Payroll Software

Buyers guide

What Is Payroll Software?

Payroll software is a system that handles payroll services, including payroll taxes, compensation, year end bonuses, pay stubs, paid time off, benefits management and tracks employee records. Many organizations outsource these types of administration tasks, but you may decide that in-house is best for your company, and there are many payroll software solutions available to streamline the task.

But determining which solution is best for you can be overwhelming. We’ve created this guide to help you navigate the vendor landscape. Here’s what we'll cover:

What Is Payroll Software?
Payroll Software Functionality
Benefits of Payroll Software
What Type of Buyer Are You?
Popular Payroll Software Comparisons
Market Trends to Understand

Payroll Software Functionality

This type of solution tracks a variety of information related to employee compensation and often includes benefits administration features. This includes everything related to wages (pay type and frequency, bonuses, withholdings, garnishments, etc.); paid vacation and time-off benefits and one-time or recurring benefits like health insurance, educational assistance, moving expenses and retirement plans.

In preparing a run, the system will calculate federal taxes, local taxes, and state taxes (including Social Security, Medicare, unemployment and disability insurance); print checks or execute direct deposits and export data directly to accounting software or in a format that's compatible for import to an accounting system. It should also support reimbursements for mileage, relocation for new hires, and other travel expenses, as well as any other expenditures fronted by employees.

Finally, the software should prepare tax forms and reports for the employer, employees and contractors, such as the 940, 941, 944, 1099, W2, W3 and 1099-MISC.

Benefits of Payroll Software

If your company is tracking employee information and processing payments manually, payroll solutions could save you time, money and a lot of headaches by mitigating compliance risks.

Save time. The biggest and most obvious benefit of a payroll management system is that it saves time, which, in turn, saves money. These solutions are designed to be user-friendly so the learning curve to set up and start processing payroll is very low.

These time savings add up. For instance, when the manufacturing firm Renaissance Veneer Specialty Products, Inc. implemented ADP's solution after having run payroll manually for years, the company’s HR manager said, “What used to take two days now takes...about half a morning.”

(Source: IRIS Software and Services)

Increase accuracy and decrease risk. Additionally, payroll solutions help business owners ensure they remit the correct amount of paycheck-related taxes and file applicable reports on time. When running payroll manually, even an honest mistake, such as a multiplication or rounding error, can have significant effects. In fact, in a 2012 study, ADP found that one-third of mid-sized companies incur penalties for noncompliance. These solutions will complete tax filings and reports for you, and remind you when they’re due.

And simply keeping up with the changes to the tax code is a time consuming task. The payroll software will track these changes so you don’t have to.

Generate reports. Finally, payroll solutions allow you to track payroll information over time and quickly produce useful reports for internal decision makers, accountants and auditors. Examples include summaries of quarterly costs, annual tax remittances and historical employee participation in 401k programs.

What Type of Buyer Are You?

For many companies, payroll is just one component of their software needs, but not always. There are several different levels of buyers, and these categories will help you determine the software that will best fit your needs:

Another consideration is the type of operating system you'll be running the software on. For example, if you're a Mac user, you may want to look at products designed specifically for the Mac interface. Alternatively, an increasing number of products are operating system-agnostic, meaning they're optimized to run in a web browser and are not dependent on a particular OS. See our list of payroll products well suited to Macs for more.

The availability of a mobile app could also be a factor when considering online payroll software. Not that you'll be able to run payroll or perform tax filings, but employees could submit time-off requests, update their personal info like phone numbers, and makes changes to other payroll options.

Businesses such as professional employer organizations and administrative services organizations looking to track payroll services for their employees should consider PEO software.

Popular Payroll Software Comparisons

• Gusto vs Paycor
• Paycor vs Patriot Payroll
• Gusto vs Square Payroll
• Paycom vs Workday
• APS vs Zenefits

Market Trends to Understand

• More payroll software is now Web-based. Software-as-a-Service (SaaS)—a deployment model where the vendor hosts the software on its own servers and clients access the solution through their Web browser—is becoming more prevalent for payroll applications. Because tax laws change frequently, any online payroll software you buy will need to be updated at least annually. Online payroll systems provide an excellent answer to that concern, as vendors automatically update the software with changes to tax laws for you.
 
• Employee portals are becoming more popular. Across the board, HR software is becoming more employee-centric. The availability of employee portals, on both SaaS and on-premise solutions, is growing. Look for more functionality that’s targeted toward employees; for example, employee self-service tax filing, access to personal payroll data, personal benefits, bank account details for direct deposit, paystubs, timesheet data and absence planning and reporting.