This guide was first published as part of an HR Zone/IT Zone supplement. The software landscape is ever changing and with this in mind we’ve updated it for your ease.
Payroll software was one of the earliest applications for computer technology, and one that does not always attract the same attention as more glamorous applications such as ERP or performance management tools. If it gets the job done, there is usually little reason to change your payroll system.
Tony Blair’s ambitious egoverment plans have changed all that. In the next five years, every UK employer will have to adapt their payroll systems to file their P35 and P14 annual returns online.
For companies employing more than 250 people, the change happened in May 2005, while employers with 50-250 have an extra year’s grace. Those with less than 50 employees have until 2010 to make the change. There are incentives for smaller firms that go online early, but failing to meet the specified deadlines could result in a penalty of up to £3,000 on top of existing late filing and negligent return penalties.
With such a major change underway, the payroll software industry faces a massive surge as customers consider their options. This IT Zone/HR Zone Expert guide is designed to help companies identify the key issues and main suppliers in the marketplace to help those who are looking to draw up payroll software/service shortlists.
The first port of call for anyone considering their online PAYE software requirements is the Inland Revenue’s PAYE Online Services page. It explains which forms are covered and includes information for employers and agents, details of the incentives available, FAQs and a list of approved software suppliers.
Key issues: Inland Revenue accreditation
If you are happy with your current software and the supplier is not on the list, don’t panic. They may be going through the approval process, or have chosen not to go for full accreditation. The Revenue is keen to promote its Payroll Standard, but its systems will accept inputs from any software that has gained approval to submit P14s and P35s online. Some of the industry’s biggest players have shunned the Payroll Standard, complaining that it is designed for desktop payroll software packages, and not the specialist HR & payroll solutions they provide. The issues are discussed in more detail in the companion article, Payroll accreditation: The developers’ view.
Key issues: Outsource or keep in-house?
If you decide to outsource your payroll to a bureau or full managed service, you can take advantage of the expertise of people who do nothing but deal with payroll all day. But you also lose a degree of control – the most cost-effect solutions depend on doing things the outsourcer’s way. Once you start looking for external suppliers, the choices are mind-boggling, ranging from full-service corporate outsourcers such as ADP, Ceridian Centrefile and Northgate who will handle all your HR needs (see next key issue topic), to local accountancy firms and payroll bureaux who would be happy to relieve you of the weekly/monthly admin burden. For more on this topic, see The Outsourcing Debate.
Key issues: Standalone payroll v integrated HR
Once you accept the logic of outsourcing, why stop at payroll? There are several other non-core functions that can be hived off – from human resources to the finance department itself. Global consultancies with will take these tasks on and possibly export them to shared services centres in India or another country with a lower cost base. The top HR/payroll consultancies will assume full responsibility for all of your company’s HR activities and effectively become a co-employer of the workforce. If you want, they will take full legal responsibility for employees – including hiring and firing, training, development and remuneration. Such organisations present themselves as partners for the business, and undertake to deliver all the HR processes needed to achieve your strategic objectives.
Key issues: Online options
The full-service corporate solutions are often made possible by Web-hosted “self-service” applications, often termed eHR or ASP. A similar approach can be just as productive for delivering payroll services to smaller companies – if you can find a suitable vendor. Karen Paterson, who set up a specialist application service provision (ASP) company to serve this market, argues that outsourcing the entire payroll to an online service means not only that the year-end returns will be taken care of, but so will any upgrades to the payroll software. Reliability and security concerns are diminishing, she says and “smaller companies can now enjoy the benefits of functionally rich enterprise applications” through more favourable pricing options such as pay as you go. Lest we forget, on 6 April 2005 the Inland Revenue site began to host its own web filing interface, retaining data on PAYE returns inputted online.
Payroll software developers and service providers
This exploration of the payroll scene starts with the biggest suppliers first, before moving on down to SME options. There are links throughout the article to the websites of relevant suppliers and further details on 60 products are listed in the AccountingWEB’s Software Directory.
Software development is a dynamic activity, so no listing of this sort can be fully comprehensive. If you are, or know of a software developer that is not featured in this article and should be, please contact the Editor.
Corporate HR & payroll outsourcers
The top end of the HR and payroll market has seen a spectacular wave of consolidation. Northgate attracted the interest of the Office of Fair Trading when it acquired Rebus in 2004 (and Carapeople the year before), yet it still trails behind ADP’s 17% market share according to business process analyst Nelson Hall. Hewitt Associates is the next biggest player with a 9% market share. If you are talking to these consultancies, the scale of operations and their involvement with clients is such that filing PAYE returns is unlikely to be your main topic of conversation.
Integrated HR/Payroll software developers
By their nature, these companies tend to the needs of companies that have reached the point where they need to automate HR functions – the so-called “250 Club” members who had to comply with the May 2005 efiling deadline. Do not think of the integrated approach as a quick fix for PAYE efiling – automating HR functions is a serious business re-engineering project that will probably require the assistance of an in-house IT team or external consultant to deal with process issues and technology such as databases, plus training and the roll-out to end-users.
Some of the developers also run bureau services, which could be a way of solving short-term needs while working towards a more ambitious implementation at a later date.
Enterprise software incorporating payroll
If you’re already running an ERP suite that handles most of your business and finance operations, it’s likely it will handle your payroll too. Or the company that installs it for you should be able to source a payroll program it can integrate for you. The larger ERP families such as mySAP and Oracle and its subsidiaries have moved to Web-based eHR applications. Implementing these systems is not a trivial activity; it should be part of a strategic plan for the organisation rather than a point solution for payroll.
SME accounting software incorporating payroll
Some of the companies in the ERP list will also court second tier companies (for example the 50-250 employee companies that have to efile next year). Most companies employing fewer than 250 people will also run accounts software that has a companion payroll module. This is the reason why Sage, the leading supplier of accounts software, is also the market leader for payroll. If you are keeping the payroll function in house, your existing accounts supplier is a logical place to start, unless the program cannot handle online returns (unlikely) or lacks particular features you want from your payroll.
SME payroll software developers
These are the payroll specialists, who might be characterised as the “does what it says on the tin” brigade. Their programs are often popular with payroll managers, as they may include extra features to make their life easier. Payroll specialists can usually offer a lower price because they don’t have to hire programmers for all the other modules that come from suppliers offering payroll aong with accounting and HR functions.
Payroll bureaux that also develop and sell software
Haven’t made your mind up about in-house or outsourced payroll? Then you might consider a company that runs a payroll bureau, but can supply you with your own software later if you want to take it in house. Please note: this guide is only a rough grouping of suppliers. The marketplace is moving so quickly that if you are keen on a hosted solution, many bureaux can probably provide it for you, either from their own servers, or based on software running on your machines. The same goes for any special features or management reports. If you want it, they will find a way to deliver it – but expect to pay extra for any bells and whistles.
Payroll outsourcers/bureaux
If you are determined you want to outsource your payroll, here is a small selection of suppliers. Check your local telephone directories and Web search engines for other potential bureaux such as local accountancy firms. Remember to decide what level of service you want – just someone to check the data and run the calculations, or a full managed payroll service. The Payroll outsourcing debate article explains some of the differences.
Payroll programs with links to tax & practice software
Accountants reading this article may run the equivalent of commercial ERP – specialist practice management programs from the likes of IRIS or Star. If it’s staying in-house, it’s much easier to use a single, integrated system and deal with one supplier. PC accounts specialists Sage and MYOB feature on this list too, because of the accountancy practice software they also sell. In practice, many accountants will run several book-keeping packages, which can make life easier when importing and auditing clients’ payroll data. Or they might run a payroll bureau using their preferred in-house system.
Payroll recommended for running a bureau
In theory, any payroll application that is capable of handling multiple companies can be adapted to run a payroll bureau. But bureaux managers and their clients will often want extra reporting and admin features. The suites catering for accountancy firms in the section above are a good place to start, as this is a major business opportunity for suppliers. The following list includes companies recommended by AccountingWEB members in Any Answers.
Niche suppliers
If you’ve got this far down the list and haven’t found a suitable supplier yet, chances are you’re after something very specific. Do you work in an industry like construction that demand specific payroll treatments? Maybe there’s a supplier for you here:
Related articles
This guide was first published as part of an HR Zone/IT Zone supplement in February 2005. Some of the articles that may provide further assistance in your payroll quest include:
- How systems can support your HR objectives
- How to: Select & implement HRM systems
- Calculating the true cost of HR Software
- HR and payroll – a tug of war?
- Case Study: Coventry City Council – out to tender
For full details of exhibitors at this year’s CIPD HR Software Show later this month see: www.cipd.co.uk