employee, with the employer deducting the employee's portion from their paycheck and contributing their own portion separately. With a payroll system this is managed automatically on a monthly basis and can be updated anytime from the assistance of a payroll expert.

Payroll Processing

Once all calculations have been made and deductions applied, payroll is then processed either manually or through a payroll software provider. This involves generating paychecks or electronic funds transfers (direct deposit) for each employee and providing them with a detailed pay report that outlines their earnings, deductions, and net pay. Get in touch here to find out how PayEscape can help your payroll processing.


Labour is one of the highest expenses a company can have. For companies with salaried and hourly employees, contractors and more, managing all of this can be difficult. Payroll software can simplify this by generating a wide range of reports for contractors, and employees who are salaried or on hourly pay. Creating these reports can be done with ease, thanks to pre-set reporting templates. This means managers can understand costs and overheads for any time period at the click of a button.

What are the benefits of choosing payroll with PayEscape?

Choosing payroll with PayEscape offers numerous benefits that can streamline your business operations and alleviate administrative burdens. Here's a detailed look at why business owners opt for our payroll services:

Cost Efficiency: We provide comprehensive payroll solutions allowing you to allocate financial resources more efficiently, choosing a payroll provider means freeing time spent on admin and legal actions each month meaning you save money and time in the long run.

Compliance Assurance: Staying compliant with PAYE and tax obligations is crucial for any business. PayEscape's expert team ensures that your payroll processes adhere to regulatory requirements, reducing any risk of penalties or legal issues.

Error Reduction: By outsourcing payroll to PayEscape, you significantly minimise the risk of costly errors in payroll processing. Our attention to detail and advanced technology help ensure accurate calculations and compliance with regulations.

Timely Payments: Guaranteeing timely payments to employees and tax authorities is vital for maintaining trust and avoiding disruptions. Salaries and taxes are processed accurately and disbursed promptly, promoting employee satisfaction and regulatory compliance.

Data Integrity and Security: Protecting sensitive employee data is paramount. PayEscape employs robust security measures and strict data compliance protocols to safeguard your information, ensuring confidentiality and integrity at every step.

Real-Time Accessibility: Gain instant access to payroll data and comprehensive reporting through our user-friendly interface. With real-time insights, you can make informed decisions and track payroll performance effortlessly.

Certified Professionals: Our team of Certified Institute of Payroll Professionals (CIPP) ensures that your business stays abreast of the latest payroll regulations and best practices. With their expertise, you can navigate complex payroll challenges with confidence and accuracy.

Schedule a demo with our team today to experience the benefits firsthand and take your payroll to the next level.

Need help to understand what solution is best for your business?

Speak with our expert team today on 028 2764 1060

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Payescape Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017 (register number 821826) for the provision of payment services.

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