Payroll Management Software
11 min read

Cloud-Based Payroll Software: How it Works & How to Migrate

October 11, 2023

Changing your payroll solutions can be a daunting decision…

Migration takes time and effort and choosing the wrong solution can be extremely costly in both fines and reputation.

Below, we’ll look at how cloud-based payroll software works, what your options are and everything you need to take into consideration before making any decisions.

What is cloud-based payroll software?

Cloud-based payroll software in the UK is a type of payroll software that is hosted on remote servers - so it can be accessed on any computer via the internet.

This means you can manage your payroll process (calculating salaries, deducting taxes and contributions, generating payslips etc) from anywhere with an internet connection.

The alternative to a cloud-based solution would be local/on-premises payroll software. 

This type of software would be installed on your company's local servers and computers - so it stays within your physical premises.

This means all of your employee records and payroll data would be stored within your workplace. Although on-remises solutions are generally seen as being somewhat safer than uploading data to the cloud, regular maintenance and updates are required which will all have to be managed in-house.

Here in the UK, the overall trend in the market is towards cloud-based payroll solutions due to their flexibility, cost-effectiveness, and ability to scale with your business.

Whilst some businesses with unique needs or stringent security requirements may still opt for on-premises payroll solutions, these kinds of solutions have been declining in popularity over the past several years. 

Benefits of a cloud-based payroll system

Accessibility: Cloud-based software can be accessed from any device with an internet connection, so even if you have a remote or distributed team, users can simply log in securely from whatever device they're using.

Real-time updates: Cloud-based systems (like Pento, for example) tend to provide real-time updates and automatic software updates, so you're always up-to-date with the latest tax rules and regulations in the UK.

Security: Reputable software providers will typically have measures to protect sensitive employee information and financial data.

Scalability: Using cloud-based payroll services will allow you to scale more smoothly since you'll be better equipped to manage growing payroll complexities. However, not all cloud-based solutions were created equal - so you'll want a solution that can actually handle more complex requirements.

Compliance: Most cloud-based software will be designed to make sure you're compliant with HMRC legislation.

Integration: Some cloud-based payroll systems will offer integrations with software you're already using so there's no need for manual data entry. Pento, for example, integrates with most HR and accounting software so you can keep the rest of your tech stack as it is.

Reporting: Reporting features will enable you to generate various payroll reports to save you having to do this manually.

Cost savings: Cloud-based solutions will typically require lower upfront costs compared to on-premises software. You don't need to invest in any expensive servers or IT infrastructure.

Support: Whilst the level of support will vary pretty drastically depending on which provider you go with, cloud-based solutions will offer customer support help you with any software or compliance issues that arise - support happens to be something we specialise in here at Pento 🏆

Features of cloud-based payroll software

Employee data management

A cloud payroll solution will allow you to store and manage employee information, like personal details, bank information and tax codes.

Automated payroll calculations

You'll be able to calculate things like employee salaries, tax deductions, National Insurance contributions, pension contributions, and other payroll-related calculations automatically based on the latest tax rates and rules in the UK...

And if you use Pento, you'll also be able to automate more complex calculations like variable holiday pay.

Real Time Information (RTI) submissions

Even basic payroll software should allow you to generate and file your RTI  submissions with HMRC. Solutions like Pento will also enable you to produce and submit P45s, P60s, and P11Ds.

Pension auto-enrolment

Using cloud-based software will mean you can automatically enrol employees into workplace pensions as well as handling contributions and employee opt-outs.

Automated payments to employees

If you use software like Pento, you'll be able to schedule payments to employees and HMRC, submit payroll journals and distribute payslips all with a single click.

Legislation updates

Instead of having to worry about double-checking calculations, most systems should automatically update any logic around tax and salary calculations to adhere to the latest rates, thresholds and legislation.

Pento cloud-based payroll software

Cloud-based payroll system vs outsourcing to bureau 

Why choose a cloud-based solution?

Using this type of software will give you full control over your payroll and data - you won't just be relying on a third-party to manage the entire process.

Whilst software will have automation features that do the manual work for you, you'll be able to see what's happening instead of just sending off your data and waiting for things to happen. Most cloud payroll software will typically offer real-time updates so you're less likely to make payroll errors.

Cloud-based payroll software generally involves lower long-term costs compared to outsourcing to a bureau. While there may be subscription fees, you'll avoid any ongoing service fees and hidden costs.

Things to consider

Whilst opting for cloud-based software will give you more control and flexibility, implementing and managing a new system will inevitably require some time investment upfront.

However, it's worth noting that once onboarded, you'll likely save time in the long run since you won't have to go back and forth with an outsourcer.

Are there any advantages of outsourcing to a bureau? 

Outsourcing to a bureau is best suited to small businesses with fairly straightforward needs. passing the administrative tasks over to a third-party will save time although there will still be some manual legwork required on your end.

If you have stringent regulatory requirements or are in a compliance-heavy industry, it may make sense to pass your payroll over to a bureau.

Benefits of outsourcing payroll

Things to consider

Outsourcing to a traditional bureau just isn't scalable beyond 100 or so employees...

You'll be working directly with humans and will be required to regularly send over data - as well as do double-entries and double-checks to avoid any human errors.

If your business is scaling and has new starters/leavers each month, the lack of visibility and manual work that outsourcing entails will be serious blockers for growth.

Ultimately, whether you use software or an outsourced bureau will depend on your business's size, payroll complexity and the level of control you want over your payroll process. Generally, we'd recommend going for a more automated, cloud-based solution if your business plans to grow any time soon.
Traditional payroll outsourcing use cases

How Pento’s managed service differs from traditional outsourcing 

At Pento, we understand that sometimes you might still need some support before making the jump to managing payroll in-house.

So, our (optional) managed service lets you stay in control of your payroll while getting extensive support and advice from a team of payroll experts.

Get full access to modern automation software as well as all the benefits you’d expect from a managed service…

  • Audits and workshops to streamline your payroll operations
  • Additional data checks to ensure compliance with HMRC and pension providers
  • Support with BACS payments
  • Custom reporting
  • Personalised support
  • Complimentary, easy to use payroll software that provides continuous visibility into your payroll

Types of cloud-based payroll software: what are your options?

All-in-one solutions

 Some larger HR platforms are now introducing payroll features.

If you're a small team with simple requirements then an all-in-one system might be an easier option than going for a dedicated payroll provider.

However, if you're scaling or planning to make changes to schemes or benefits, then an all-in-one solution is probably going to be too rigid to handle these changes.

You're also unlikely to get much guidance, so some in-house expertise will be necessary.

Employer of record (EORs)

An Employer of Record (EOR) is a payroll service provider that essentially takes on the burden of being the official employer for you - like an intermediary between you and your employees.

These services are mainly used by businesses with very distributed teams. The EOR will take care of all the different tax systems, currency conversions, and country-specific requirements.

With an EOR, you'll often have to adhere to tight deadlines and conform pay changes early in the month. Since there'll likely be humans involved behind the scenes, EORs aren't too dissimilar from outsourcing to a bureau.

All in all, EORs may be the logical choice for teams that are very distributed, but if the bulk of your team are in the UK, you can always use a UK-based provider for these employees.

Legacy enterprise resource planning (ERPs)

ERPs are your big, well-established systems. They function very much like a cross between software and services. You'll have dashboards to work with but there'll be humans working in the background too.

If you're at a big company with fixed workflows, then an ERP might make sense.

Just beware that ERPs aren't usually very flexible or tech-heavy. There will be a mix of automation and human admin work, so you won't be immune to errors.

Modern payroll software

Modern cloud-based, automated payroll software is generally built to take care of tasks like calculations, payments, payslips, and journals in real-time.

This means most of the manual work will be off your hands and you'll get full control over your payroll, instead of it just being a 'black box'.

Different providers will have different levels capability, but a solution like Pento will be able to manage complex payroll tasks no matter the worker type or pay frequency

Modern payroll software is best suited to businesses that are actively growing as they're a far more scalable, flexible option than most of the solutions above.

Modern payroll solutions pros and cons

Payroll migration: Here are the key step you need to know

Step 1: Prepare your data

First off, you'll need to prepare for payroll data migration.

This may include employee information, salary details, tax codes, and historical payroll records.

make sure you clean and validate your data to ensure its accurate before importing it into the new system.

Step 2: Set up new software

When configuring your new payroll software, make sure to account for your specific requirements - defining pay structures, deductions, tax rates etc.

Step 3: Migrate your data to new system

Next, you'll have to work with your new software provider to migrate your payroll data from the old system to the new one.

This may involve importing data files or manual data entry depending on which provider you go with.

Once done, verify that all data has been accurately transferred to the new system.

Step 4: Test your new payroll solution

You'll probably want to conduct thorough testing of your new payroll software to ensure that calculations, tax deductions, and other payroll functions are accurate.

Before switching off your old system or process, you can ask your new provider to perform a parallel run just to check the right data is being pulled through.

When is the best time to switch?

There isn't anything stopping from you changing payroll software/provider at any point throughout the year.

However, a lot of businesses choose to wait until the end of a quarter or the end of the financial year to reduce the amount of data-migration needed.

Some providers will require you to manually import the data, whilst others will do this for you, it just depends who you go with.

Make UK payroll smooth, compliant, and error-free with Pento 🇬🇧

Pento was designed to help People, Finance and Payroll teams automate manual tasks, reduce errors and stay HMRC-compliant.

We've combined the best of automation software with CIPP-accredited expert payroll advice so that you'll always have best-in-class support to lean on.

  • Edit employee pay until the night before payday, without any deadlines or cut-offs.
  • Automate and run payroll calculations in real-time including pro-rata, sick pay, National Insurance contributions and more.
  • Automate salary payouts to employees and tax payments to HMRC.
  • Auto-sync employee tax codes and student loans with HMRC so you're always compliant.
  • Get best-in-class support, advice and guidance from payroll experts.
Confirming payroll with Pento

How does Pento compare to other payroll solutions? 

With Pento, UK businesses are running their payroll in 45 mins, instead of the average 7-8 days.

Not only does Pento give you more control and flexibility than any other type of payroll solution, but it's also the only modern payroll solution that supports any working pattern in the UK.

Complex payroll requirements like part-time workers, zero-hour workers or workers who are on 4-day weeks... we'll support them all and more.

Pento vs other payroll solutions

Cloud-based payroll software FAQ

How does cloud payroll work?

Cloud-based payroll software is hosted on remote servers so that it can be used from any  computer. Cloud payroll software is generally hosted by a third party provider which means you just need to login to an online system to run payroll.

Best cloud-based payroll software UK

The 'best' payroll software will heavily depend on your specific requirements. At a high-level, if you have complex payroll requirements or are a scaling business, you'll likely need a modern payroll solution (like Pento) to run payroll smoothly and without errors.

What are the benefits of cloud software?

Cloud-based payroll software can be accessed from any device, so long as you have an internet connection.It's also usually cheaper than on-premises software and may even integrate with whatever tools you're using already.

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