Payroll has become an increasingly complex area of business. Even the smallest employer now needs to deal with tricky areas such as tax credit administration, as well as old favourites like basic tax, and national insurance, so businesses increasingly depend on payroll software to help relieve the burden, and keep costs to a minimum.

Nonetheless, the cost of payroll administration is rising. According to recent research, the annual cost ranges from as little as £20 for each employee, to more than £100. Unfortunately the smaller the business, the higher the figure is likely to be. 'The costs tend to fall as the size of the payroll increases,' observes Dr Colin Lawson of the University of Bath,' so the burden weighs most heavily on those least able to bear it.

As David Frost, director general of the British Chambers of Commerce, comments: 'A BCC survey has shown that only a quarter of businesses have a dedicated HR employee. This means that attention and time has to be diverted from other crucial areas of running a business to manage the growing load of obligations.' The BCC is trying to convince the government to simplify its payroll compliance, but until and unless it succeeds, small firms will just have to bite the bullet.

Payroll administration has never been more difficult than it is today; but it has never been easy - and the smallest employers have always been hardest hit. Fortunately, payroll software can help. That's one of the reasons why the Inland Revenue began accrediting payroll packages. When it introduced its Payroll Standard back in 2000, the aim was clearly stated: 'To help small employers to decide which payroll software product or service will support their business needs.'

'My accountant recommended the payroll software we use,' says Joyce Mason, who runs a small design consultancy. 'I trust his advice, but I do worry about getting on the wrong side of the Revenue, so knowing it was approved gave me real peace of mind.'

Software suppliers can also benefit from the scheme. 'The Revenue website is often the first port of call for small firms looking for a payroll package,' says Toby Newman, product manager for the Iris business software range, so it gives those listed an edge with first-time buyers. People increasingly use the web as a reference tool, and the Revenue site is a popular port of call. 'This has increased interest,' comments Newman, 'and customers often ask about the Payroll Standard.' They're also particularly interested in the Revenue's incentives for electronic filing, and acquiring software that will help them take advantage of it.

When the Edinburgh Central Branch Club of the Royal British Legion decided to upgrade its spreadsheet-based approach to the payroll function, this was one of its main reasons. 'The possibility of making mistakes looked increasingly likely,' says treasurer John Clarke, 'so we made the decision to invest in a payroll system.' But the club also liked the idea of getting money from the Revenue. 'One of the key reasons for us selecting Iris is that we are able to file returns online,' he says, adding: 'We intend taking full advantage of the government incentive payments on offer for businesses that use electronic filing.'

Of course, the Revenue also benefits from the scheme by receiving better quality data, and using it to encourage employers to file their returns electronically - in line with the government's commitment to e-government. Five years after its introduction, the scheme looks well on its way to achieving all of its aims, and more.

The Payroll Standard mandates a host of features designed to make it easier for small businesses to meet the Revenue's increasingly weighty requirements. Software must be able to handle tax credits, student loans, pension contributions, statutory sick pay, statutory maternity pay, statutory adoption pay, and statutory paternity pay, in addition to being able to calculate and record tax and NI correctly, provide each employee with a P60, and produce the information for forms P13, P14, P35 and P45.

All employers will have to file their end of year PAYE returns electronically by 2010, and the Payroll Standard already requires applications to be able to file P14 and P35 forms electronically either via the internet or EDI, and enable users to be able to pay money owed to the collector of taxes electronically via BACS, CHAPS, BillPay, internet banking, or other electronic payment methods offered by banks.

The Revenue also tests products' ability to handle the online filing and retrieval of forms such as P14, P35, P38A, P38S, P45(1), P45(3) P46, WNU, PENNOT(P160), P11D, P9D, P46(car). But, as the online PAYE filing section of the Revenue's website advises, prospective users will still need to contact the software developer to 'ensure the software product meets your specific needs'.

The comfort factor attached to choosing a package such as Access Payroll, Iris PAYE-Master, Moneysoft Payroll Manager, one of the Sage Payroll applications, or any other application that has met the Revenue's Payroll Standard certainly has a lot to recommend it. Even so, the current list of accredited packages does raise some anomalies.

There are a great many payroll applications out there, and the list of accredited packages contains fewer than 50. Software suppliers that exist to meet the highly specialised needs of vertical markets, such as small construction companies or employment agencies, are conspicuous by their absence; although many of their niche users are the very employers the Revenue is keen to target.

As many of these organisations are very small set-ups with limited resources, their omission is not much of a mystery; meeting the Revenue standard can call for a significant amount of effort on the part of the software supplier. 'We worked closely with the Revenue when the Payroll Standard was first introduced,' says Newman of Iris, and its requirements were taken account of before PAYE-Master first went to the Revenue Payroll Support Team for evaluation. This lengthened the software development time somewhat, but as Newman comments: 'The benefits of accreditation significantly outweigh the effort.'

Some of the payroll applications conspicuous by their absence are the products of some very well known and widely used suppliers. For example, Intuit QuickBooks Payroll, MYOB Accounting and Accounting Plus, and Pegasus Capital Gold are all without accreditation, despite being aimed fairly and squarely at the smaller employers the scheme was designed to help.

During 2004, when the ICAEW published the results of its latest survey into the use of IT in accountancy practices (see Accountancy, December 2004, p75), the payroll application that received the highest overall satisfaction and intended recommendation ratings was Superpay, from Computerstore - a DOS-based application that is not listed as having met the Revenue's Payroll Standard.

It must, however, have a lot of other things going for it, or it wouldn't have knocked spots off the opposition.

In the survey, Superpay was the only payroll package with a zero business critical failure rate among users, it has a reputation for accuracy and ease of use, and software support staff who actually know something about payroll. In contrast Intex Earnie and Pegasus Opera, which both have IR accreditation, were among those rated less highly for performance, reliability and support, and were a bit of a disappointment when it came to ease of use.

This alone can make the list of applications that meet the IR Payroll Standard a little confusing, particularly for those who don't have a great deal of expertise or experience of payroll packages. In addition, there are quite a few products on the list that might be best suited to larger businesses. The honour roll seems to extend way beyond those aimed at small employers. Grampian Software, Frontier Software, and Topaz Computer Systems are just a few of the accredited suppliers whose products are aimed mainly at organisations that can't really be termed 'small employers'.

Of course, in the final analysis, the most important thing about payroll software is that it enables employers to pay their staff the right amount of money at the right time, as quickly and easily as possible. So, before accountants, their clients or their employers make a commitment to any payroll package, it is worth checking both the application and its supplier.

The Revenue's Payroll Standard and surveys such as the ICAEW's can both be a big help. But it's also a good idea talk to ask colleagues, friends, and similar businesses what they use. Find out how easily their chosen package handles routine tasks such as creating employees, generating payslips and running reports, and check to ensure the supplier provides year-end updates promptly and offers good support. Software should simplify payroll compliance, not make it more complex.