Cash in the clouds - the pros and cons of SaaS-based payroll

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Payroll was one of the first areas of business to be simplified and streamlined with in-house software and outsourced solutions, and numerous variations on these twin themes had already emerged before cloud computing came along and broadened the range – so much, that you may feel spoiled for choice.

Myriad payroll software and services now use cloud software and services in one way or another. Developers of traditional ‘on-premise’ software have web-enabled some or all of the functionality in their payroll systems and some also provide them as a service, some payroll bureau services accept (or require) online data input, there are software as a service (SaaS) solutions limited to features such as online payslips, and much more fully featured on-demand payroll software is available from both SaaS providers and traditional managed service providers, though offerings from the latter can range from basic online payroll software to fully outsourced payroll.

When the lifestyle brand Gant decided to replace a bureau service that relied on spreadsheet-based data input, it opted for a managed service (from Trace Payroll Services), that falls part way between the two. "Store managers now submit payroll data online," says Sue Evans, head of human resources, which has improved the quality of information. "The manual system was time consuming and mistakes were easy to make," says Evans, and as the online payroll is integrated with online HR, ease of use and access to payroll data have also been improved. "Information is easier to access across the organisation, so it’s easier to make decisions quickly," says Evans.

How involved in payroll a business is after it opts for a managed service varies widely. The range, resources, and functional scope of multi-country providers such as ADP and Ceridian is very different to the national payroll services offered by smaller providers such as Just Payroll and PAYE People, and there are myriad variations on the types and level of service available – which all impact on the service rates charged. So finding a managed payroll service that meets the needs of a particular organisation, within its available budget, will involve some difficult judgment calls, and can be as complicated as payroll itself (on which more, later).

But in some scenarios, cloud payroll can be as simple as accessing online payslips that use data sourced from (one of a number of) traditional on-premise payroll systems. When Basingstoke and Deane Borough Council wanted online payslips that looked like its printed payslips, and this wasn’t possible with its existing payroll software, it supplemented this with the Epayslip SaaS from Prolog Print Media. Robert Crawford, the council’s payroll, transport and insurance team leader says: "Using data files from our existing payroll system made the transition process quicker, smoother and more cost effective than investing in new payroll software."

Not that the up-front investment required by on-premise software is a barrier to even the most extensive payroll functionality, thanks to SaaS systems, such as the payroll offering that Interactive Marketing opted for, when it outgrew its manual payroll. "My time became too valuable," says founder Keith Owen, and by using payroll SaaS (from Liberty) he cut his monthly payroll cycle from days to hours and cut the year-end from weeks to hours – and there are numerous providers of SaaS payroll software to choose from. These include: Able Internet Payroll, esPAY, Octopus, Payroo (which is available free), the recently launched Sage One Payroll, and Workday.

SaaS payroll solutions have not all been created equal, and there is a lot of variation (in many respects). Some integrate accounting and payroll (Liberty), some provide integration with human resources (Octopus), or with accounting and human resources (Workday), and other SaaS providers make the data that is common to payroll and other business systems easier to share automatically (and sometimes seamlessly) with application programming interfaces (APIs) and/or software connectors. But the area where there is most variation across payroll SaaS is in payroll functionality.

As well as involving lots of calculations, and requiring absolute accuracy, payroll demands knowledge of ever-changing legislation, and attracts punitive fines for errors, so any payroll software or service that you use (or plan to use) should meet the requirements of the statutory tax authority in each jurisdiction. In the United Kingdom (UK) this is HM Revenue & Customs (HMRC), and it accredits software and services that meet its standards on payroll and pensioner payroll. But be aware that this is just the beginning, because compliance with either or both of these standards offers no guarantee that a payroll system will meet the needs of each and every UK employer.

Although lots of payroll systems and managed service solutions will meet the requirements of a wide range of organisations, not all of them will meet the needs of all organisations. Even a very small business may have ‘basic’ requirements that are considered ‘special’ by the providers of payroll software and services. Recruitment agencies, providers of financial services, public sector bodies, sectors such as not-for-profit and charity, also have special needs that can impact on options and costs – and the functionality that is required (or offered) by specific payroll software or services.

Do you want automatic overtime calculation and composite year-end routines? Do you need support for multiple bank accounts, currencies, cost centres or payrolls, and weekly, two-weekly and monthly pay intervals? What about job costing, retrospective payments, and student loans management? Even statutory compliance may not be standard, and you may have to pay more for requirements such as the Construction Industry Scheme, IR35 and P11D, and you may want to check if and when your provider will be able to meet the impending ‘real time information’ requirements.

So payroll is an area where even the most die-hard fan of ‘cloud’ might benefit from being ‘technology agnostic’. Payroll is complicated, and if you want to find a solution that meets your needs, you will need to focus on a lot more than the technology (cloud or otherwise) that underpins it.

Lesley Meall is a freelance journalist and editor. She has been writing about accountancy, business and technology for more years than she cares to remember, and before this, at some point in the dim and distant past, she used to be a software engineer.