Tools and providers
Part of Choosing payroll software and suppliers with HMRC evidence and scenario testing
Due diligence on a payroll vendor, from entity identity to a clean exit
Perform payroll software vendor due diligence in England across entity, product scope, PAYE, pensions, security, resilience, support, contracts and exit.
Due diligence should test whether a supplier can deliver the exact payroll service promised throughout the contract. A recognisable brand, security badge or HMRC listing answers only one part of that question.
What to take away
- Due diligence must test whether a supplier can deliver the exact payroll service promised throughout the contract.
- A recognisable brand, security badge or HMRC listing answers only one part of the due diligence question.
- A diligence pack is useful only when operations can act on it after procurement ends.
Entity and product identity
- Record the contracting legal entity and registered details.
- Identify the exact product, plan, version and hosting model.
- Separate developer, reseller, implementer and managed-service roles.
- Check ownership, material sub-contracting and financial continuity.
- Obtain references from comparable customer contexts.
Confirm that evidence belongs to the contracting service rather than another company in the group.
Vendor identity checks
- Record contracting legal entity and registered details
- Identify exact product, plan, version, hosting
- Separate developer, reseller, implementer, managed service
- Check ownership, sub-contracting, financial continuity
- Obtain references from comparable customer contexts
PAYE scope and maintenance
- Find the exact product on HMRC's recognised software list.
- Verify the supported tax year, calculations and submission types.
- Review the supplier's rule-change and release process.
- Request test and defect evidence appropriate to the risk.
- Check support for corrections, acknowledgements and audit history.
The list is HMRC's online list titled Find payroll software that is recognised by HMRC. Recognition is granted per product, and the entry names the online submissions that product supports, which for payroll means RTI Full Payment Submissions (FPS) and Employer Payment Summaries (EPS). Check the exact product entry rather than the brand.
Recognition confirms the stated online reporting capability, not HMRC endorsement of the vendor's whole operation.
PAYE recognition checks
- Find product on HMRC recognised software list
- Verify supported tax year and submission types
- Review rule-change and release process
- Request test and defect evidence
- Check corrections, acknowledgements, audit history
Pension and workflow fit
- Map assessment, contribution, tax-relief and worker-event functions.
- Name every pension provider and exchange format required.
- Test rejection, correction and reconciliation.
- Assign communications and record-keeping responsibilities.
- Document unsupported arrangements.
Common providers include NEST, The People's Pension and Smart Pension. Contribution schedules for these are typically exchanged as CSV files built on the provider's own template, so confirm the template, column order and validation rules for each scheme you use.
Use The Pensions Regulator's payroll-software guidance to avoid reducing compatibility to one contribution field.
Pension workflow fit
- Map assessment, contribution, tax-relief, worker events
- Name every pension provider and exchange format
- Test rejection, correction and reconciliation
- Assign communications and record-keeping duties
- Document unsupported arrangements
Personal data and security
- Determine controller, processor and sub-processor roles.
- Review processing terms, locations, transfers and retention.
- Examine access, authentication, client separation and logging.
- Obtain Cyber Essentials or Cyber Essentials Plus status, ISO/IEC 27001 certification, a recent penetration test summary and the supplier's ICO registration number.
- Check employee document delivery and support access.
The ICO's contracts guidance provides a current prompt for required controller-processor terms. Confirm that operating controls can fulfil them.
Resilience and service
- Review dependencies, backup design and tested restoration.
- Exercise a failed import, submission and pension exchange.
- Match support hours to payroll deadlines.
- Obtain service-status and customer-notification routes.
- Review past material incidents through lawful available evidence.
Ask for measurable recovery evidence, not only an availability target.
Contract, cost and exit
- Normalise all fees using a realistic employer scenario.
- Review renewal, change, suspension, liability and termination.
- Define migration and customer-input responsibilities.
- Test a complete, intelligible data export.
- Confirm post-termination access, retention and deletion.
Worked example with illustrative figures: an employer with 120 staff on weekly and monthly payroll. The quote should list the core licence, a per-payslip or per-employee charge, the pension module, implementation and data migration, and any third-party modules.
Typical UK ranges quoted to an employer of that size are low hundreds of pounds a year for the core licence, around £1 to £3 per payslip per month, and £500 to £5,000 for implementation, which depends mainly on data quality. Replace these with the actual quote and compare one three-year total across suppliers.
Log every finding as verified, supplier stated, unknown or failed. Assign risk, owner and deadline, and require an authorised reviewer to accept residual risk. Do not let a sales deadline turn an unanswered material question into approval.
A worked log line: item, pension file format; status, supplier stated; evidence, current CSV template for the scheme; risk, medium; owner, payroll manager; deadline, before the parallel run; residual risk accepted by, finance director.
Rate risk by impact: a gap that blocks a live submission or a payment is high, a manual workaround is medium, and a cosmetic gap is low.
Implementation evidence
- Obtain a responsibility matrix for data preparation and validation.
- Agree parallel-run cases and reconciliation criteria.
- Identify who can authorise live HMRC submissions and payments.
- Document cutover, rollback and temporary-data disposal.
- Confirm training and administrator handover.
The implementation plan should identify the existing system as authoritative until acceptance. Ask how previous migrations failed and what control changed as a result.
Ongoing oversight
- Schedule tax-year, security and access reviews.
- Receive material incident and sub-processor notifications.
- Track submission errors, corrections and pension rejections.
- Reconcile contracted service levels with actual performance.
- Prepare a tested exit before a renewal decision.
Give each evidence item an expiry date. Recognition, integrations, certifications, insurance and financial information can all change during a multi-year relationship.
Summarise the decision in one page: supported scenario, material dependencies, failed or unknown checks, required safeguards and residual risk owner. Keep source documents with the contract record. A diligence pack is useful only when operations can act on it after procurement ends.
Common questions
What does HMRC recognition actually confirm about a payroll vendor?
It confirms that the product appears on the HMRC list for the online submissions named in that entry. It is not a judgement on support quality, implementation record or financial standing.
How should a buyer handle a material question that remains unanswered as a sales deadline approaches?
Treat an unanswered material question as an open risk rather than a detail to resolve later. The named risk owner should record the acceptance before sign-off.
What should be done about evidence that may change during a multi-year relationship?
Review the item at each scheduled point and treat an expired item as unknown until the supplier provides fresh evidence.
