Payroll for small businesses: tips and solutions

Running a small business is no small feat, and one of the most intricate aspects is managing payroll. It involves some of the most sensitive data from your employees and is rigidly governed by ever-changing regulations.

However, some solutions reduce the payroll workload without breaking the bank. They give small businesses more time to focus on what matters most rather than tackling payslips and tax codes. In this blog, we’ll delve into the unique payroll challenges faced by small businesses. We also offer tailored insights and recommendations to help them navigate these hurdles.

Limited resources and expertise

Small businesses are often run on a tight budget. This means maintaining an in-house payroll department can be nearly impossible. Therefore, key staff members are usually left with payroll and HR tasks. With an increased workload comes the increased possibility of human error and burnout. 

If deadlines are missed – or payslips need to be corrected – it can have a huge impact on employee satisfaction. When surveyed, 48% of employees said payslip errors made them feel as though their well-being wasn’t important. It can also become a retention issue, which can be fatal for small businesses. When surveyed, 21% of British workers said they changed jobs after a late or incorrect payslip.

To utilise resources effectively, many businesses enlist the help of managed payroll. These services provide the expertise and resources to small businesses without the added cost of running a payroll team internally.

Compliance concerns

Another pain point for many small businesses is ensuring compliance with ever-changing payroll regulations. This can include tax codes, reporting, employee classification and data privacy. Keeping to these standards is important for the financial health of the business and also important to avoid penalties and legal repercussions.

Part of the role of a managed payroll provider is to keep up-to-date with legislation. However, it’s also important for business owners and managers to keep abreast with changes to regulations, whether payroll is completed in-house or outsourced. Another way businesses can ensure compliance is through regular payroll audits. This can unearth any issues so they can be quickly rectified.

Time-consuming manual tasks

Many small businesses still rely on manual payroll processes. This can lead to the accumulation of time-consuming administrative tasks. Over time, completing these tasks can lead to errors. Therefore, when handling payroll in-house, it’s common to introduce the automation of key administrative tasks. 

Payroll solutions for small businesses

External providers

One of the ways small businesses can have the input of payroll experts without having to maintain an in-house department is through outsourcing. In a 2023 CIPP report, it was found that 72% of UK businesses use an external provider for payroll. Payroll service providers have access to the best expertise and software. Therefore, small business owners have the peace of mind that their payroll is both secure and compliant.

Staying technologically relevant

Technology is evolving at an incredible pace. To keep up, businesses need to stay technologically relevant. With more organisations utilising digital payroll tools than ever, businesses must embrace technology. A 2023 CIPP report found that 84% of businesses use online software for payslip distribution.

However, software changes can be time-consuming and costly for smaller organisations. Therefore, it’s important to make informed decisions. Invest in user-friendly payroll software that integrates with other business systems, providing a seamless flow of information. This not only enhances efficiency but also reduces the likelihood of errors associated with manual data entry. One way small businesses can ensure they are making the right choice is through software selection consultancy. These professionals evaluate the unique needs of businesses to match them with the right software. They take into account the business size, their existing systems and other factors to make the right decision.


Another way small businesses can embrace technological advancement is by implementing automation. This minimises the chance of human error and greatly reduces the workload of key staff. Companies can automate tasks like the following:

  • Salary calculations
  • Time and attendance tracking
  • Electronic pay stubs.

Automation can also be implemented across software platforms. This allows for data syncing, where information is the same across different software. This helps businesses avoid monotonous tasks and errors. Embracing technology in payroll management allows businesses to focus on growth and innovation, confident that their payroll operations are efficient and compliant.


Small businesses face specific challenges in payroll management, from a lack of resources and expertise to tackling time-consuming tasks. However, there are tailored solutions available to address each obstacle. By acknowledging their limitations and proactively applying outsourcing and tech solutions, small business owners can establish a streamlined and efficient payroll process. This can allow them and their staff to focus on business growth and employee satisfaction.

Assad Ahmed image
Written by : Assad Ahmed

Assad founded Phase 3 in 2004 and is responsible for the strategy, growth and finances of the business.

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