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5 mistakes everybody makes when it comes to small business payroll software – and here's how to avoid them
One of the most daunting tasks going from being a sole trader to setting up your own small business is employing other workers – you'll need to make sure you're up to date with all the latest employment rules and that you're using the right software, including payroll software.
Payroll software's functionality doesn't just stop at issuing the right amount of pay to your colleagues and employees. It's also an imperative piece of kit for compliance, ensuring you're adhering to all relevant tax and contribution rules, such as workplace benefits and pensions.
Missing auto-enrolment pension rules
In the UK, employers are required to enrol workers in pension schemes; the technicalities vary by eligibility. If you've never employed someone before, it's easy to forget to check workers' eligibility and consider the additional employer contributions you'll need to make.
However, failure to stick to the rules won't just be bad for your workers, who'll end up with less cash when they retire. It'll also result in legal penalties, so remember to factor in pensions when adding people to your books.
The easiest way to avoid this is to choose software with auto-enrolment built in – nobody expects small business owners to be experts in everything. This is where effective tools come in that take away some of the burden from you.
Manually calculating tax and National Insurance
Years ago, the payroll process was largely manual, and it would be down to HR teams to work out just how much the company owed its workers to HMRC.
This was one of the biggest use cases of spreadsheet software, and although we're not taking away from the fact that formulas can be incredibly impressive and effective, you risk leaving room for grave errors.
Payroll software is designed specifically to work with HMRC's rules and requirements, so it'll already be pre-programmed to handle tax calculations and other contributions.
To avoid making underpayments or overpayments, seek software that does automatic calculations so that the right amount of money goes to the Government every month.
Real-time updates can make this even more effective, so if you want to maximise payroll software's potential, consider integrating it with other HR tools to sync data like hours worked, sick pay, and overtime.
Forgetting RTI submissions
HMRC requires every employer to submit Real Time Information (RTI) updates every month, on or before payday. This provides the tax agency with key details like employee pay, tax, and other deductions.
Although this was introduced way back in 2013, it's not to say that every piece of software handles RTI submissions the same.
Failure to share the right information with the Government will ultimately result in costly penalties, and it's your business' responsibility to ensure these are done correctly.
Choose software that makes automatic RTI submissions for you. It might require an initial setup to integrate with your HMRC account, but this is well worth the hassle when you consider you won't ever have to lift a finger again to stay compliant with RTI requirements.
Better still, prioritise software that keeps records of previous submissions for compliance and audit trail purposes, and ones that notify you upon successful completion, just for additional peace of mind.
Using software that doesn't update tax codes
One of the biggest benefits of the digital age we live in today is that we're now able to link various tools and resources together, so your payroll software might actually be able to do far more than you expected from it.
Tax codes can be affected by a change in personal allowance, receiving company benefits, having multiple incomes, and even changing jobs, and it's not uncommon for a worker to have been issued multiple tax codes throughout their career.
Working under the wrong tax code could cause underpayments or overpayments to be made, which is embarrassing for the company and can be a headache for the worker.
Don't just look for software that automatically updates tax codes – make sure you're using it right and logging all key information, including any benefits you're giving workers.
Not keeping digital payslips
Digital payslips might have become the standard, but that doesn't mean all companies keep good records. Whether a worker has lost theirs or HMRC wants to see some as part of an investigation, be prepared to produce previous evidence at any point.
On the company's side, you'll need to consider how you store payslips, for example, within GDPR-compliant, encrypted cloud storage protected by strong passwords and two-factor authentication.
But workers might also need to see previous payslips when applying for a loan or mortgage, for example.
Asking what might already be a small and overstretched HR department to produce these could add to their workload when good payroll software should include an employee portal.
Summary
On the surface, payroll software is about making sure you're paying workers on time and staying compliant, but making the right investment could save you time later on down the road, too.
We think the best payroll software will include plenty of automation across the board to reduce administrative tasks, such as tax code updates and RTI submissions, so make sure the vendor you're choosing is recognised by HMRC.
If you're new to business, or you've evolved from a sole trader to an employing small business, finding a software partner that gives you support when you need it is also highly valuable.
