Payroll - Image credit pixabay/mohamed_HassanBreathe has published a report entitled, Demystifying payroll for SMEs (registration required). It is based on a survey conducted by Censuswide of 500 employees with payroll responsibilities in companies of between 10-250 staff.

Despite payroll being one of the most important functions in a business, it seems that SME’s are confident in their accuracy despite only around half of the organisations using cloud-based solutions. Many rely on spreadsheets and manual processes, which have a higher error risk and are time-consuming in comparison to payroll software.

The report is well illustrated and runs to 49 pages. It consists of an introduction and three major sections, finishing with a short conclusion. The three sections are:

  • An introduction to UK PAYE and payroll management
  • SME payroll management trends in 2021
  • Analysis: Security and cloud computing

The report draws on other research, strengthening the validity of its findings and justifying some of its analysis. It is a good if lengthy read.

Introduction to UK PAYE and payroll management

This first section explains payroll at a high level and is a useful read for someone expanding a business and wanting to understand more about payroll in the UK. It covers topics such as:

  • PAYE: What it is, deductions, reporting forms
  • Real-Time Information (RTI) Reporting
  • Tax codes and National Insurance
  • Pensions
  • IR35

There is then a very brief look at the benefits payroll software can deliver to organisations. This section could have been a lot stronger, but it remains vendor agnostics. It concludes with a glossary of Payroll terms. It is an interesting read but could have been improved with more links to other sources, especially around pensions. PAYE and RTI.

SME payroll management trends in 2021

This section contains the majority of the survey responses. The survey looked at who carries out payroll tasks, how they carry them out and whether their confidence levels in carrying them out.

Who does payroll

Since its last report in 2019, HR has taken slightly more responsibility for Payroll tasks, however many people have more than two functions and once suspect that the changes may be within an acceptable variance for the numbers polled.

Individuals responsible for Accounting (51%) and Bookkeeping (46%) are still most likely to undertake payroll. 33% also have the combination of at least HR Admin and Payroll, an increase of 5% year over year. Payroll is time-consuming for many and 37% of respondents spend around 12-17 hours a week managing payroll. What the report does not indicate is whether this drops for those using payroll solutions.

How do they do payroll?

57% are using dedicated payroll software, however, 10% are still using spreadsheets to manage payroll and another 11% use manual timesheets. The analysis did not show whether these are smaller firms within the 10-250 range.

While many SME’s are using at least one SaaS application, the report cites The Cloud Industry forums statistic of 88% there is still hesitancy in using cloud applications for payroll:

  • 51% said security was their top concern
  • For 28% budgetary constraints were a concern
  • For 19% training is a concern, with 14% having had no training in payroll at all

Confidence levels

Despite PAYE and payroll being a complex topic, 82% of employees with payroll responsibility are” in some way confident in handling it”. Many also feel able to turn to HRMC (68%) for help though 12% feel unsupported. No question was asked about other sources for support.

Breathe has a network of HR consultants, and no doubt some of these have Payroll expertise, it is odd that some are not able to turn to accountants or their HR advisors for support, perhaps a question for 2022?

Analysis: Security and cloud computing

This final section explodes the myth of cloud systems insecurity. It lays out the argument as to why cloud systems are more secure than traditional payroll solutions. There is information about the benefits of cloud solutions, especially during Covid lockdowns. It also explains some of the more technical benefits such as data security, ISO 27001 and GDPR. It summarised five key benefits that cloud solutions, specifically Breathe’s offer:

  • Daily backups run on your behalf by specialist engineers
  • High security levels with data housed in state-of-the-art datacentres
  • High system uptime and software availability
  • Fully supported by a team of specialists
  • Reduced carbon footprint – AWS committed to using renewable energy

What is ironic is that Payroll has used bureau solutions for decades, which are effectively a precursor to a cloud solution (and in some cases were migrated to cloud). The reluctance to move from existing systems to cloud because of security is almost certainly more to do with a resistance to change that everyone has.

Jonathan Richards, Founder and CEO Breathe
Jonathan Richards, Founder and CEO Breathe

Jonathan Richards, CEO at Breathe commented: “One of the most significant advantages of cloud-based payroll software systems is that they are hosted in datacentres which are often far more secure than a small business’ own environment. This means employee data is less at risk from cybersecurity issues such as ransomware.

“But not all clouds are equal. SMEs should opt for software which has received ISO27001 accreditation which is the industry’s benchmark of high security.”

Concluding thoughts

This section offers little in terms of a concluding analysis of the data but does offer some interesting insights. The world is changing rapidly with new challenges, such as the great resignation (or the great discontent according to Gallup). The report concludes: “We are now facing a new set of challenges to which the alliance of payroll and HR professionals will be key to overcoming.

Richards commented: “Payroll is possibly one of the most important functions of a business. If you’re not paying your people correctly and on time, then it will be near-on impossible to foster a positive company culture with a team of people who are motivated.

“It is shocking to see how far we still have to go in stopping time-consuming spreadsheets for payroll and ensuring SMEs are investing in cloud-based platforms. By taking the burden off payroll and HR teams through using software for tasks such as payroll, they will have more time to spend on what is ultimately the biggest asset to their companies: their people. With accredited and security-complaint solutions on the market, it’s time for SMEs to ditch the spreadsheets and harness the cloud.”

Enterprise Times: What does this mean

At 7,500 words this is a long document and would probably take around half an hour to consume. For someone looking to learn more about payroll and how they could improve the function within their own organisation, it is worth the read.

At times the report is wordy and more could have been made of the data obtained from the survey. There is little cross-analysis of data points and no graphs to illustrate the findings within the report.

The only surprising finding? 51% of SME’s are still citing security as a reason not to go to the cloud. One might have expected that to be much lower after the pandemic and lockdown where many turned to cloud solutions for many other functions across the business.


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