This section will talk about how payroll software works step by step. These steps are:
1. Compliantly stores employee and supplier data
Payroll software eradicates the need for cabinets full of sensitive employee information, because it safely stores all the employee and supplier information a business needs to successfully run. From starting dates to job titles, bank details, holiday information and absence records, the system needs this sensitive information in order to do its job. As this data is so sensitive, it’s important that the system is GDPR compliant and has a level of security akin to Fort Knox.
2. Calculates pay, holiday allowance
Remember when teachers used to say, “you won’t always have a calculator in your pocket”? Well, payroll systems have certainly shown them. Payroll software is so much more than just a fancy database that stores and organises data in such a way that it triggers ASMR (autonomous sensory meridian response). It calculates everything. From holiday payment calculations, to employee pay, Statutory Sick Pay (SSP) and Occupations Sick Pay (OSP), payroll software can automate these calculations so that legislative rates are automatically applied to the data inputted.
3. Calculates deductions
Payroll software calculates Employee tax (PAYE), National Insurance (NI) contributions. Student loan payments, Apprenticeship Levy, Auto Enrolment (AE), salary sacrifice and more. Reputable payroll software will ensure these calculations are accurate, compliant and sent on time, eliminating the risk of late payment or errors or that may lead to costly penalties
4. Makes employee and supplier payments through BACs or FP
Once all the calculations and deductions have been made, payroll software automates payments and sends payslips to employees (obviously these payments must be approved by the business before they go through). This can be done through BACS which takes a few days, or faster payments which takes a couple of minutes. Employees can easily access their historical payslips, and their payslips will be sent on or before payday. The software also generates and stores P60s, P45s and any other important documents.
5. Sends up to date, accurate reports to HMRC
If companies don’t remain compliant with HMRC or fail to follow their rules, it can lead to penalties. It can also damage brand reputation. HMRC requires the following reports (of which payroll software can produce with ease):
- Employer Payment Summary (EPS)
- Full Payment Submission (FPS)
- Gender pay gap data (for companies with 250+ employees)
- P11Ds expense and benefits
- Final versions of above for the end of the payroll year.