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by Brian Westfall,
Market Research Associate
Last Updated: December 1, 2016


No matter what kind of business you’re in, you have to process payroll. Whether you run it manually, outsource to a third party or something in between, you need a reliable method of making sure employees get paid.

As high-speed Internet and mobile access become more common, online payroll software’s popularity is on the rise. If you're in the market for a new system, this guide will help you choose the right one for your business. We’ll cover:

What Is Online Payroll Software?
Common Applications of Online Payroll Software
What Type of Buyer Are You?
Benefits and Potential Issues
Market Trends to Understand

What Is Online Payroll Software?

Online, or “cloud-based,” payroll software refers to systems hosted in the cloud, on the software vendor’s servers. Unlike with on-premise deployments, which require users to install software on their own computers and servers, online software lets users log in from anywhere.

There are many online payroll solutions out there. Some are sold as stand-alone payroll applications, while others are included as part of broader human resources (HR) software suites. Big vendors, such as ADP, offer multiple cloud payroll systems with different levels of functionality. No matter which vendor you choose, there are some capabilities common to most online payroll systems, which we’ll explore next.

(If you're not sold on the cloud-based deployment model and would prefer to evaluate all payroll systems, both cloud-based and on-premise, check out our general payroll software guide.)

Common Applications of Online Payroll Software

These systems often come with some or all of the following core capabilities:

Compensation management Found in all payroll software; automates payroll processing. Users assign pay rates to employees, then enter employee hours manually or import them from a Web-based time and attendance application. The system automatically calculates wages and generates paychecks. May include direct deposit options, bonuses, commissions, overtime and tips.
Time and attendance Allows employees to clock in and out within the system, and administrators to track employee attendance.
Tax filing Available in more robust systems. Automatically prepares, files and pays state and federal taxes. Alternatively, provides tax calculations and/or documents for users to prepare and file manually.
Accounting integration Some systems package payroll processing and general accounting together. Alternatively, some systems simply offer integration with users’ existing online accounting software.

What Type of Buyer Are You?

Online payroll software buyers can choose from options with a range of functionality: from basic compensation management systems all the way up to complete HR suites. The system that’s right for you will depend on your payroll, accounting and HR requirements:

Basic payroll needs. Some vendors offer entry-level online payroll packages that include capabilities only for compensation management and time and attendance. Businesses looking to fulfill basic payroll needs might choose one of these, such as Wagepoint or Payroll by Wave.

Payroll and accounting software. These solutions combine payroll processing and accounting. Systems such as XERO include payroll processing and general ledger accounting in one product. Others, such as QuickBooks Full Service Payroll, integrate with full accounting platforms.

Complete HR suites. As mentioned, many online payroll systems come as part of an HR suite. These suites include functionality for personnel tracking, applicant tracking, benefits administration, talent management, scheduling and more in addition to payroll. Businesses looking for a complete solution can check out software such as Paychex Flex and Kronos Workforce Central’s Web-based option.

Benefits and Potential Issues

There are many benefits of choosing online payroll software over software deployed on-premise. Some of these perks include:

Security. With cloud-based deployments, businesses don’t have to worry about on-premise crashes, thefts or other crises. Online software vendors have their own secure servers and security policies to help prevent hacking and data loss (which are often more robust than those of individual businesses).

Automatic updates. Cloud payroll software vendors often update their products to reflect things like changing tax laws. Because online payroll software can update automatically, users no longer have to buy new software each year.

Lower upfront costs. Since cloud payroll solutions are typically priced on a subscription basis, users don’t have to pay a large installation fee up front, like they do with perpetual licenses (which are common for on-premise systems). Instead, they pay a more manageable fee either per month or per year.

Though online payroll software solutions have lower initial costs, the recurring costs eventually add up. However, since on-premise software often requires users to purchase updates, over time, costs for the two types of system tend to even out.

Market Trends to Understand

Here are a few trends to be aware of as you search for new software in this market:

Mobile accessibility. More and more businesses want their payroll software to be accessible from any device. Cloud-based software has made it possible for vendors to offer mobile apps, so users can log in from their smartphones and tablets.

Many vendors also offer mobile employee portals. With these portals, employees can access their timesheets, salary information and more while on the go.

Cloud-based solutions for larger enterprises. In the past, cloud solutions were marketed only to small and midsize businesses. Now, more and more vendors are offering robust online payroll systems for larger enterprises.

Systems targeting larger businesses often include a wider range of capabilities, such as HR applications or accounting integration.

Free Download:
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Free Download:
Ten Steps Guide to Selecting the Right
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