Feel like you’ve reached the end of the road with your current payroll process but are not sure what the next steps are?
Whether you’re doing last-minute research before switching to cloud payroll software or just trying to get an idea of which options are out there, this article will teach you how cloud software works, what the software landscape looks like, as well as everything you need to know before making any big decisions.
Cloud payroll software is hosted on remote servers, which means that it can be accessed via any computer with an internet connection. Cloud software allows you to manage your payroll from anywhere, so long as you’re connected to the internet.
If you’re not using cloud-based software, the alternative is known as on-premises (or local) software. On-premises payroll software is installed on physical computers at your place of business, so it never leaves your company’s building.
Generally, on-premises software is considered to be marginally safer than cloud software since any data or records are stored within your physical workplace. But there are also downsides: on-premises software requires maintenance and frequent updates, which all need to be taken care of in-house.
In the UK, the general trend in the payroll management market is moving toward cloud-based software. Here are some reasons why an increasing number of businesses are moving away from traditional on-premises solutions.
Although cloud software is steadily growing in popularity, plenty of businesses still elect to outsource their payroll to a more traditional bureau.
Here are some of the considerations you may want to think over when looking for a new solution.
Traditional outsourced bureaus are best suited to small teams with limited internal expertise. If you’re already stretched, outsourcing payroll alleviates some of the more complex payroll tasks.
Outsourcing may also be a logical option for businesses with strict regulatory requirements or in compliance-heavy industries.
Although a payroll bureau removes some admin work, you aren’t completely off the hook. You still need to send your data and put time aside for manual double checks since your payroll is still subject to human error.
You also have to give up a certain level of control over your process since you won’t see all of the inner workings and calculations. You might also have to work to fairly tight deadlines and cutoffs.
Scaling businesses with frequent new employees are likely to need a modern, cloud-based solution that can keep up with monthly changes. You’ll also get far more flexibility than an on-premises solution can offer, with real-time changes, no artificial deadlines, and automated workflows.
While most cloud solutions are flexible, highly specialized configurations may be better accommodated by on-premises systems. You may also find that the quality of customer support varies depending on which provider to choose.
Outsourcing payroll in the UK costs anywhere from £20 to £100 per employee per year. This largely depends on how complex your payroll is. Things like year-end tax filing, pension admin, and custom reports cost extra.
Cloud software usually costs £10 to £30 per employee per month for medium-sized businesses and £30 to £100 For larger businesses.
| Cost considerations | Cloud payroll software | Outsourcing |
| Scale and complexity | More cost-effective for small to medium-sized businesses with straightforward payroll needs | May provide cost efficiencies for larger enterprises with intricate payroll structures that benefit from the expertise of an outsourced team |
| Control and admin work | Provides businesses with control over processes, potentially reducing long-term costs | Eliminates some administrative burdens but still requires manual input and comes with ongoing service fees |
| Long-term costs | Usually means long-term cost savings, especially as businesses grow, due to scalability and reduced dependency on external service providers | Offers a comprehensive service but may come with higher long-term costs |
Although features vary, keep reading to learn about some of the most common ones you can expect.
Whatever solution you go for, nearly all providers allow you to automate payroll calculations to save you time and lower the risk of errors. You should be able to automate things like employee salaries, tax deductions, insurance contributions, or pension contributions.
Although rarer, some more advanced solutions can handle more complex calculations like variable holiday pay.
As is required by law in the UK, cloud payroll software tools generate and file your Real Time Information (RTI) submissions with HMRC. Some providers also submit P45s, P60s, and P11Ds for you.
One of the biggest drawbacks of on-premises software is that it requires manual updates to keep up with any legislation updates from HMRC.
Using a cloud-based solution means these updates are done automatically, so you don’t need to keep track of and implement updates yourself.
In addition to calculations, cloud payroll software pays your employees, generates payslips, and makes any HMRC payments each payday.
Many types of payroll software are on the market right now, and each comes with its own advantages and drawbacks.
Some HR systems are beginning to build payroll software as part of their offering.
These all-in-one solutions are suitable for small teams with simple requirements. However, since payroll is more of an add-on than a full-blown standalone solution, it tends to be fairly basic.
If you’re a growing team with a slightly more complex payroll, you may be better off with a more specialized payroll solution that is easier to scale.
An employer of record (EOR) takes on the responsibility of being the official employer for you.
EORs are typically used by organizations with very distributed teams since they handle all of the different tax systems, currency conversions, and country-specific requirements you must navigate when paying employees abroad.
Since different countries have different requirements, EORs impose strict deadlines and, thus, are not generally recommended for in-person teams.
Legacy ERPs are your well-known, old-fashioned systems. Essentially a mix of software and services, they’re used by big companies in traditional industries and work best for large teams with fixed workflows.
ERPs tend to be fairly outdated. You have a dashboard to work with, but there are still humans involved in the process. If you need flexibility and scalability, this might not be the ideal solution for your business.
Modern cloud software is typically designed to be scalable for most businesses. They automate workflows and sync with HMRC updates.
If you’re looking to reduce manual tasks, modern payroll automation software is going to be the most time-efficient option. Many platforms let you see what’s happening in real time and make changes up until payday.
If you need solid support, you might want to double check what’s on offer before making a switch since this varies depending on the provider.
Careful data transfer mapping, testing at each milestone, and partnership between finance leaders and the selected platform help minimize risks and disruption during this critical business transition.
The first step in migrating to a new payroll provider is gathering all employee data that your new payroll provider needs and making sure that it’s accurate and correctly formatted.
To move your data over to a new provider, you work with them to map which data fields are needed, test these fields (and calculations), and then validate the data in the new system.
This step depends on whether your new provider offers out-of-the-box integrations. In this case, you decide which data points need to flow between systems. If they don’t offer ready-to-use integrations, you then work with them to custom-build these integrations.
Before finalizing the switch, you perform a parallel payroll run to test your new payroll system alongside your existing one to verify that it’s functioning as it should.
Changing your payroll provider can seem like a pretty daunting task. Migration takes time, which can make it feel like an irreversible decision.
If you’re on the fence about switching providers, there are a few key signs that you are likely outgrowing your current process.
When it comes to setting a transition date, your only objective should be a smooth, pain-free transition.
For many businesses, the most painless time to switch providers is in April, at the end of the tax year. This makes year-end reporting easier and cleaner. However, this doesn’t necessarily mean April is the best time for all businesses to switch.
If you’re coming to the end of your current contract mid-year and don’t want to be left without any form of software, then it might be logical to transition before April.
You may also find that your specific business or industry has quiet periods in the year with reduced payroll demands that would make a transition less disruptive.
How much migration support your new provider offers may also be a significant factor in choosing a date. Businesses often wait until April to offset some of the manual work needed in migrating, but if your new solution comes with migration support, this might be necessary. Some handle most of the legwork for you, whilst others leave it mostly to you.
Generally speaking, cloud payroll software gives you better control, flexibility, and scalability than more traditional solutions out there on the market.
Whilst these modern systems are a good fit for most businesses, some edge cases may function better with a simple or even legacy system. But for businesses scaling fast, modern cloud-based software is often going to be more valuable for the long haul.
Learn more about payroll management, its benefits, and best practices.
Edited by Aisha West
Joe heads up content at Pento - a UK payroll solution that combines the best of automation with expert support.
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