The Ultimate Guide to Payroll Software

Find out everything you need to know about Payroll software and how it will benefit your business.

Payroll has been around for centuries. The phrase ‘Payroll’ dates back to the 1740’s as an amalgamation of Pay (verb) and Roll (noun). These words referenced a list of periodic payments made to employees as salary.

Hundreds of years later, the payroll landscape has drastically changed. Long gone are the days of manually writing payslips and updating ledgers and timesheets. Now, business owners are relying on payroll software to get the job done. However, as payroll and government legislation changes and technology advances, it can become more and more complex for finance and HR managers when it comes to implementing a payroll system that fits their needs.

At PayEscape, we’ve been providing industry leading payroll, time and attendance and HR solutions for just under a decade. From explaining exactly what payroll software is, to understanding onboarding costs and the different types of payroll software, we’re here to give you the answers to our most asked questions.

So, get yourself comfortable, grab a cup of tea (or coffee) and strap in.

Payroll Software

What is Payroll Software

Payroll software and systems automate, manage and maintain the employee payment

process and taxes. Managed software reduces the risk of payroll mistakes as it ensures

companies of all sizes are compliant with financial regulations and tax laws.

Cloud-based

Cloud-based payroll software that’s... you guessed it, software that’s hosted on the cloud. Prior to the COVID-19 pandemic where thousands of businesses transitioned to remote working, many companies relied on on-premise payroll, but as more companies operate on remote or hybrid models, they’re transitioning to cloud-based software that can be accessed wherever, whenever. Employees can work from any location and have access to up-to-date information that’s safely and securely stored on the cloud.

On-premise

On-premise payroll software is stored onsite on a local server or computer. On-site payroll software used to be the most popular type of payroll, but more and more companies are choosing to opt for cloud-based or integrated systems. This is because on-premise payroll software doesn’t work for every business. There are hidden costs associated with on-premise software, such as warranties and hiring IT professionals to manage the system, undertake maintenance and monitor security and storage space.

Integrated systems

Integrated payroll software links up to other software, making data transfer easy and simple. When payroll systems are integrated, processes are automated which saves time, money and resources. This type of system can also scale alongside a business. According to an article by Forbes, 65% of organisations prefer to deploy data integration solutions from cloud platforms or hybrid cloud, and 80% of enterprise Business Operations leaders say data integration is critical to ongoing operations.

For example, when a company integrates their payroll, HR and time and attendance software, reporting is consolidated, data is consistently updated and overall compliance is improved. The phrase “open API architecture” is commonly used to describe payroll software that will integrate with a company’s existing software.

How does payroll software work?

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.

What does payroll software cover?

Good payroll software covers the following services and tasks:

  • Processing administration of employee data

  • Managing, maintaining and automating payments to employees

  • Producing reports for HMRC

  • Produces real time data and dashboards

  • Paying employment taxes to HMRC

  • Stores and files reports

  • Stores and files payslips

  • Produces and distributes payslips

  • Stays up to date with legislation and compliance

  • Automated taxes and access to all tax forms

  • Mobile access

  • Compliance management

  • Digital pay slips

  • Deductions and calculations


When companies integrate their payroll with HR software and / or time and attendance software, even more tasks, reporting and data sharing is automated as information is shared seamlessly.

Outsourcing payroll vs in-house payroll

One of the biggest debates when it comes to payroll is whether it should be outsourced and managed, or completed in house. Every company needs a form of payroll system in order to accurately process employee payments and send out payslips on time.

Whilst choosing to do all payroll in-house may seem lower cost, it is an admin heavy process that takes a lot of time. When a business owner chooses to outsource payroll, they’ll be freeing up resources, time and talent that can be spent elsewhere. Additionally, there’s higher risk of mistakes being made, which ultimately can cost much more in terms of fines and penalties.

Several companies choose to do their payroll in house as they’re concerned about lack of control. It’s important that managers and owners work with reputable payroll companies and do their research if they’re considering outsourcing. A managed payroll company will only be as good as the importation a company gives them. If HR or finance isn’t updating the system with any changes, there may be mistakes. But the same goes for in-house spreadsheets and data entry.

Common mistakes with in-house payroll:

  • Incorrect deductions to employee pay

  • Miscalculation of employee pay

  • Late or wrong payments to HMRC

  • Non-compliant payroll processes

  • Gaps in data and records

The benefits of outsourcing payroll

Frees up time and resource

The number one benefit of outsourcing payroll is that it saves significant time and resources when it comes to processing payroll and all the admin associated with it. According to Score.org, companies spend 80 hours a year processing payroll. Whether you’re doing payroll for 20 or 250 employees, the time it takes to manually input, process and manage payroll is a drain on time, resources and money.

Employee data is secure and protected

Businesses hold a lot of sensitive details about their employees, including bank details, addresses, national insurance (NI), copies of passports and more. Reputable, good quality payroll software is regularly updated and patched to ensure ultimate security.

Reduced mistakes and errors

We’ve said it before and we’ll say it again, doing payroll in-house can cause a lot of errors due to the sheer amount of admin and time it takes to do it all. However, with the right payroll solution, there are several validation checks and procedures that ensure the information is accurate and up to date.

Promotes transparency in the business

When you ensure your employees are paid on time and properly, you’re showing them you can be trusted as you’re giving full transparency and honesty about their earnings. Payroll software gets this right every single time, and ensures employees can access their payslips and other payroll information.

What happens when you choose a bad payroll provider?

The saying goes, “there is no pack of cards without a knave”, and the same goes for payroll software providers. Whilst there are some excellent payroll solution providers, there are some less desirable ones too. When you choose poor payroll software, it can negatively impact company morale, staff retention and even lead to fines and penalties. Find out about common payroll mistakes and how to avoid them.

Recruitment is harder

If a company’s payroll process or the payroll software consistently fails to pay wages and remunerate employees on time, it can create a hostile work environment which therefore impacts company reputation. This in turn can impact recruitment, as word spreads and prospective employees may not want to work for said company. When considering managed payroll companies, you should ask to see their processes in demos, and ask questions about their back up plans for down time etc.

Even more time is wasted

A poor inhouse payroll process or bad payroll software can lead to many mistakes, which takes time to rectify. The same goes for payroll software that isn’t regularly maintained or updated by payroll service providers. It’s important to ensure the company you’re considering regularly patches and updates their software, and puts things in place to ensure the payroll process is as seamless as possible.

Staff morale and productivity levels drop

Overpaying, underpaying or paying staff late causes a lot of stress and even financial difficulties, which can have a direct impact on morale and even productivity levels. When staff feel undervalued and underappreciated, it impacts work ethic.

Fines and penalties

When payroll isn’t up to date and compliant, it can lead to fines and penalties from HMRC. For example, late submission of FPS documents start from £100 (companies with 10 employees or less) and can go up to £400 for companies with over 250 employees. Businesses that fail to comply for more than three months in the tax year are penalised and fined for a further 5% of the tax owed

Payroll costs and calculator

Find out how much time and money payroll software can save you in our calculator below:

Cost effective simple pricing Monthly

£50 base price + £3 per person
5 people
Contact us for our best pricing
0 People in your company
£0PayEscape cost per/month

Cost effective simple pricing Weekly

£14 base price + £1.25 per person
5 people
Contact us for our best pricing
0 People in your company
£0 PayEscape cost per/week

Contact us to find out more

How to choose the best payroll software

The payroll software landscape is a competitive one - there’s a lot of options out there, making it a bit of a minefield.

Assess your current processes / software and business goals

First things first, it’s important to look at your existing software and processes so that you get a real understanding of existing collateral and what it’s not doing. You should also think about the level of business analysis required. Do you need a breakdown of payroll across different departments? What reports do you need? In tandem, you should also consider your business goals, and how payroll software can help you achieve them.

Determine your payroll budget

Budget plays a critical part of the decision making process. In most instances costs can be broken down into the following: A base fee - this is usually a subscription fee - you should query which features are included. Tax and compliance - some payroll providers will have additional charges when supporting compliance and taxes, including mailing, reporting and W-2 printing. Set up fees - there may be instances where payroll providers charge set up and onboarding fees. Pay runs - payroll companies may charge a fee for how often payroll is administered, or how many employees payroll is administered to.

Look at what’s on the market

Once you have a clear understanding of your business goals and what you need from payroll software, it’s time to do your research and look at what’s on offer. When having a look, you should ask the following questions:

  • Does the company offer cloud-based, integrated or on-premise software?

  • Does the system use ISMS systems and policies in place including ISO. 2700-1 and GDPR?

  • What level of support, onboarding and training does the company offer?

  • What do their existing customers have to say about them?

  • Is the software HMRC, BACs and FCA approved?

  • What niche features does the managed service offer?

Make the most of demos

Seeing demonstrations of how payroll software works will give you great insight into usability, features and much more. Any reputable payroll provider should be more than happy to provide you with a demo of their software - some may even offer a really basic free trial.

Have a look at reviews and testimonials

When considering a payroll software provider, you should have a look at platforms such as Trustpilot, Google My Business and Reviews.com to get first hand advice from existing customers. Testimonials and case studies are also a great indicator of how good the company is.

The future of payroll

Digital transformation has transformed the way payroll, time and attendance and HR operates, and it shows no signs of slowing down anytime soon.

As new technology such as automation and AI (artificial intelligence) comes into play, it brings new opportunities. According to CIPP (the Chartered Institute of Payroll Professionals), “Payroll is an ideal candidate for robotic process automation (RPA).”

RPA can be integrated with existing systems, and increases accuracy rates, minimises errors and reduces manual entry, all of which have massive cost saving benefits. When you unify your employee data across your new and existing platforms you will increase the quality of your data by reducing admin and associated errors.

At Payescape we understand the importance of automation and integration, which is why we’ve partnered with many widely recognised Accounting, HR and Time Management providers to ensure that our solutions integrate seamlessly with our customers’ existing solutions.

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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