Which payroll software is best for you? [A complete guide]
Payroll software is incredibly important to your operations – without it, your workers wouldn’t be paid, and well… you probably wouldn’t have a business. That’s why it’s essential to get right, making your payroll team’s life easier, keeping your payees’ happy, and ensuring HMRC receives the correct taxes.
However, you may have a number of questions when it comes to the scary topic of switching providers. That’s why we’ve put together a complete guide to payroll software, covering all the possible questions you may have (and to prove switching isn’t actually scary!).
By reading this guide – or choosing the sections you need guidance on below – you will be well on your way with finding the best payroll software for your business.
- Key reasons you might want to switch
- Are you eligible to switch?
- Your existing contract
- Early exit fees
- When to switch
- Why choosing the right software is important
- The pros and cons of switching
- How to search for payroll software
- How to find the most suitable option
- Cloud vs on-premise
- Functionality to consider
- Technology and team requirements
- Security and data protection
- Meeting your employees’ needs
- Support options
- The cost of payroll software
- How to switch payroll software
- How long does migration take
- Making your final decision
It pays to switch, whether that’s literally through the cost savings of a more flexible contract, or the reduced admin associated with more efficient solutions.
Here are some of the top reasons you may choose to switch:
Slow, clunky and complicated systems can slow down your team’s productivity and encourage employee frustration. Even worse, outdated systems may not be updated with features for changing legislation, meaning your compliance could be at risk.
You need to trust your software provider to be able to process accurate and timely payslips. Maybe you find it hard to get support with your product, or you’re experiencing too many issues to begin with. A good provider will continually update their software and ensure you receive great customer service with your solution.
Expensive and rigid contracts
Your contract should be clear and not leave you reading between the lines. Hefty bills and hidden costs can be removed by choosing a trusted provider with a clear cost breakdown.
Read our article on 10 signs you may need to switch.
By this, we’re referring to the contract terms of your current solution. There will be clauses in your contract around the initial term (length of your contract) and any notice period (the amount of time required in advance of cancelling a contract). This means you’ll need to work out how long you’re tied into the contract, plus the notice period.
Note: Many businesses will be on a rolling contract after their initial term has come to an end, providing they have not committed into another agreed term. In this case, only the notice period will apply.
- Your current contract expires in 3 months’ time
- Your current provider requires 1 months’ notice in advance of the expiry date to terminate the agreement
In this case, you should provide notice over 1 month before the expiry date to ensure your contract is terminated in line with the initial term. Of course, this is dependent on whether your new provider will be able to meet the deadline. Always ensure you have spoken to your new provider before committing to giving notice to ensure your switchover is seamless.
- Your current contract expires in 8 months’ time
- Your current provider requires 1 months’ notice in advance of the expiry date to terminate the agreement
In theory, you can hand in your notice at any time, but the contract still won’t be terminated until the agreed term is complete. This causes some businesses to put off switching in fear of early exit fees. However, some providers will be happy to contribute to buying out the contract – continue reading in the next section.
Your existing contract
You may have months – or even years – remaining on your existing contract, but the inefficiency of the software may make it worth switching sooner. In this case, you’ll likely be hit with early exit fees to cover the costs of ending a valid contract.
Some providers will be happy to negotiate a contribution (sometimes offered as a discount on the new license) to encourage you to switch to their solution. It’s worth opening up this discussion to determine whether an earlier switch would be viable.
At Codapay, we’re happy to discuss your unique requirements and the possibility of contributing to the buyout of your existing contract.
About early exit fees
Early exit fees are charged by your current provider if you terminate the contract sooner than agreed to recuperate their losses.
The fee is based on the amount of time remaining on your contract (+ VAT) and the minimum commitment subscriptions charges (e.g. 100 payments per week).
Sometimes it pays to end a contract sooner than expected to reap the rewards of optimised software. Weigh up the pros and cons of switching sooner based on the benefits of the new software vs your current solution.
Simply put, you have two options when it comes to switching: in time for the new tax year or mid-year.
The former is easier due to starting a clean slate without the need to transfer year-to-date data. However, switching mid-year can mean reaping the rewards of an optimised solution sooner. Both options can be managed seamlessly by a trusted software provider.
Here are the pros and cons of each:
New tax year
- Workers can be migrated over with zero balances and no year-to-date information that’s reliant on data from your previous system
- Offers more flexibility around the data that has been exported and more time to import it into your new choice of software
- Only gives you one opportunity each year to make the switch
- Can be restrictive due to the strict deadline
Mid tax year
- Suitable for businesses that are unable to switch in time for the new tax year
- Ensures you reap the rewards of new software sooner than later
- Flexibility in terms of there being no external deadline
- A more time-consuming process due to importing year-to-date data
In short, either option is perfectly reasonable for most businesses. You should switch when its most viable for you.
Read our full article on when to switch.
The first place to start is to examine why finding the right payroll software is worth careful consideration.
One of your key duties when running payroll is to ensure your employees are satisfied with how they are paid. Keeping your staff happy is an ongoing requirement to propel your business and encourage growth. This includes ensuring they receive the correct salary on the expected date.
If your payments are delayed or have errors, your workforce will be displeased, and your time will be spent trying to make amends.
Great payroll software helps to ease the pains of manual payroll and less sophisticated systems. Here are the key benefits of investing in a good solution:
- Increased accuracy: Automation features and built-in reporting will find and correct potential errors
- Quicker processes: Doing more at once and time-saving features speed up how you work
- Save money: Some payroll software is more cost-effective with flexible payment options. Others eliminate the need for expensive technology investments and management
- Keep you compliant: Good vendors will roll out updates to meet new legislation requirements
- Do more: Payroll software should no longer just do the basics; it should limit the number of tools you require
We’ll cover the features that contribute to these advantages later in the guide. Before this, let’s consider some of the logistics surrounding payroll software.
The pros and cons of switching
You might be daunted by the prospect of managing communications between a new and existing provider, but in reality, all the hard work will be completed by the providers who will be keen to keep you on board.
If you’re still not convinced, check out the following table.
- Save time and money in the long term with better software
- Increase productivity with a more suitable solution
- Remove costs such as on-premise servers and equipment with a cloud-based solution
- Complete the inevitable task of switching sooner than later
- Switching is a short-term task compared to the long-term benefits of new software
- Compare the disadvantages of your current software with the advantages of the new software
- It may take staff some time to get used to the new software and get them trained
- You will need to commit to providing all required data in the time required
- There may be early exit fees for switching inside a contract
- The new software may not be as expected – ensure you trial it before committing and run through all of your current processes
Search engines like Google are the obvious place to start when looking for new options. It’s useful to specify your search to include business-specific keywords, for example, ‘small business payroll software’. A large range of adverts and organic listings will be returned, so it’s worth reviewing a fair amount to assess any immediate differences.
Word of mouth is a great way to find the best tried-and-tested solution, as well as referring to online reviews. You can also seek advice online, for example by using LinkedIn to ask for recommendations.
Older doesn’t necessarily mean better when it comes to software, and newer options are entering the market with compelling unique selling points. The best way to navigate the market is by shortlisting a handful of suppliers and arranging a demo to see whether their solution is right for you.
There are many payroll solutions out there, but each is designed with a specific target audience in mind. We’ve listed three steps to narrowing down your options and finding the best payroll solution for your business.
Read our full article on 10 things to consider when choosing a new solution.
1. Type of business
Your business size and type define how powerful the product needs to be. Here are our recommendations for key business structures.
- Microenterprises (<10 employees)
Small businesses with fewer than 10 employees can use free payroll software, listed on HMRC’s website. Although basic and not very feature-rich, it offers an easy way to pay your team digitally. However, if your ambitions are big, a paid solution is the better option as it’ll grow with you.
- Small businesses (10 to 49 employees)
As a small business, you’ll need a paid solution that’s both easy-to-use and scalable. There are plenty of options available, so prioritise them by your unique requirements.
- Medium-sized businesses (50 to 249 employees)
Investment in a robust product without limitations is required for medium-sized businesses. Your solution should have automation features to cut out admin and have plenty of reports to find any inaccuracies.
- Large corporations (250+ employees)
Specialist software is required to handle the complex needs of a large enterprise. Accuracy is of utmost importance and a solid piece of tried-and-tested kit is necessary.
- Payroll companies
Umbrella companies, bureaus, and so on, require specialist solutions that are suitable for their unique payroll needs. When it comes to paying a number of workers across different clients, it’s important to determine if the reporting capabilities fit your requirements.
- Recruitment agencies
Paying your placed workers under an agency demands specific requirements, e.g. pay and charge rates, invoicing functionality, margin reports, and multiple assignments.
- Accountants and bookkeepers
As you’ll be paying employees on behalf of various clients, specialist software is required to undertake the necessary tasks. It’s especially important to get it right as you’ll be running payroll on behalf of other companies who rely on your expertise.
2. Industry requirements
Payroll varies by industry due to the different tax laws that govern them. For example, the construction industry scheme (CIS) requires dedicated functionality to make the correct deductions.
It’s important to consider your industry and the types of workers you employ as certain functionality may be required. Research payroll for your industry and seek confirmation of a solution’s suitability when it reaches the sales stage.
3. Cloud or on-premise
Cloud-based software is the new big thing in payroll. It essentially means that the system is accessed through the internet and all data is stored by the provider’s servers. As a user, this means you won’t need to install software that uses your device’s storage. On-premise software, on the other hand, works this way – and it’s named as such because it’s tied onto your business’s premises, computer, or a traditional on-site server which is connected through a local network.
There are some great advantages to the cloud, however your choice is ultimately down to your requirements and current capabilities. By comparing the benefits of each below, the drawbacks of each are outlined.
Cloud vs on-premise
Benefits of on-premise software
- Retain full control: You’ll be in total control of security and data protection. When you use a cloud product, the vendor will manage this for you as they store the platform and all your data.
- Ideal if you have a poor broadband connection: On-premise software is run on your desktop, usually linked back to a server on your premises, and it doesn’t always require the internet for everyday operations. Cloud systems use the internet, meaning performance will be severely impacted if you can’t improve the connection.
Benefits of cloud-based software
- Save money: A monthly subscription reduces upfront costs. Plus, the software can run on any desktop with an internet connection, so you won’t need to invest in robust devices or security packages such as an expensive enterprise server. We’ll cover more on costs later.
- Scale up: Some options have unlimited storage meaning you won’t need to switch products to meet your changing needs.
- Stay secure without hassle: Security patches and compliance updates are rolled out automatically, so you’ll always be running the latest version. Also, the software provider handles GDPR compliance and cybersecurity as everything is hosted by their servers. However, be sure to enquire about the provider’s approach to security.
- Keep your data safe: Your data is held in the cloud rather than on a dedicated device, meaning there’s less risk of loss. Also, backups are taken so there’s no issue of losing important information.
- Speed up your processes: Simplify longwinded processes with handy automation features, while some providers offer machine-learning options to understand and complete your tasks for you.
- Maximise flexibility: You can access the system anytime, anywhere, providing you have an internet connection. On-premise software, conversely, is installed onto a computer which you must have access to in order to use the system. For instance, you may be required to purchase a VPN (Virtual Private Network) license in order to work remotely. This makes cloud-based software ideal for remote working – something that’s becoming more common in the corporate world.
- Keep employees happy: Employee self-service portals allow employees to securely access payslips and documentation, increasing their satisfaction. If you’re an accountant or umbrella company, it’s easy to provide employers with a login to add data and thus reduce your admin.
- Reduce errors: Automation and reporting features minimise errors compared to manual data entry. As a result, you’ll save time contacting HMRC and ensure employees receive the correct pay.
Read our full article on cloud payroll software and its benefits.
Functionality to consider
When you’re weighing up the options, you may be overwhelmed by the varying features offered. By following the steps outlined in the previous section, you’ll be able to specify the most suitable type of solution for your business. The next step is to shortlist all the key functionality you require.
All payroll solutions do the same core task – pay your employees. However, they may differ in terms of features that make your work easier and more accurate. We’ve listed some of these below, however it’s always worth asking a provider what makes their product different.
- Payment types
You may need to process payments over different periods, whether that’s weekly, fortnightly or monthly. Not all software offers this flexibility, as well as different forms of payment like BACS and the associated bank file formats. There’s also the consideration of full-time and part-time employees who are paid monthly and hourly respectively, plus commission-based workers.
- Ease of use
More modern solutions are intuitively designed to save you time and make things easier. Great functionality is easily forgotten by a cluttered dashboard that’s frustrating to use. A demo or trial will help you familiarise yourself with the system and its usability.
All options should offer reporting capabilities to ensure greater accuracy. However, some offer more robust suites with plenty of options available, and sometimes even custom reporting. This will be especially important if you’re a larger company, accountant, or umbrella company, and have more employees to pay.
There’s also the consideration of reporting to HMRC. Some tools don’t include the option to send an Early Year Update (EYU) or Employer Payment Summary (EPS), for example.
Whether it’s custom reports, payslips, branding, or even functionality, some solutions go above and beyond. If you have specific needs, you may find it useful to go for a product that can be tweaked to your requirements with feature requests.
Why spend longer than you need to when completing tasks? Some software includes features such as bulk processing (importing, amending, sending), paying all employees at once, and notifications of suspected mistakes. Not only do these save time, but they also ensure greater accuracy. Another key element is software that automatically updates information across modules.
- Error correction
Newer products offer the ability to reverse and correct errors before they are sent to HMRC. The alternative is to follow it up manually and notify them of the error, leaving the affected employee with an incorrect payslip. This is another time-saving feature that will give you peace of mind.
- Legislation compliance
Tax legislation is ever-changing and can be difficult to navigate. Great payroll software will cover any relevant aspects with updated features. This also applies to changes in the way employees are paid, for example, the furlough scheme introduced in early 2020 as a result of the COVID-19 pandemic.
Some recent legislation includes auto-enrolment and real-time information (RTI). However, the requirements vary by industry and they are constantly changing, so both you and your software must be up to date.
- Built-in tools
Some systems streamline your tools by offering functionality that isn’t a standard requirement, saving you money as you won’t need to purchase a separate solution. For example, your software may include HR management, pension processing or expense management.
Technology and team requirements
The software you choose impacts the level of technology and expertise required in-house, so it can become a wider business decision. We touched on this briefly when we compared cloud-based and on-premise software, but we’ll dig into this in a bit more detail.
- High-speed secure broadband
- A standard device with a web browser like Chrome or Firefox
- The software provider should offer a support package for maintenance and guide you with initial setup
- A computer or laptop with high RAM (recommended amount is specified by the product)
- Significant investment in a server to house the application software and communicate with all the PCs wanting to access the software
- A built-in or external CD-ROM drive is required if you’re installing from a CD – but this is typically for extremely legacy-based solutions
- Internet to transfer data to HMRC
- Security software to ensure your data is safe
- IT support may be required in-house to manage the product, any backups, connectivity and security
- You may receive support from the software provider, although this may be limited due to purchasing upfront (vs an ongoing subscription)
Security and data protection
As a payroll system deals with sensitive information, security is a key priority. It’s not only your responsibility, but the software provider’s too.
If the product is hosted by the cloud, the provider will store the platform and your data on their servers. While this means the responsibility is taken away from you, it’s important to check what cybersecurity they have in place to keep everything safe.
On-premise software is installed onto your computer and so it’s your responsibility to ensure you have robust security software in place. As discussed in the previous section, this may mean you require the expertise of an in-house IT team.
Whichever technology you choose, ask the provider about built-in security features including password protection, limited access control, and login authentication.
GDPR compliance is also a must-have requirement to safeguard your data and avoid fines. This is not only regarding the compliancy of where the data is held (the location of the servers must be in the European Economic Area), but also the correct functionality to ensure data can be stored and processed in accordance with the legislation.
Meeting your employees’ needs
A key thing to remember when using payroll software is that it should not only make your job easier, but also offer a great experience for employees. Some software is limited in this respect, but if you’re a larger business it’s something to bear in mind.
These are the needs your solution should meet to keep your employees satisfied:
- A web portal that employees can access to retrieve payslips, P60s, and upload timesheets
- Detailed payslips corresponding to pay that’s accurate and on time
- A secure network to ensure their details are kept safe
When working with any type of software, you’ll likely need support with the product at some point. Whether it’s getting used to a new system or a bug needs resolving, it’s important you find out what service you’ll receive from a provider. Below outlines some of the different types of support that may be available.
Getting used to new software can be tricky, so onboarding support is useful to run you through the functionality. Find out whether you will be guided through the process by a real person, or whether you’ll be handed some documentation. Not getting off to the right start with a solution may mean you never get to use it to its full potential.
Another key consideration is if you’re switching from another payroll product. You’ll need to navigate data transferring, and ideally, you’ll be supported with this process to ensure no issues occur.
You may need to upskill new team members, or even learn how to get the most out of the software. This is when online or on-site training can be useful. Find out whether the providers you’re considering have the option available should you need it. Your provider may also offer an online training academy to offer you on-demand learning.
Ongoing post-purchase support is required in the event of a technical fault or a usability query. This may be in various formats from ticket logging to a phone number or email address. You may have a dedicated account manager or support team; either way, having a line of communication is essential when working with technology.
Patches and security updates
Security requirements are ever-changing and the product will likely require ongoing improvements to meet the needs of users. This will also include new features to meet legislation updates. Whether free or not, this type of support is essential to ensure your data is secure and compliant.
The amount you pay for a solution varies depending on which you choose, as well as the size and type of your business. This usually relates to the number of employees you pay.
Investing in new payroll software will help you to save money in the long run through increased productivity and efficiency. It’s important to consider that efficient payroll will pay for itself; and settling for the cheapest option can cost you more in the long term.
Below we’ll cover the types of payment you can expect; and again, this is based on the technology you opt for.
Cloud-based payroll software is typically on a pay-per-usage basis where you pay a recurring fee each month to use it. Better options with rich functionality and support usually have a small upfront cost and a nominal amount per employee paid.
On-premise payroll software usually has a high upfront cost as you’re typically making an investment in purchasing that version of the software application. However, upgrades, support, and implementation usually incur additional fees. This varies by provider, so it’s worth weighing up the options if installed software is more suitable for your business.
Other potential costs to consider:
- Onboarding / switching fees
- Technical support
- Cybersecurity (if on-premise software)
- Version upgrades
- Team requirements
Learn more about the cost of payroll software in the UK.
While different providers will have slightly varied processes, the below covers a typical roadmap when it comes to switching.
1) Review your existing contract
- Check for any limitations around notice periods and instructions around giving notice
- Tell your current payroll provider you plan to switch providers – clarify the termination agreements and any early exit fees
2) Choose your new payroll provider
- Download our complete guide to choosing payroll software on our website
- Book demos with several providers to ensure you get a feel for the software. If possible, ask for a trial period
- Mutually agree on a suitable start date (subject to contract signature and notice periods)
- Get clarification on time, costs, and other considerations discussed in this guide
3) Provide notice to your current provider and sign new contract
4) Give your team a heads up on the transition
- Ensure they are provided with relevant documentation and training to successfully onboard them
5) Follow the new provider’s onboarding scheme
- Prepare to provide relevant information from your current system – your new provider will guide you through what’s needed
- Make sure you doublecheck records when all data is transferred. You should have a couple of weeks to get used to the system before going live
- Practise processing payroll on the test system and confirm the data is as expected (e.g. payroll calculations, payslip layouts), if possible
Switching payroll solution can depend on various factors, including:
- Your existing contract terms
- Your new provider’s availability
- Your availability to provide data and requested information
- The complexity of your data
- The size of your business
- The time of year you switch
On average, switching to Codapay takes between 4 to 6 weeks from contract signature (depending on data migration and other variables). This includes the receipt of data and integration into the system.
We take the responsibility away from new clients by managing data transfer from start to finish, complying with data protection regulations.
For an accurate timeframe based on your unique needs, you’ll need to speak with the new provider.
Once you’ve shortlisted some options, it’s time to decide which best suits your needs. The easiest way to get started is to request demos to see how the products work and how they could fit in with your operations. You’ll also have the opportunity to ask any burning questions.
From there, the provider you choose will be able to guide you through the onboarding process. The standard contract term is 12 months, while longer contracts often come with discounted fees.
In this guide, we’ve covered everything you need to consider if you’re looking for new payroll software, as well as some handy resources you can refer to during the process.
It’s essential to choose a solution that’s suitable for your business and its infrastructure, so careful consideration is required. In summary, the key things to consider when you’re looking for a payroll tool include:
Once you’ve settled on an option, it’s easy to get started with the help of the provider.
Our flexible payroll software is designed to meet the unique needs of umbrella companies, recruitment agencies, bureaus, and more. We combine time-saving technology with great customer service, which is why many businesses and choosing to switch to Codapay. Book a demo today!