What is Payroll?
Payroll is the process by which employers pay an employee for the work they have completed. Any business with employees should have a payroll process established; payroll is often the largest expense for a business. An effective and efficient payroll process will ensure that employees are paid accurately and consistently, keeping them satisfied with this aspect of employment and allowing HR to focus on other areas.
Payroll seems simple at its core, but becomes complicated because of the various deductions that come into play. Employers must withhold taxes from each paycheck and make sure accurate funds are paid to the correct government agency. Employers may also be responsible for deducting and paying premiums for insurance and depositing funds into retirement accounts or to selected charities.
Payroll processing duties can create a huge burden and unwanted stress for small business owners and can be overwhelming for large businesses. A missed deadline or incorrect filing of taxes can result in fines or jail time. To avoid these issues, small, middle-sized, and large businesses can all benefit from using payroll systems.
What is a Payroll System?
A payroll system is software designed to organize all the tasks of employee payment and the filing of employee taxes. These tasks can include keeping track of hours, calculating wages, withholding taxes and deductions, printing and delivering checks, completing direct deposit, paying premiums to insurance carriers, and paying employment taxes to the government.
Payroll software often requires very little input from the employer. The employer is required to input employee wage information and hours—then the software uses the information to perform calculations and deduct withholdings automatically. Most payroll software is automatically updated whenever a tax law changes and will remind employers when to file various tax forms.
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Choosing a Payroll System That Fits Your Business Needs
Choosing a payroll system that best fits your business is essential. It may be difficult to decide which system to choose, but there are some factors to keep in mind when deciding. First, analyze the size of your business and decide how much you are willing to spend on payroll processing.
Determining your budget and the size classification of your business will narrow down the list of payroll software vendors, making your selection that much easier. Compare the offerings of these remaining vendors and read reviews from some of their current customers. If available, request demos and see for yourself how easy the software is to work with and how well it fits with your business.
While it is possible for smaller businesses to handle payroll duties in-house through a manual process, much time can be wasted while attempting to calculate everything correctly. One miscalculation and the business owner could find themselves in legal or financial trouble. Mid-sized companies with up to 100 employees benefit greatly by investing in a payroll system and for large businesses, it’s a no-brainer.
Why Small Businesses Should Use Payroll Systems
For small businesses, payroll system software can mitigate errors in the payroll process and reduce the amount of effort involved in calculating employee hours, wages, and tax withholdings. Payroll software is easy to use and often times very affordable for small businesses. In some cases, small businesses may save money by using payroll processing software instead of other alternatives.
Small business owners can purchase an affordable system accessible on their local computer or via a cloud service, using a pay-as-you-go model in many cases. Purchasing software eliminates the expense of hiring an in-house accountant for payroll processing. Companies can also avoid working with a third party for payroll processing, keeping the information in-house.
Lastly, small business owners can maintain more control of the payroll process by using software. Using payroll software allows the business to compile reports at whatever pace they desire and to make changes quickly if the need arises. This can be more efficient than trying to manually create reports or get in contact with a third party payroll company to make changes.
Things to Consider when Choosing a System
When choosing a payroll system, you’ll want to look for security. Having password protected software safeguards against tampering of information and potential data breaches. Ideally, the system should have good reviews and ratings for security. Vendor representatives should also be able to answer any questions that you have about security.
Next to consider is if the software proves to be compatible and flexible. It is important to have payroll software that functions well with your other business systems and will grow with your business. Look for integration capabilities and make sure that the system is a match for any HR or financial software that you’re currently using. Alternatively, consider obtaining a system that will handle payroll as well as other functions that may benefit from automation.
Another factor to consider is a systems’ credibility. Make sure the software is made by a well-known brand and not a new or unstable company. Having the vendor that processes your payroll go out of business can leave you scrambling to pay your employees on time and to recover your payroll history, while also trying to find a new payroll processing system vendor to take their place.
Lastly, you’ll likely want a payroll processing system that will allow you to still have control and the option of viewing reports and historical information. While payroll processing software is less susceptible to errors than manual systems, the potential exists for malfunctions and glitches. It can be helpful to be able to review information and make corrections manually at times.
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Authored by: Dave Rietsema