How does payroll work for SMEs?
SMEs have several options when it comes to managing payroll, each of which has its own benefits and drawbacks. Let’s explore them in more detail to give you a better understanding of which might be most suitable for your business.
Manual processes
Some SMEs manage payroll using spreadsheets and manual calculations. While this approach avoids software costs, it is prone to human error, which can lead to incorrect tax filings and late payments.
Manual payroll processing is also very time consuming, which pulls focus away from core business activities. For businesses still relying on outdated systems, it’s worth considering the disadvantages of old HR systems and exploring more efficient alternatives.
Payroll software
Payroll software offers automation and accuracy, reducing the likelihood of errors. It simplifies tax calculations, deductions and payslip generation while ensuring compliance with payroll regulations.
Like any form of software, it requires regular updates, training and oversight to make sure you’re getting the most out of your investment. Exploring the best payroll software for SMBs can help you to identify the right fit for your needs.
Outsourced payroll
Outsourcing payroll allows SMEs to hand over payroll management to a third-party provider. This can save time and ensure compliance, which is particularly beneficial for businesses with limited in-house expertise.
However, outsourcing these tasks comes with added costs that smaller enterprises might not be able to afford. This approach also requires trust in an external provider, so it’s important to do your research and explore customer reviews if you’re considering outsourcing.
What makes payroll for SMEs complicated?
Even with software or outsourcing options, payroll remains a complex process. Let’s explore some of the key factors that contribute to payroll challenges, and why they affect SMEs more than larger organisations.
Fewer resources
SMEs often operate with small teams, so payroll responsibilities may fall to a finance manager, HR professional or even the business owner. Without dedicated specialists to manage payroll effectively, errors are more likely. With potential consequences of errors including fines and legal action, SMEs need to take care to ensure accuracy.
Limited budgets
Budget constraints make it difficult for SMEs to invest in advanced payroll solutions or hire in-house experts. As a result, payroll management often competes with other business priorities. Understanding how much an HR system costs can help businesses to evaluate the most cost-effective solutions.
Lack of expert knowledge
Payroll covers a wide variety of processes, including tax codes, statutory deductions and pensions, all of which require a solid understanding of regulations. A lack of in-depth knowledge in these areas puts SMEs at risk of noncompliance, and the cost of payroll errors can be devastating should a mistake occur.
Compliance requirements
UK payroll regulations are constantly evolving, making it challenging for SMEs to stay compliant. Late or incorrect filings can result in penalties, and businesses must keep up to date with changing payroll compliance to make sure they meet their legal obligations.
Need for scalability
As SMEs grow, payroll becomes more complex, and the right infrastructure is essential for managing growth effectively. Hiring more employees, expanding to new locations or introducing flexible working arrangements require scalable payroll systems that are able to adapt to your changing business needs.
How to overcome key payroll challenges
Addressing challenges is essential for SMEs to ensure accuracy, compliance and efficiency. Let's explore key strategies that you can use to overcome these challenges.
1. Carry out a payroll audit
Payroll audits help to identify discrepancies, inefficiencies and compliance risks. By regularly reviewing payroll processes and addressing errors, SMEs can improve payroll process, prevent costly mistakes and improve employee satisfaction.
2. Run regular payroll reports
Payroll reports provide valuable insights into payroll expenses, tax deductions and compliance status. Regularly reviewing these reports helps businesses to identify issues before they become serious and allows for proactive decision-making.
3. Leverage payroll automation
Automating payroll processes can address common payroll challenges by reducing manual errors, ensuring timely payments and improving overall efficiency. Payroll software can handle tax calculations, payslip generation and compliance updates, freeing up time for business owners to focus on other priorities.
4. Stay on top of payroll legislation
Keeping up with changes to payroll legislation is essential to avoid compliance breaches. SMEs should subscribe to government updates, attend payroll training or use payroll software that automatically updates to support new regulatory requirements.
5. Use time and attendance software
Tracking employee working hours accurately is essential to ensure that payroll calculations are correct. Time and attendance software can automate this process, reducing the risk of underpaying or overpaying employees, and is able to integrate with payroll software for accuracy and efficiency.
6. Implement employee self service
Employee self-service portals empower employees to manage their own payslips, tax forms and leave requests, reducing administrative workload. Giving them ownership over these tasks also helps to improve accuracy in payroll management.
7. Invest in payroll services for small business
Outsourced payroll services for small businesses can relieve the administrative burden on SMEs, helping to ensure compliance and accuracy. Make sure to assess the costs and benefits of outsourcing compared to managing payroll in-house to see which is right for your SME.
Overcome payroll challenges with PeopleHR
Payroll doesn’t have to be a headache. Addressing payroll challenges through audits, automation and compliance tracking can help to simplify processes and enhance accuracy. Investing in payroll services for small businesses is a great way to address common payroll challenges for SMEs and improve efficiency throughout the entire process.
PeopleHR offers flexible payroll solutions designed for growing businesses, streamlining operations while freeing up time for your teams to work on other essential tasks. Book a demo today or contact us for expert advice on payroll services for small businesses.
