Payroll Management Software: To Pay or Not to Pay?

There are free options for managing payroll. But are they right for you or do you need to use a paid payroll software solution? We’ve got the answers.

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Payroll Management Software: To Pay or Not to Pay?

Here's what you need to know:

  • Although free payroll software may work for some small businesses, nearly every company today opts for a paid payroll software solution, as the stakes regarding payroll are high
  • Payroll software automates many time-consuming tasks and helps you stay in compliance with legal requirements and pay your employees properly
  • In general, the paid version of payroll software will unlock the full set of features, provide more support, and come with more regular updates and new features added

In any business, you have to choose where to invest your money. When you’re looking at payroll software, it’s natural to wonder if you can get by with free software rather than having to buy something.

Free payroll software may get the job done, especially if you are a small business, but it also typically requires more work on your part. For example, open-source software for payroll administration is typically free.

However, you may need IT support to make sure it integrates with your other systems and to keep it running. Small businesses may not have the expertise or time to do that.

Other free payroll software options for small businesses may require less work, but you will find limitations. Still, free payroll software may be right for some people.

What is payroll management software and what does it do?

Payroll management software helps you manage your payroll and ensures that you pay your employees properly. It can be a stand-alone platform or part of your HR software.

Payroll software automates many of the time-consuming tasks associated with managing employee payroll, including:

  • Calculating taxes
  • Managing deductions for benefits
  • Producing the necessary documentation required for regulatory compliance

What are the benefits of payroll management software?

Four in 10 small business owners say bookkeeping and taxes are the worst part of running a business. According to SCORE, business owners dislike:

  • The cost
  • The administrative headaches and time
  • The complexity of compliance
  • Confusing and changing tax regulations
  • The paperwork

Using payroll software can automate and streamline many of the tasks that lead to these frustrations. By eliminating calculations and automating the processing, you can reduce your error rate significantly.

Most payroll systems today are cloud-based. This allows you and your employees to access payroll information online whether in the office, working remotely, or after hours.

Processing payroll can be a challenge, especially when you consider the tax code alone spans thousands of pages and millions of words. Yet, payroll administration is one of the most important things businesses have to do.

If you get it wrong, you’ll have unhappy employees. More than 60% of Americans live paycheck to paycheck, so even a minor error can cause significant problems. It can also result in turnover. After 2 payroll errors, almost half of employees say they’ll start looking for new jobs.

There are also fines and penalties for incorrectly processing your payroll. Case in point, 4 in 10 small businesses face IRS penalties from incorrect payroll filings, with an average fine of $845.

Perhaps the biggest benefit is the time payroll management software saves. By simplifying the payroll process, owners and HR teams can focus on bigger-picture issues that help businesses grow.

Free payroll software vs. paid payroll software

Often, HR software vendors offer free payroll services and a paid version. In general, the paid version will unlock the full set of features. The free version may have limited features or support only a few users or employees.

There may also be significant differences in support. Most free payroll software does not provide support beyond tutorials or guides, so you may have to turn to other users if you run into trouble. Paid software for payroll administration will provide support from the vendor.

Another key difference comes in the form of updates. Free payroll management software may not see regular updates or new features added. Vendors must prioritize paying customers first.

When and why should you pay for payroll software?

If you’re just starting your business or only have 1 or 2 employees, free payroll software may work fine for you. You will need to be comfortable doing manual data entry, though. If you don’t need all the bells and whistles, this may be a viable option.

However, remember that you are relying on free software to handle a mission-critical part of your business. That’s why nearly every company today opts for a paid payroll software solution. The stakes are simply too high.


When you use a paid software or payroll service, you’re more likely to get the support you need in case there is a problem.

For example, if you make a mistake with a free payroll software platform, you’re on your own to fix it. With a paid solution, there will be support teams that can help guide you through the process or fix it for you.

Backup and legal compliance

Another challenge with free payroll software for small businesses comes with backup and storage. After every pay period, you create new payroll information that you must maintain for 3 years under Department of Labor rules and 4 years under IRS rules.

Many free software solutions require manual backups or only save data to your computer. If the computer’s hard drive dies, you could lose everything.

Cloud-based payroll software or payroll services will handle the backup automatically and make sure the data is secure. While no system is foolproof, payroll software companies spend a lot of time and money to ensure data is protected.

Quality assurance

One additional benefit of paid payroll software is that it usually comes with additional features, such as quality assurance. Some free payroll software will run basic quality checks, but paid software solutions will build in additional safeguards and system checks.

Most paid payroll solutions will flag potential withholding errors along with multiple other quality assurance checks.

For example, 1 of the most common errors in payroll processing is withholding. Most paid payroll solutions will flag potential errors along with multiple other quality assurance checks.

What’s your biggest 2022 HR challenge that you’d like to resolve

Answer to see the results

Payroll processing service

Some businesses choose to outsource payroll processing completely instead of doing it themselves. While businesses have to enter information to get started, the 3rd-party provider will handle taxes, deductions, and making deposits for you. Many payroll services will also manage tax filings for you.

With Zenefits, you get free payroll for the first 12 months with a full feature set as part of our all-in-one HR software. This includes streamlined onboarding, benefits, and more in a paperless solution. To learn more, contact Zenefits today.

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