Contents
Payroll management is essential for any business with employees, ensuring that all workers are paid
accurately and on time. However, this process is made up of many individual steps and requires a
wealth of knowledge, which may feel overwhelming for smaller businesses. Whether your role is in
HR, accounting or management, payroll is an important process that you need to understand.
In this comprehensive guide, we’re going to explore the benefits of effectively managing payroll, the
negative impacts that inefficient processes can have, and how using a payroll management system
can help your business to grow.
What is payroll management?
Payroll management is the process of overseeing the financial aspects related to employee compensation, including the calculation and distribution of salaries and bonuses, as well as the subtraction of tax and other deductions, which are then paid to the relevant institutions such as HMRC. Managing payroll involves ensuring that employees are paid accurately and on time, while also complying with legal and tax obligations. Effective payroll management also encompasses record-keeping, reporting and handling employee benefits, providing seamless and transparent payments for the organisation.
How does payroll management work?
Payroll management involves collecting and processing data related to employee work hours, benefits, taxes and other deductions, which are then used to calculate the net pay for each employee. This process typically involves specialised payroll management software that automates many of the routine tasks, such as tracking attendance, calculating pay and generating payslips. After processing, the payroll system disburses payments through direct deposits and maintains detailed records for reporting and auditing purposes.
What is payroll management software?
An HR and payroll management system is a specially designed piece of software that allows businesses to manage payroll more efficiently. It combines various HR functions, such as employee data management, attendance tracking, benefits administration and payroll processing, into a single system that can be easily accessed and updated.
By integrating with multiple systems and using automation, payroll management software helps to free up your HR team, allowing them to focus on more strategic tasks to benefit your employees and the wider organisation. It’s also able to provide real-time insights into employee and payroll data, supporting informed decision making and simplifying HR reporting processes.
Like any other piece of software, payroll management systems require regular upkeep to ensure their security, integrity and compatibility with essential hardware and software. Depending on the solution you choose, you might take care of the payroll system management in house, or your software provider may do this for you. Providers often offer additional support and maintenance packages for ongoing help and troubleshooting, adding greater convenience to your payroll management processes.
Features of payroll management software
Payroll management software supports a wide variety of essential tasks to increase accuracy and efficiency. One of the most beneficial features of modern systems is payroll automation, which helps to streamline the process and reduce the risk of human error.
Payroll management systems usually offer the following key features:
- Tools for storing and organising employee data
- Automation of payroll processing
- Attendance and leave tracking
- Employee benefits management
- Performance and compliance tracking
- Intelligent reporting and analytics
- Mobile access
Benefits of payroll management
Effective management of payroll may seem complicated, but keeping on top of it helps your business to operate efficiently. By implementing the right tools, you can reduce the risk of errors and improve the efficiency of your payroll operations.
1. More accurate records
Businesses relying on processes that aren’t specifically designed for payroll management may find that the information stored across multiple systems is inconsistent. A cloud-based payroll management system updates in real time, offering a single source of truth for data that can be accessed by employees in a variety of different departments.
2. Fewer payroll errors
Payroll errors can be costly for your business, so it’s important to ensure that your payroll management is as accurate as possible. Businesses that use manual processes such as paper-based timesheets are more likely to experience data entry errors that can lead to costly mistakes. An automated payroll management system reduces these risks by minimising the need for manual intervention.
3. Employee satisfaction
By providing a streamlined, efficient and reliable payroll experience, effective management of payroll can help to keep your employees satisfied and engaged in their roles. Improving employee engagement is critical for the success of your business, as it contributes to the wellbeing and motivation of your workforce, both of which have a huge impact on productivity and profitability.
4. Compliance support
Most payroll management systems include built-in compliance tools to ensure that your payroll processes and data practices are in line with government and industry requirements. Failure to meet laws such as the National Minimum Wage Act 1998, Working Time Regulations 1998, the Employment Rights Act 1996 and the General Data Processing Regulations (GDPR) could result in fines or legal action against your business.
Common payroll management mistakes
Even if you’re already using a payroll management system, it’s easy to make silly mistakes due to oversights and inefficiencies, particularly if staff are overworked. It’s important to carry out regular audits to see where you can improve your payroll processes, and to make sure that your current payroll management software meets your business needs as they evolve.
Let’s look at some of the most common mistakes caused by inefficient processes.
1. Not accounting for overtime
Not accounting for overtime can lead to employees being underpaid for additional hours, which can damage employee morale and erode trust in the organisation. Remember to set up overtime pay rates in your payroll management system and ensure that any timesheets clearly display overtime hours separately from standard hours.
2. Incorrect tax codes
Understanding employee tax codes will help you to ensure the accuracy of your payroll deductions and the payments you make to HMRC. If an employee pays too much tax in error, you’ll need to refund this to them, which may cause issues with your cash flow. On the other hand, not deducting enough tax will require you to adjust future payments, which can lead to a lack of trust and could negatively impact the employee’s ability to meet their financial obligations. If you’re ever unsure, you can contact HMRC to confirm an employee’s tax code.
3. Inaccurate records
Having missing or inaccurate information is common for businesses using a manual approach or siloed systems for payroll and other HR processes. Using incorrect details can lead to payroll errors, employee dissatisfaction and even legal action. Cloud-based payroll management software that integrates with other essential systems ensures that all information entered is up to date and accurate across all platforms.
4. Miscalculating annual leave
Another HR-related task that impacts payroll is managing annual leave. For companies with a lot of employees, or limited HR resources, keeping track of leave requests and the approval process can be time consuming. Failure to update annual leave entitlement and usage can result in employees not being paid accurately, which could put your business at risk of noncompliance with regulations regarding employee rights.
5. Not being up-to-date on payroll legislation
There are many laws and regulations surrounding tax, wages and workers’ rights, and keeping on top of changing payroll legislation can be difficult. Implementing a dedicated payroll management system can help you to ensure payroll compliance by ensuring that your payroll is accurately calculated and complies with minimum wage laws and overtime regulations, as well as keeping complete records for tax filing, reporting and auditing processes.
Error-free payroll management with payroll software
Investing in payment management software is a great way to ensure that your processes are as efficient and accurate as possible. PeopleHR’s dedicated payroll management system is just one of the many tools we offer to help businesses like yours to grow and thrive.
See for yourself how our payroll software can support your business, or take a look at our brochure to explore all of our payroll products.
