Here’s how to understand what payroll software offers — plus how to pick the right one for your organization.
Here's what you need to know:
- Payroll software is an application specifically designed to streamline and manage employee payments
- Payroll service is offered by a third-party company that specializes in payroll
- Key components to evaluate as you shop for a payroll system include self-service, integrations, scalability, and more
Payroll is more than just issuing out paychecks — it’s a crucial function of a business. One of an employer’s main responsibilities is compensating their staff correctly and on time. The process is more complicated than that, though; companies also perform accounting, keep records, and set aside funds for federal taxes.
Long gone are the days when processing payroll manually was the only available option. Organizations can now automate their payroll system — and save time, money, and headaches as a result.
Let’s dive into payroll solutions, the business impact of automating payroll, and what to look for in a payroll system.
Payroll software vs. online payroll service: What’s the difference?
Small businesses have many options when it comes to choosing a payroll system. Once you have decided to move toward an automated payroll system, you’ll have to evaluate what payroll solution is right for your business. One of the first decisions you want to make is if you go with a payroll software or online payroll service.
Payroll software is an application specifically designed to streamline and manage employee payments. It can be software installed on your computer or live in the cloud so you can access it anywhere. Payroll software is designed to handle tasks such as time and attendance, wage calculations, employee payments, and tax payments and filings. It makes it easier for HR to:
- Select payment methods for employees
- Calculate wages and payroll taxes
- Store and pay scheduling data
- File federal, state, and local taxes
- Track employee time
- Store data about benefit deductions and retirement
- Retrieve data to run reports
Payroll software is designed to handle tasks such as time and attendance, wage calculations, employee payments, and tax payments and filings.
Businesses favor payroll software because it makes it easy for HR managers to make changes and updates. It also allows for payroll to be kept in-house, instead of outsourcing it, which makes the data less susceptible to security issues. It also allows easy access for managers and employees.
On the flipside, payroll software does come with a learning curve. If staff is resistant to learning a new software, it will become difficult to implement. The biggest downside is human error — you are still relying on your HR team or employees to input information correctly.
Payroll service is offered by a third-party company that specializes in payroll. One of the biggest benefits is its ease of use: you outsource everything to another company. This frees up time for your HR team and reduces your liability for payroll processing mistakes.
On the other hand, it’s significantly costlier than most payroll software methods and you have less control over it, which can introduce cybersecurity issues or you may see a delay in updating employee records.
Most small businesses invest in payroll software because of its ease of use and cost-effectiveness. Furthermore, an all-in-one HR and payroll solution offers the most flexibility for growing businesses.
Calculating the business impact of automating payroll
The business case: Use this worksheet to show the business impact of automating payroll for your small business.
- Determine payroll risks when running your payroll process: How often do you find that you make these common payroll mistakes: overtime calculations, retroactive pay, misclassifying employees, delayed paychecks for terminated employees, mismanaging records, or not paying employees on time?
- Calculate the average payroll cycle time: The cycle time shows how many business days the payroll process takes from start to finish. An automated payroll solution can cut down this time from days to minutes.
- Add the total cost of your current payroll process: This includes administrative tasks, like collecting records of time worked, calculating earnings and deductions, sending the information to your payroll provider, and distributing checks to employees.
- Quantify penalties and compliance risk your current payroll process poses: How do you maintain current payroll records, such as employee data, W-4 tax withholdings, and pay stubs?
What to look for in a payroll system
Today’s top-performing payroll system operates in the cloud and allows you to manage and run your payroll from anywhere. There are a variety of services available, and we’ve outlined the key components to evaluate as you shop for a payroll system.
Online payroll systems will automatically calculate an employee’s wages each pay period. The system should account for rates, shifts differentials, overtime, taxes, time off, Social Security, Medicare, and other benefit deductions. Also look for a system that has rules you can program to pay out bonuses, commissions, reimbursements, and other wages.
Filing and payroll taxes
Payroll systems can also withhold taxes, and file tax reports to local, state, and federal agencies. They also issue W-2 and 1099 forms at the end of the year.
Look for a system that allows employees to view their own pay stubs, PTO balances, year-end tax forms, plus have them update personal information.
You want a system that integrates with your current HR software, which means changes in personal information, paid time off, and payroll should be updated across all platforms. Some payroll systems offer integrations for time tracking, benefits, and accounting.
A modern payroll system should not only help you manage your current employees, but also offer a structure that helps grow your business and makes hiring and onboarding new employees easy.
Base fees range from $20 to $100 depending on the provider, in addition to charges for each employee or independent contractor you employ. Your payroll solution shouldn’t nickel-and-dime you for off-cycle pay runs, W-2 filings, or any other activities that you need to do to successfully run your business. Look for a clear price with no hidden fees. Ask about contract commitments — you don’t want to be stuck in an annual contract if you feel you can’t make the commitment.
Preview automated pay runs, make changes on the fly, identify and audit changes in the system, and discover new insights into your business to help it run smoothly.
Engaging user experience
A mobile workforce means mobile-friendly software. Allow your employees to easily make changes to their personal information, access their pay history, and request time off, all on-the-go.
Regardless of how simple your payroll product can be, HR issues are complex. Look for a product that offers customer support by phone, email, and live chat, so you’ll always have the help you need.
A good business intelligence feature can give you crucial insight into your workforce. Track compensation and pay changes by team, department, and location. Run custom salary reports by gender, race, and age to help support your diversity and inclusion efforts.
Look for a payroll system that automates the hard stuff and makes you feel confident that you are adhering to the latest tax and labor laws as well as state and local legislation.
Along with keeping you compliant with new and constantly evolving laws, a payroll solution that lives on the cloud will always provide you with the most up-to-date information and will require very little maintenance.
a payroll solution that lives on the cloud will always provide you with the most up-to-date information and will require very little maintenance.
Evaluating payroll software providers
When comparing payroll software providers, it’s important to establish certain things — like what they offer, what security measures they use, and their scalability. Here are some questions to ask when evaluating a payroll software provider:
- What services do you provide? Be sure the provider includes the ability to pay independent contractors, track paid time off, file payroll taxes, deduct benefits, and handle different wage earnings, such as bonuses, reimbursements, and tips.
- How are payroll taxes handled? Make sure that the service handles federal and state income taxes, unemployment tax and state unemployment insurance, year-end filings with forms W-2 and 1099.
- What is the pricing structure? A lot of providers charge a monthly subscription fee, plus they charge a fee per month per employee. Make sure there aren’t any hidden fees or extra costs associated with tax filings or running off cycle payroll runs.
- What type of security measures are used? It’s critical to keep your business’ sensitive payroll information secure, and have measures in place to prevent hackers from accessing it. You also want to know how safe the payroll’s data center is.
- What type of customer support is offered?
- How is onboarding?
- Is continued support and training available?
- What type of integrations are offered? You should be able to connect to other HR software used.
- Can the software scale with your business?
- As your business grows, can the provider add additional users and employees to your account?