The 5 disadvantages of payroll software we’ll be covering:
Paying people on time and correctly. It’s one of the most important roles of any employer. Yet, as your business grows, managing payroll can become time-consuming and stressful. This makes you vulnerable to mistakes, compliance issues and… unhappy staff. In this article, we cover the disadvantages of payroll software. This should help you form an opinion on what’s best for your SMB.
Before we head into the disadvantages of payroll software, we should point out that there are many advantages to payroll software. It is a great choice for companies with dedicated accounting or HR teams. If you already have staff running payroll, then the latest software tech will add heaps of valuable benefits – making your HR manager or accountant’s job a lot easier.
Here at Access PeopleHR, we’re not biased towards one or the other – payroll software or outsourced payroll services. In fact, we provide both options for SMBs. Instead, we’re super keen to help businesses figure out what’s best for them.
So, if you’re considering payroll software, think about these disadvantages before making any further business decisions.
1. Security risks
Payroll software services rely on a third-party to process and store payroll information. In other words, this sensitive information doesn’t remain within the walls of your workplace. The best-case scenario would be for all online payroll services to be 100% secure and leak-proof, but this is not always possible. Before reaching out to a vendor, note their security measures in place.
Security risks aren’t just a payroll software limitation, however. Outsourcing your payroll will also require you to hand over all or part of your employees’ personal information. Whichever solution you choose, an element of trust is required. Bottom line: be vigilant about your chosen provider’s security credentials.
2. You need to back up and secure your data
Security vulnerabilities can be found in any software, and payroll software is no different. Measures must be put in place to protect against hacking, fraud and theft. The computer(s) on which the payroll software is installed must also be protected physically and remotely with strong passwords, antivirus and firewalls.
Payroll data must be retained for up to three years to comply with UK data retention requirements (many employers keep these records for six years), so backups should be taken regularly (usually daily). Although payroll software is there to collate all payroll HR data, where do you keep your payroll data when you back it up? Are you using a secure cloud storage facility or an offsite backup facility?
Due to UK data retention requirements, you may also need to keep paying for software after cancelling your subscription – just so you can retain access to your old payroll and tax records. Always ask about these ‘lock-in’ contracts before signing on the dotted line!
3. Potential extra costs
While payroll software is often cheaper than full payroll outsourcing, many programs offer features employers don't actually need. So, when selecting a software provider, closely review the available features offered and choose the one that best fits your needs. This will ensure you’re not spending money on functionality that’s not appropriate for your business.
Another point not to overlook is the subscription cost. Many people think that purchasing payroll software is just a one-off fee. In many cases, this isn’t true. Most providers base their pricing on a subscription model, so you will be paying, on average, £10-£25 per month depending on the level of service you need, according to startups.co.uk. It’s worth noting, however, that price varies between providers and many factors could influence the cost of your subscription.
As your company grows, you may need additional functionality that isn’t included in your existing subscription. So, it’s worth thinking about your current and future needs and the additional associated cost.
Finally, payroll software may still require you to hire someone full-time to handle your payroll responsibilities. Again, this will come at an extra cost to your business.
4. Training time
As a self-starting small business owner, you’re probably used to wearing many hats. And payroll is no exception. However, you may soon realise how much you have to learn and how much time it takes to focus on this crucial aspect of your business. Could that time be better spent elsewhere?
This leads us to our next point. Any new software will require you to learn how to actually use it. Do you have the time, resources and energy to do this effectively?
5. Compliance errors
Whilst you will be purchasing software to help with payroll, compliance with laws is still your responsibility. In other words, if you are using payroll software and errors are found, your business will be liable to any penalties incurred.
Many SMB owners think that payroll software will instantly make them compliant. Whilst it does reduce the risk of error, you will not be immune to system errors or glitches that may occur. This is one of the payroll software limitations, and whilst it’s unlikely, it is not impossible. Bottom line: payroll software won’t instantly make you compliant.
Outsource your payroll to reduce risk
Technology can make your payroll easier – no doubt about it. But the disadvantages of payroll software discussed throughout this article could create other issues for your business. So, what’s the alternative?
An alternative may be to outsource all (or part) of your payroll to a payroll services provider. This is generally a better option for SMBs who don’t have an in-house payroll or accounts manager.
Hiring an external firm to handle payroll activities means you don’t need to hire and train in-house payroll staff, buy software or have to constantly stay updated about complex tax regulations. Instead, this is done for you.
Advantages of outsourced payroll:
- Frees up your time to focus on other business areas
- Reduces the need to hire/train staff
- Removes the expense of payroll software
- Reduces the change of errors, omissions or late tax filings
- Ensures you stay compliant with your tax and PAYE responsibilities
To find out more about outsourced payroll services, visit the link. And if you’d like to discuss your payroll options with one of our technical experts, don’t hesitate to get in touch.
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If you found this article helpful, you may be interested in:
- Integrated HR and payroll software: overcoming integration challenges
- How HR software can reduce business costs and support employees: An honest look
- Managed In-House Payroll vs Outsourcing Payroll Services
