A Guide to Payroll Systems and How They Work

PayFit

Last updated on September 15, 2022

When it comes to paying your employees, a payroll system can make this time-consuming monthly task a breeze. It can help you automate menial tasks and save your HR and payroll team hours.

Payroll software can help make your organisation more efficient and the payroll process smoother for everyone involved, whether that’s payroll administrators or employees. It’s not all about efficiency, though — software can help keep you compliant with payroll legislation and minimises errors caused by pesky humans.

This blog explores more about how payroll systems work and how you can optimise your payroll system to work perfectly for your business.

How do payroll systems work?

A payroll system is an automated piece of software that can help you save up to 80% of your time. It should be easy to use and integrate with your other systems. The best payroll software is usually also HMRC-recognised, so you’re firmly in control of your payroll from start to finish.

A system like this can support your business through the entire process of payroll. From onboarding new employees, collecting their information, prompting them for important documents, to running the payroll itself (finalising in just one click), all the way through to post-payroll — tracking payroll data and helping you understand business costs at a glance.

Of course, payroll systems can be managed in-house, or they can be outsourced — it all depends on what suits your business needs best. With an in-house managed payroll system, you have better control, it’s cheaper, and you can still access the support of payroll experts through the payroll software you choose (at least, at PayFit, you can!). But you might decide to outsource it, so you don’t even have to think about it again!

How to optimise your payroll system

So how do you move from what you’re currently doing to something that’s specifically tailored to your payroll needs? Below are some tips to help you optimise your in-house payroll system.

First, you need to find an automated payroll software

Research conducted by McKinsey found that 84% of CEOs believe innovation is critical to growth — after all, if you’re not moving forward, you’re just standing still — so it’s no different when investing in your payroll system.

So whether you’re implementing your very first piece of payroll software or looking for an upgrade, you’ll want to find a software solution that’s easy to implement and makes running payroll as straightforward as possible. Before comparing solutions, it’s important to understand what your company would most benefit from. Read our tips on identifying the right payroll software.

Make sure your payslips are easy for employees to understand

Just 60% of UK adults say they understand everything on their payslips, which is a pretty hefty percentage of the workforce. But when employees don’t understand everything on their payslips, it means more complaints and questions cross your already-busy desk.

So what’s the solution? The answer is an automated payroll software that presents digital payslips beautifully, so your employees can feel educated about how their pay is split each month.

What info can these payslips offer your employees?

How much annual leave they’ve booked or taken
And more importantly, how much annual leave they have left
What tax they’re paying (40%, 20% and tax-free)
Their income for the month and the tax year so far
Pension and student loan contributions

Train staff on your software

This is a crucial step you don’t want to skip. Staff training, or lack thereof, is a big reason new tech isn’t wholly adopted in the workplace. Some staff might resist change, which is understandable, but in the long run, technology will help your business remain efficient.

So train them and train them regularly. Training staff members will also mean fewer human errors — they’ll know what’s expected of them, and you’ll all work together to improve your payroll process.

Keep up to date with payroll legislation, always

Compliance is critical for any UK business, so you’re not exempt from this one. Although working alongside reliable software means you’ll remain compliant regarding RTI submissions and can accurately (and quickly) make tax calculations, you must also ensure that you’re keeping your human payroll administrator up to date. Learn more about the importance of payroll compliance.

If you’re working with payroll software, you can usually approach their in-house experts for the latest legislation or advice on payroll compliance. Be sure to check this as you compare automated payroll software solutions.

Listen to your employees

You want to build reliable and trusting relationships with your employees, and simply paying them on time and correctly can help you do that.

Whether your employees are happy or not should matter to your business, a happy employee equals better productivity and, ultimately, a better quality of work output. Research from Salesforce shows that employees who feel heard are 4.6 times more likely to feel empowered to perform to the best of their abilities.

So listen to them and consider implementing a cyclical feedback system (like our 1-2-1 feature). A feedback system means you actively promote healthy communication in the workplace.

Integrate your systems

Connecting your accounting, pension and payroll systems with a payroll integration allows you to streamline large parts of the HR function, avoiding duplicate data and manual data entry.

For reference, here at PayFit, we offer accounting integrations. So if you’re managing your finances with help from the likes of Xero or QuickBooks, we’ve got you covered. (You can also plug in your pension provider — Nest, Aviva, Now and more — and we can help you calculate your pension contributions!)

Having a robust payroll system that frees up time currently entangled in manual processes means your HR and payroll teams can focus on analysing business costs and driving more important changes across your organisation. Changes could include: