Payroll Management: The Comprehensive Buyer's Guide 2023

Changing how you manage payroll isn’t an easy decision to make.

The time and effort it takes to migrate makes it pretty irreversible and choosing the wrong solution could potentially break employee trust and damage your reputation with HMRC. 

Here at Pento, we believe that despite being fundamental to almost every business with employees, traditional payroll practices are broken.

Handing your payroll over to a bureau has long been the default option… simply because there hasn’t been a better alternative.

However, this is no longer the case.

The payroll landscape is rapidly changing and there are new solutions beyond just outsourcing or managing payroll in-house.

Want to recover countless hours spent running payroll, avoid errors and take the hassle out of compliance?

Below, we’ll break down the payroll management landscape and all of the options that are out there… and give you an honest review of their use cases and pitfalls.

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First, define what you are solving for...

Before we dive into features and functionality, it’s worth taking stock of what you’re looking to achieve.

Every solution on the payroll landscape has its strengths and drawbacks, so it's vital that you identify exactly what your most pressing pain points are.

Here is some of the most common criteria when it comes to payroll solutions:

Confidence: For many organisations, confidence and peace of mind are at the top of the priority list. Payroll errors cost time, money and reputation. So, you'll want to find a payroll management solution that will take care of compliance, reduce risk and (as anyone with a CIPP qualification will have drilled into them) ensure employees are paid on time, every time.

Time saving and ease of use: Payroll may be essential and highly sensitive... but it’s not something most people want to spend a lot of time on. Most payroll management solutions tend to be slow, error-prone, and rigid in process. Payroll processes can run for weeks, with multiple iterations of spreadsheets and PDF’s being exchanged, errors to correct, and deadlines looming. When choosing a payroll solution, it’s important to consider how fast, easy, and flexible it is so you can drastically slash time spent running payroll.

Expert support: Whatever your level of experience and expertise with payroll, you'll need a solution that supports you. Whether it's quickly answering questions about an employee’s pay or helping you fix major compliance issues. If you’re waiting days for a response, maybe it’s time to consider switching. 

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These are the signs that you need a new payroll management process

 Your payroll is too time consuming 

Making accurate payments, distributing payslips and posting journal entries all eat up valuable time. 

And when you're responsible for keeping on top of legislation changes too, managing payroll can quickly become overwhelming. 

If you're feeling swamped with laborious manual tasks, it may be time to look for a solution that will save you time and offer more flexibility.

You're needing expert support

For most businesses, there'll come a time when their payroll is getting too complex to manage themselves. 

Receiving expert support is one of the main reasons companies choose to outsource their payroll efforts... although the degree of support you actually receive will vary across providers.

If you are needing a level of expertise not currently in your team or are unhappy with the response times or quality of service from your current provider, it might be a sign that you should switch.

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You're lacking data/insights

To optimise your payroll, you'll first need access to high-level data - ideally, you want to track all salary changes, freelance fees outside of full-time payroll, bonuses, benefits, and pension compliance.

If you struggle to collect the data you need, you'll want to pick a solution that comes with automatic reporting or work with an outsourced provider that will generate specific reports at your request.

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Is it time to change how you manage payroll? Here’s our ultimate checklist

Having spoken to thousands of teams looking to change their payroll, we've come up with a simple checklist with the most common early signs that your payroll needs an overhaul.

If you find yourself answering ‘yes’ to 5 or more of the below questions, it’s probably time for you to switch providers.

• Does your business’ headcount change every month? Is the list of changes, joiners, and leavers per payroll significantly growing? 
• Do you find yourself needing to make changes last minute?
• Do you need to consult multiple data sources to run payroll?
• Has the number of internal stakeholders involved in payroll increased? 
• Do you need additional team members to have different levels of visibility and input into payroll?
• Have you found yourself spending more time passing information back and forth with your payroll provider?
• Do you notice errors in the payroll drafts shared by your payroll provider? Do you have multiple layers to check and balance payroll data across the payroll process? 
• Is your payroll managed by someone whose main job is not payroll? Is your People or Finance team managing payroll?
• Does your Finance/Accounting team need to manipulate or split payroll journals every month?
• Are you introducing enhanced benefits that will change your contract with your payroll provider?

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Here's how to assess where you're at and what kind of solution you might need

How big is your team? Are you expecting it to change over time?

If you're expecting your business to grow in the near future, this is going to entail more changes to your payroll...

And the more manual your payroll management process is, the higher the risk of errors.

So, if you're a growing business, you'll want to opt for a solution that can scale with your team.

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How complex is your payroll?

The more variables and separate activities your payroll comprises, the more flexibility you're going to  need.

We'd recommend quickly taking note of all the processes and components your payroll consists of: gathering data, generating reports, creating and sharing payslips, pension schemes, payroll benefits, bonuses etc 

If you find that your payroll is fairly complex, you'll be wanting to find a solution that can automate some of these processes for you.

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What software are you already using?

Do you currently use HRIS or accounting software? If so, there's likely going to be a fair few bits of data that need to be manually duplicated across the two.

If this is the case, look for a payroll provider that integrates with the tools already in your tech stack.

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What kind of support do you require?

Some solutions will come with a lot more hand-holding than others...

Support ranges from helping to quickly answer payroll queries from employees, to navigating more complex payroll situations, to keeping you up to date with legislation and maintaining compliance.

So you may want to consider how much payroll experience you have personally, and how much help you’ll need from your payroll provider.

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At a glance: what are your options?

• Outsourcing to a bureau of accountant
• Outsourcing  through managed payroll services
• Employer of Record (EORs)
• All-in-one systems
• Legacy ERPs or systems
• Modern payroll solutions (that combine automation with expert guidance)

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Outsourcing payroll to a bureau or accountant

Summary 📝

Outsourcing your payroll means you’ll be acting as the intermediary between your provider and your employees.

Instead of managing payroll functions in-house, you simply hand over your payroll process to a specialised provider, who will manage things like calculating wages, tax deductions, generating payslips, and keeping compliant with the latest legislation - although you’ll still be required to regularly send over information.

Use cases 🔍

If you have limited resources and a small team, outsourcing payroll may help remove some of the more complex payroll tasks - instead handing them over to external experts.

Outsourcing will cut down on admin (although it will not eliminate administrative tasks entirely) and in theory, mean that you don’t have to worry about payroll since it's being managed by a third party.

Outsourcing to bureaus or accountants will mean that your payroll is still being managed by humans… and so this solution is better suited to businesses that aren’t planning to scale anytime soon. Why? Because if you have a lot of people/contractors starting and leaving, there’ll still be manual work required on your end and a much higher likelihood of human error.

Certain industries, such as healthcare, finance, and government contracting, have stringent regulatory requirements related to things like employee compensation, benefits, and tax obligations.

Outsourcing payroll to a provider experienced in handling compliance-heavy industries helps ensure adherence to industry-specific regulations, reducing the risk of errors and penalties.

Some companies have more complex payroll structures… you might, for example, have a mix of full-time employees, part-time workers, contractors, and freelancers.

Managing the payroll complexities associated with all these different employment types, varying pay rates, and statutory requirements can be a serious challenge to handle manually, and so outsourcing to payroll professionals might be worth your consideration.

Things to consider 🤔

By outsourcing your payroll, you’ll be giving up a certain level of control over the payroll process.

Once you send your data across, you’ll essentially be dependent on your outsourcer to accurately process payroll and meet all of HMRCs deadlines.

If any errors or delays occur, resolving them may require coordination and communication with the provider, potentially causing frustration or delays in addressing payroll issues.

Outsourcing to a bureau or accountant will most likely require you to work directly with a human - regularly transferring data to them.

This could end up being manual to the point that they simply just work out of your office or you send them physical paper documents.

All-in-all, outsourcing like this will undoubtedly entail lots of back and forth emails and manual legwork over things like double-entries and double-checks etc.

Even though you’d be outsourcing your payroll process, there’s still plenty of manual work required to get data across to your bureau or accountant.

When so much of the process is manual, anything can go wrong anytime when everything is manual. The lack of visibility and transparency is a constant source of anxiety.

How much does it cost? 💰

The typical range for outsourcing payroll in the UK is approximately £20 to £100 per employee per year - depending on the complexity of the payroll and the level of service required.

Certain payroll-related services, such as year-end tax filing, pension administration, handling employee benefits, or producing custom reports, may incur additional charges.

Note: While outsourcing payroll will likely save you money in the short term, the cost structure of outsourcing will often include ongoing service fees, additional charges or price increases over time that might eventually outweigh the cost of bringing payroll in-house.

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Managed services

Summary 📝

Managed services are fairly similar to bureau/accountant outsourcing, the key difference being that you’ll be provided with a user interface to upload and download files.

Just like your typical outsourced process, the payroll management provider will take on responsibility for managing your payroll.

Use cases 🔍

If you’re not expecting to see large volumes of new joiners or leavers, then outsourcing to a managed service provider might make sense for you. You won't have to worry about making manual transfers, uploading pension files or emailing out payslips every month.

The more changes you make to your payroll each month, the more likely you are to make errors. So, this option is more suited to smaller businesses that are not expecting significant growth.

So long as there aren’t employees regularly coming or going each month, you’ll still be able to keep adding more complex payroll benefits for existing employees.

Things to consider 🤔

Although managed services will give you an interface use - the core functionality is essentially the same as outsourcing to a bureau or accountant.

The truth is: these interfaces don’t actually do too much - they work similarly to a shared Google Drive allowing you to upload your files, but not much else.

A managed service’s interface is likely going to be pretty old school and clunky. The software itself may make your experience feel marginally more interactive, it's no different to any other kind of payroll outsourcing, just with some fairly basic software thrown in.

Managed payroll services involve sharing sensitive data with a third-party provider which is always going to present some degree of security risk.

While reputable providers will obviously have security measures in place, there is always a risk of data breaches. If you are going down the outsourcing route, be sure to assess your provider's data security protocols.

How much does it cost? 💰

Some managed payroll service providers charge a per-employee fee, which can range from around £4 to £20 per employee per month.

If you're a smaller business with a limited number of employees, you may be offered a fixed monthly fee which could range from around £50 to £300 per month, depending on the complexity of your payroll.

These fees typically cover basic payroll processing services, such as calculating wages, tax deductions, generating payslips, and ensuring compliance - although additional services (year-end tax filings, pension administration, or producing custom reports etc) and one-off implementation will cost you more.

Employer of record

Summary 📝

An Employer of Record (EOR) is a service provider that takes on the responsibility of being the official employer for employees.

An EOR will take care of things like payroll processing, benefits administration and legislation, acting as an intermediary between you and your employees.

Use cases 🔍

Why would you need this kind of payroll management? Well, it allows businesses to hire remote employees abroad without having a physical office in another country or needing to build a legal entity there.

If you have a very internationally distributed team, an EOR may be the most logical option. They'll handle all of the different tax systems, currency conversions, and country-specific payroll requirements which would otherwise cause serious headaches.

If you have a somewhat distributed team, it may make more sense to use payroll software (like Pento, which we'll get to later) to pay the bulk of your team, with the addition of an EOR to cover those abroad.

Things to consider 🤔

Using an EOR generally means you'll have to adhere to very tight deadlines. Any pay changes may need to be confirmed early in the month and so won't come into effect until the following month.

It’s also worth understating how EORs actually work...

Whilst EORs look and sound like software, this doesn't mean you'll have any control over your payroll management process. There will still be humans working in the background and since they're unlikely to have expertise in every country, they'll often partner with bureaus in certain regions.

So, unless your employees are spread far and wide, working with an EOR won't be all that different from outsourcing to managed services or bureaus /accountants.

How much does it cost? 💰

EOR services typically involve service fees which will vary based on things like how many employees you have or the level of support required.

Monthly service fees can range from £500 to £3,000 or more, depending on the scale and complexity of your payroll.

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All-in-one systems

Summary 📝

Whilst most HR systems will integrate with payroll-specific software to help plug this gap, some of the larger platforms also include a basic payroll management solution.

With these platforms, you may not need to shop around for additional payroll software since this will be part of your HR system. 

Use cases 🔍

If you have a small team (e.g. 30 employees), fairly straightforward requirements and some basic payroll knowledge then an all-in-one system will most likely be able to handle your process for you.

Things to consider 🤔

Payroll management software built into these all-in-one systems is usually pretty inflexible, rigid and lacking any sort of guidance.

This means that the burden of making sure your payroll is accurate will fall on someone within your team . You don't necessarily need a payroll specialist, but some level of payroll experience/expertise is required.

Since payroll tends to be more of an add-on feature of these all-in-one systems, they're best suited to businesses with simple payroll and minimal changes. 

If you're looking to grow the team or make any changes to schemes or benefits, you'll probably need a more robust payroll management solution that you can then integrate with your HR system.

How much does it cost? 💰

All-in-one systems typically involve monthly subscription fees based on the number of employees or users.

For small to medium-sized businesses, these fees can range from approximately £2 to £10 per employee per month.

Looking specifically at small companies of up to 49 employees (which is about as big a team as this kind of payroll management solution can reliably handle), People HR found that the average budget spend sits at around £4,422 per year.

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Legacy enterprise resource planning (ERPs)

Summary 📝

ERPs are the big, old school payroll management solutions.

Underneath the hood, these are basically a software and services hybrid. You'll have dashboards to work with, but there'll still be a human taking on administrative duties somewhere along the line.

Use cases 🔍

If you're at a big organisation with rigid workflows, legacy ERP software could be a good fit.

These platforms should be able to fit with your existing software and processes - just beware that there won’t be too much flexibility 

Things to consider 🤔

ERPs are generally not very tech-heavy...

This means that your overall experience is much closer to that of managed services than a modern tech solution (which we'll be covering below) - just with an added layer of software-coloured paint over the top.

So although these legacy platforms do give your dashboards and some automation, they're not too dissimilar from traditional outsourcing...

And where there's a heavy dose of human admin in the background, there's a significant risk of errors.

How much does it cost? 💰

ERP solutions range from £30 per user per month up to £500 per user per month on a three-year minimum contract. 

This means for a small to medium-sized business, you'll be paying anywhere between £1,000 and £10,000 per year.

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Modern payroll solutions

Summary 📝

Modern payroll tools are designed to automate things like calculations, payments, payslips, and journals in real-time, without any manual work required.

Instead of just weaving basic software into the traditional process, modern payroll software gives you full control over your process so you can make changes up until the last minute.

Whilst most payroll software will be able to automate most of the process, here at Pento, we ensure you get real, human support from a CIPP accredited payroll specialist whenever you need it.

Use cases 🔍

Although most of the payroll management solutions above are capable of handling straightforward payroll, if your business is growing with people frequently joining and/or leaving, you're probably going to need modern payroll software to smoothly manage all of the monthly changes.

This type of software will let you input changes in real time, so you don't have to worry about all of the payroll deadlines. You'll only need to spend around one day per month on running payroll instead of the constant manual work of manually sending changes and reporting etc.

Things to consider 🤔

Not all modern payroll software was created equal...

Some software is far more intuitive and easy to use than others and the amount/quality of support available will vary depending on which payroll provider you go for.

Although modern software is far more scalable and flexible than most other payroll management solutions, you may still need an EOR if you have a very distributed team. This doesn't mean you can't use both - but the vast majority of modern payroll software won't be able to cover several continents.

How much does it cost? 💰

For small to medium-sized businesses in the UK, the average cost of payroll software typically ranges from £10 to £30 per employee per month.

This usually includes core payroll functionalities such as calculating wages, managing tax deductions, generating payslips, and submitting payroll reports.

For larger organisations with more complex payroll requirements, the average cost can be higher, ranging from £30 to £100 per employee per month.

For companies with up to 30 employees in the UK, Pento costs £5 per employee/month, with a minimum billing of £149/month.

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Pento: a quick overview

FACT: Your typical payroll provider doesn't give you visibility or control... and forces you to use an antiquated, error-prone process.

Pento is a payroll solution that ensures People and Finance teams can run stress-free payroll without any errors by automating repetitive manual tasks, removing payroll deadlines, and offering expert payroll guidance.

Take the manual work out of payroll 

Automate everything from salary and tax calculations through to payouts without the back-and-forth or deadlines... Pento lets you make changes right up until payday. No emails, no spreadsheets. Run payroll in a few clicks.

Have full visibility and control

Payroll doesn't have to be a mystical black box. Pento works in real-time so you have access to information whenever you need it. You control your payroll process and work to your own deadlines.

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Integrate with your favourite software

No matter what level of expertise you have, or what software you're currently using (HRIS, accounting software, pension providers etc), we'll make setting up and running payroll a stress-free process.