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5 essential features of small business payroll software
Small business payroll software is no less important than the payroll software multinational enterprises use — it is all about paying workers on time and accurately, while also adhering to tax regulations.
Where SMB software differs is that small companies tend not to have such broad human resources teams — small business payroll software is perfect for those who do not have access to dedicated HR teams, for example.
SMEs make up 99.9% (5.7 million) of the UK’s private sector landscape and represent 60% of UK employment, but more importantly, most of these are microbusinesses, 95% of the private sector, or 5.4 million businesses, with even fewer resources. In fact, 5.45 million of these businesses had fewer than 50 employees at the start of 2024.
However, the largest number of small businesses by count were in construction, 16%, and the highest turnover was recorded in wholesale and retail, 34% — neither sector is an expert in HR or finance, which underscores the need for effective tools.
What is small business payroll software?
Small business payroll software does not have to be traditional installed software — it might be a fully online experience. But the principle is the same — it is all about calculating gross pay, deductions, such as benefits and student loan repayments, and net pay for employers, tying in taxes and pensions too.
Unlike enterprise systems, SMB systems are designed to be simpler and more affordable, cutting out some advanced features but retaining everything you need to stay compliant. You might even be able to combine your SMB payroll software with time-tracking apps and accounting software for a powerful combination.
Automated payroll calculations
Calculating pay causes major headaches globally, with rules and regulations changing frequently. Any good small business payroll software should factor in salaries, overtime, bonuses, deductions, and statutory contributions to make sure employers and HMRC receive the right amount every time. In fact, using spreadsheets to calculate payslips manually is one of the most common sources of payroll errors, which is why more businesses are signing up for dedicated automated systems.
The clearest benefit is for those who handle payslips on behalf of their SMB, generally CEOs or cofounders who have many other responsibilities. But reducing errors also makes it far less likely that an employee will be asked to return unpaid tax to the government.
Built-in tax compliance
With tax regulations changing frequently, it is hard for small businesses to stay on top of what is new all the time. But software developers tend to have teams dedicated to this, which helps because mistakes can result in fines. Think of proper, compliant software as an insurance policy against potentially costly penalties.
The biggest benefit is that business owners do not need to be tax experts to stay compliant. For instance, a small agency can rely on its software to calculate deductions correctly rather than worrying about missing a deadline or using outdated information.
Time tracking
Having built-in time tracking for logging hours, attendance, and leave connects the raw data directly with payroll. It might be a function of the software, or you might be able to integrate this information from third-party software. Either way, this saves payroll teams from re-entering hours manually, which increases the risk of errors.
This is even more useful for businesses with different hourly wages, shift patterns, or overtime rules. The more variability you have, the harder it is to manage manually. Conversely, setting up predetermined rules and applying them to employees’ actual work helps tremendously.
Employee self-service portal
Small business payroll software is not exclusively for business owners and finance workers — regular employees should also have their own dedicated access to obtain payslips and tax documents and update personal details.
Self-service reduces the likelihood that the company has to respond to routine questions or resend documents. But it is also useful for workers who may need proof of employment or previous payslips to apply for a mortgage or loan. In short, this is an often overlooked feature that has clear benefits for efficiency.
Integrations with other financial software
Strong integrations and reporting tools allow SMB payroll software to fit into the broader business and financial ecosystem. Syncing with accounting software helps from a budgeting and forecasting standpoint, and HR software integration means you can determine how to deploy workers more effectively, both for productivity and financial reasons.
This is even more important if your SMB uses an external accountant to manage taxation. Sharing as much data as possible in a secure and compliant way will save you and your accountant multiple hours and money.
How to choose the right small business payroll software
Payroll software is all about catering to the financial needs of your workers, so start by considering your business size, workforce complexity, such as whether you have multiple contract types, and future growth plans.
For example, consider specific needs like hourly tracking or variable pay, and ensure that the software you choose is compliant with current requirements, such as updated tax guidance and Making Tax Digital, MTD, rules.
More importantly, consider the skill set of the worker or workers you expect to use the software. Chances are SMBs are unlikely to have dedicated HR talent yet, so look for small business payroll software that is easy to use and offers good customer support or instructions.
Either way, remember that manually calculating payslips with spreadsheet software can lead to serious mistakes and fines, so any specialized software you choose will be worth it.
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