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 assists with compensating employees for time worked. This software can be purchased through a HR software vendor or can be included as part of a HR software package as a module within a comprehensive system.
Basically, payroll software helps with calculating paychecks from hours logged in time and attendance tracking systems. The software then draws paychecks or direct deposits funds into employees’ accounts. Taxes and deductions are also calculated and withheld by payroll programs.
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.
Why Acquire Payroll Software?
Providing compensation is something that must be done by any company with employees in every industry, no matter how large or small the company. Since payroll is something that has to be done accurately and regularly, it makes sense for companies to invest in a system that automates these processes. Payroll software can help to mitigate errors and improve compliance while saving time.
Keeping Payroll In-House versus Outsourcing
In the past, outsourcing payroll was seen as a way to avoid hiring a full-time employee or decreasing productivity by delegating payroll to an existing employee. Many companies still outsource payroll, but using payroll software is now an alternative to either of these options that many prefer.
With increasingly easier to use payroll program options, companies are now able to keep payroll in-house without having to delegate many labor hours to the process. Using payroll software can help companies to retain more control over payroll processes while enjoying greater flexibility than when payroll is outsourced, so making changes is easier.
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.
Determine Company Needs
Not all payroll software is exactly the same, so company needs should be assessed before vendor information is researched and reviewed. Companies that are smaller and do not expect to grow rapidly may wish to invest in less expensive payroll software that is limited strictly to payroll functions.
Companies that are large or are growing rapidly may wish to invest in payroll software systems that are integrated with other aspects of planning and human resources management, such as time and attendance software, onboarding functions, and scheduling. It is also important to consider how many employees a payroll software solution can handle and factor potential growth.
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 the 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 the information and make corrections manually at times.
Payroll Software Program Benefits
If payroll is being done manually, automating systems by investing in payroll software can help save labor dollars, eliminate errors, and avoid compliance issues. Processes can be completed in a fraction of the time, which frees employees up for activities that are more conducive to generating revenue. Having payroll software in place can also help to make it easier for a company to adapt and take on more employees as it grows.
Shifting payroll from a third-party outsourcing situation to using payroll software can save money, eliminate the potential for miscommunications regarding payroll, and minimize the number of vendors that it is necessary to interact with regularly. If a payroll solution is part of a comprehensive HR software system, processes will be streamlined and it may be easier to cross-reference information for decision-making purposes.
Calculating company taxes and understanding what reports to file can be confusing, missing deadlines for these items can garner hefty fines and penalties.
Payroll software programs help companies by providing information and reminders about compliance needs. The software is updated regularly so companies always have the most current information regarding changes in tax laws and other regulations. Some software can be set up to automatically generate reports and file taxes, so managers and employers simply have to submit approval before finalizing.
What Does Payroll Software Do?
Payroll software stores and tracks company information about employee compensation and deductions. Each employee’s pay rate, pay type, and hours worked are stored in the system and used to calculate gross income.
Calculates Deductions and Net income
After the gross income has been determined, payroll software automatically calculates deductions such as federal, state, and local taxes, insurance, and retirement savings. Deduction amounts are automatically subtracted and a check is drawn or direct deposited into a specified bank account.
Some payroll software solutions may also be configured to automatically add reimbursement for mileage, travel expenses, and other employee expenditures.
Prepares Tax Forms
Payroll software can automatically generate all tax forms that are needed by employees, contractors, and companies. Common tax forms that can be generated and printed or sent with the push of a button include W2s, W3s, 1099-MISC, and 1099s. Payroll software helps to relieve some of the stress at tax time.
Keeps Records Effortlessly
Keeping records with a manual system can be difficult and requires a lot of space for files and paperwork. Keeping records with payroll software is effortless and requires absolutely no physical space, as all files are stored electronically. Old files can also be accessed or deleted with the push of a button, so staying organized is simple.
While not generally needed for smaller companies, employee self-service options can make life much easier for human resources managers in larger companies. With self-service options, employees have access to personal information regarding pay history, deductions, hours worked, benefits, and time-off requests.
With self-service options, employees can automatically request changes and review information instead of having to contact the human resources department. Employees can also keep better track of their hours versus pay using self-service, which may help with spotting errors.
Cloud-based software of all kinds is becoming increasingly common and payroll software is no exception. Employers are seeing benefits from being able to access information from remote locations and pay for “Software-as-a-service” or SaaS on a monthly basis according to needs, as opposed to coming up with a large sum for a completely in-house solution.
Cloud-based payroll software solutions also provide automatic updates when tax and compliance laws change, whereas on-premise software will need to be manually updated. This can save time on both research and technical updates, while continuously ensuring that managers and employers have access to needed information.
Eliminate Payroll Errors
Handling payroll is an important function of human resources. It’s also a very than