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Payroll defined and revalued

By Will Lovegrove, CEO, SystemSync Solutions

In my opinion the payroll industry, comprising both payroll software providers and payroll bureaux, is seriously undervalued.

It has historically operated a business-critical function on thin margins and at low cost to its customers. The presence of the free, government-backed Basic PAYE Tools (BPT) has defined the low end of the market, effectively handicapping payroll software from selling to over one million micro employers. But my prediction is that the payroll industry is well positioned for a price correction, like an undervalued stock in a growth market.

Most payroll professionals see auto-enrolment as yet another piece of legislation or business process that they are forced to deal with. But to me, auto-enrolment feels like the final act of a disruptive era in which payroll software will cease to be a single-function, standalone tool available at practically no cost, and will instead be transformed into a highly integrated multi-function tool that comes at a price.

HMRC started this unstoppable process with RTI – the regular delivery of what is essentially a mix of HR employee and pay data from payroll to HMRC. Auto-enrolment will finish the job that RTI started by ensuring that the payroll software for hundreds of thousands of employers will effectively take on the surrogate role of HR software and will be operated on their behalf by their accountants. Accounting, payroll and administration of auto-enrolment will shortly become too complex for employers to handle by themselves, while remaining too important to get wrong.

Payroll software and payroll services will have to increase in price as responsibilities increase. “Impossible,” I hear you say. “Our customers will not accept increasing prices. They are used to seeing payroll functionality increase without corresponding price increases.” I acknowledge this point. It is historically true. But this time it’s different.

My observation is that so much of the pricing strategy for low-cost, ‘basic’ payroll is defined within the shadow of HMRC’s Basic PAYE Tools. There are a great many payroll software products on the market today that are free for less than nine users, which happens to be the upper limit for the BPT. The Pensions Regulator (TPR) estimates that 250,000 micro businesses use BPT. By comparison the Office for National Statistics (ONS) estimates that there are over one million micro businesses employing between two to nine employees – the inference being that there’s a very large number of employers in the UK who are used to paying nothing for payroll software because BPT is present in the market.

But none of those one million businesses are exempt from auto-enrolment. They will all hit their staging dates between 2016 and 2018. Critically, though, HMRC have no plans to upgrade BPT to handle assessment. This decision is currently causing TPR to seriously contemplate creating and supporting its own standalone free assessment tool (at taxpayers’ expense). My view is that in 2016, BPT will cease to be a practical alternative to commercial payroll software. If that’s true then payroll software will be permanently liberated from the metaphorical gravity well caused by the presence of BPT in the market. The payroll industry will be able to re-evaluate and redefine its products and services into a large, national marketplace in which the demand for outsourcing and automating complex business processes is rapidly rising.

Posted on 4th June 2015 by Jerome Smail



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