Buyer’s guide to payroll systems

Whether in-house or outsourced, a payroll system must be tailored to meet an employer’s needs, says David Woods

Employees are an expensive resource, so ensuring they are paid correctly and on time is a constant challenge for HR and reward staff.

A payroll system automates this process for organisations, calculating employees’ monthly salaries and, where appropriate, taking into account factors such as annual leave, sickness absence, pay rises, tax and national insurance contribution deductions, and any salary sacrifice or pension contributions.

The calculations that are required to work out salaries are complicated, so employers often use a payroll system with all the formulae and calculations built into it.

Organisations looking to implement a payroll system have a number of options, including: managing payroll in-house using their own software; outsourcing the printing of payslips; using payroll software that is hosted outside the company by an external provider (also known as a bureau service); or fully outsourcing payroll to a third-party provider.

Simon Parsons, director of payments, benefits and compliance strategies at Ceridian, says: “If an employer wants to retain control of the payroll in-house, they can buy software, but this would mean they have to update it all the time depending on tax and legislation.”

This year, for example, employers have had to keep up to date with tax changes resulting from the pre-budget report, budget, and emergency budget in order to comply with HM Revenue and Customs (HMRC) regulations.

Payroll systems can also include the functionality to report on benefits. “Payroll is not just payroll. It could also incorporate flexible benefits and share schemes, as well as administration and reporting. HMRC does not take business needs into account,” says Parsons.

When considering what sort of payroll scheme to implement, employers must consider which best meets their organisation’s needs, in order to avoid creating any extra work.

If an employer chooses a fully-outsourced system, the payroll provider will effectively become the organisation’s payroll department. Chris Budd, payroll consultancy manager at NorthgateArinso, says that this can ease the pressure on HR or payroll staff. Having a robust and efficient system in place can free up time for them to work on core business objectives and strategic projects, rather than spending excessive amounts of time on administration.

“I definitely think the outsourcing payroll market has been growing a lot over the last 18 months,” Budd adds.

Third-party providers deal with day-to-day payroll administration and update the technology according to tax changes. Employers receive regular reports, and most providers can tailor a service to suit the needs of any individual organisation.

The cost of a payroll system can vary considerably, depending on an employer’s requirements, the size of their workforce and the provider’s rates. However, Parsons estimates that an in-house piece of software for a small-to-medium-sized enterprise (SME) can be bought for less than £100. A fully-outsourced payroll system costs about £4.50 per payslip for an SME and about £2 per payslip for a larger organisation.

Product file: payroll systems

What is a payroll system?

A payroll system automates the process by which employers calculate the salaries of employees and ensure they are paid on time. It must take into account factors such as how much national insurance, tax and other salary deductions are taken from both gross and net pay.

Where can employers get more information?

The Institute of Payroll Professionals ( provides information and support for payroll professionals.

Some of the main providers include:

ADP Employer Services; Agresso; Application Lynx; Cascade Human Resources; Ceridian; Crocus; Fluous HR Solutions; ICS; IPPM; Logica; Midland HR; Motivano; NorthgateArinso; Oracle; Redbourne; Softworks; Snowdrop; Symatrix; and Trace.