How to choose a payroll software: A complete guide for businesses

Payroll. Just the word itself can bring to mind lots of paperwork and processes. If your business has grown to the point where a payroll system makes sense or you’re seeing the signs it’s time to switch payroll providers, you’ve arrived at critical decision. Selecting the right payroll software for your business can minimize the administrative headaches that often plague payroll teams, and help your company scale with a highly satisfied workforce.

This guide will cover what to look for in a payroll platform that will reduce costs, save time and boost both employee and management satisfaction. You’ll learn how to evaluate payroll software features, review payroll costs and ease-of-use, assess outsourcing and compare payroll software to HRIS and HCM solutions.

Looking for pain-free payroll software? Let’s talk.

How to choose a payroll software

Evaluating payroll comes down to meeting your business needs. Does the payroll provider check the boxes that are relevant for your company size? And does the software contain the functionality your team needs to efficiently do their jobs? Assess the following features as you conduct due diligence on your payroll software. 

Processing and calculations

Calculations are the obvious but still most valuable work-horse feature of payroll software. From payroll calculations and deductions that figure out net pay to the non-standard calculations of bonuses, holiday pay, overtime, etc., letting a robust payroll system handle this means less time spent cranking out spreadsheets and more time spent on things like budget forecasts and strategic decisions.

Flexible pay

The needs of your employees are as diverse as your employees themselves. A good payroll system should take steps to meet those diverse needs by offering flexible pay. A payroll system that can enable multiple payment vehicles (direct deposit, debit card) and/or multiple payment frequency options (daily, weekly, bi-weekly, on-demand, etc.) can help reduce the financial stress of employees. This can in turn, boost employee morale and productivity, as long as it’s a solution that doesn’t charge your employees for this benefit.

Tax compliance

Compliance is a necessary headache. Selecting a software package that has not only done the compliance homework for you, everything from IRS to EEOC to Sarbanes-Oxley, but also keeps up with the nearly constant changes in those regulations can be the cure for that headache.

A good payroll system can bring some ease to that compliance deadline accountants dread: tax season. Get your tax forms to your employees and freelancers accurately and on-time. Some providers will even offer guarantees, so you can feel confident you’ll be covered if there are any issues that come up. 

Security

Payroll systems often come with additional features over and above the periodic needs of payroll processing. The retention of those records is also important (see Tax compliance). Payroll systems that offer secure cloud storage can bring the peace-of-mind to not only compliance but also disaster recovery by having financial information stored off-site.

Built-in payroll reporting

Reporting is available on many payroll systems, but the key to good reporting is not making it complicated. Look for reports built into a system that have been proven over time to fit most customers’ needs, or reporting dashboards that give crucial numbers at-a-glance. These options can alleviate end-of-week/month/year headaches that many payroll managers face.

For the ad-hoc reports that all managers ask for, having custom reporting that is easy to use and easy to save is important as well. Once those custom reports are built, the option to automate generation of those saved reports is also an important time-saver.

Time tracking

The ability to report, approve and send hours to the payroll system in a timely fashion is critical to a company’s ability to get employees paid correctly and on time. Having a central software system that can perform time tracking, paired with an easy-to-use app that lets employees record time and managers approve and transmit that data, can bring your payroll processing into the twenty-first century. 

Managers should be able to easily verify their hourly employees’ time, so payroll admins aren’t left to track down approvals and reconcile time punches days or sometimes weeks after the work was done. The delta between when an employee works and when their hours are verified can lead to not only inefficiency but also time fraud.

Geotagging

If you have on-site services, knowing worker location during timestamps improves time tracking and prevents time card fraud. Geotagging is also useful in today’s work-from-home world. Mobile capabilities of a payroll software are key to accurate geotagging and geofencing.

Smart payroll

Get to your desk in the morning and see a notification that your reports are in your inbox/network folder waiting for you. That’s much better than getting to your desk with a day’s worth of reports looming in front of you like a charging rhino. A good payroll system can make this a reality. Automation can also go beyond reporting to include things like automated transfers and manager verification of hours.

A smart payroll system should have the ability to catch errors when they occur and the predictive ability to help humans reduce and avoid errors in the future. This technology can discover an employee forgetting to record a break or enter their recent PTO day into the system before it carries over to a point where fixing it requires costly man-hours and redundant manual processes.

Sustainability 

If a provider is still delivering hard copy documents and paper checks, it’s wasteful and also slow. Besides being socially conscious, another motivation to “go green” is that employees increasingly want quick access to real-time information on their device rather than on a sheet of paper. Employees overwhelmingly prefer digital access to their wage/salary and benefits information, so look for modern solutions vs. providers that feel stuck in the past. 

Affordable payroll software for small businesses

We’ve reviewed how to evaluate a payroll system, so now let’s discuss what goes into payroll pricing. While prices vary greatly depending on number of users, number of employees, and the complexity of the software itself, what should be made clear to you is an easily comparable itemization of what exactly you are paying for, so that you make an affordable and reasonable investment.

Costs that should be made clear to the purchaser are:

  • The base price of the software and the features it includes.
  • The features the base price does not include and how much each feature costs.
  • Any structured pricing (Example: cost per number of employees per month)

Clarity is the key to payroll affordability. Pricing should be straightforward, so that a business with 50 employees is not paying for a payroll system scaled for 3,000 until they get to the point where they are closing in on that many employees.

Look for a provider that doesn’t lock you into a long-term contract and offers upfront pricing, so you don’t have to go through a lengthy negotiation process. Beware of expensive onboarding add-on costs as well. To maintain affordability, opt for a solution that shares the onboarding work with you and doesn’t charge for it. 

Easiest payroll software for small business

We are in an era of design being as important as functionality and ease-of-use is top of mind when it comes to critical business systems. A payroll manager should not have to hop back and forth between multiple tabs, menus, interfaces or pages to get their tasks done. They shouldn’t have to attend seminars or take extensive training to know how to use the software. 

People are used to the easy, seamless user experiences they get from consumer apps, and they’re starting to expect the same out of work software. The easiest payroll providers offer usability features like the following that legacy providers have lacked: 

  • Being able to review and approve payroll quickly vs. having to devote an entire afternoon or multiple days to it
  • Time tracking that’s fully integrated with payroll system
  • Easily integrates with other software to reduce the need to manually export/import data
  • Easy entry and onboarding of new employees
  • The ability to easily access and export payroll data
  • Allows users to interact with it from any device

A good payroll system should be both readable and easy to use on a variety of devices, from desktop to tablet to phone and across multiple platforms such as PC and Mac and/or iOS and Android.

Should you outsource payroll?

Keeping payroll in-house versus outsourcing it to a third party is a decision many small business owners struggle with. To understand the difference between the two, it’s easiest to think of it in terms of the involvement of staff and technology. 

Keeping a payroll system in-house requires involvement of both staff and technology, while outsourcing payroll removes the day-to-day data entry, calculations, payroll check processing and other administrative overhead involved in the process. It also removes the responsibility of administering the software and hardware the system resides on. But it comes at a cost. Working with a professional employer organization (also known as a PEO) typically starts at $49 per employee per month (and can go much higher) and costs as much as $200 per when benefits are included. 

Doing it 100% in house means the business owner or admin is responsible for all the tax calculations and withholdings, making all employee payments and remittances, filing all returns, manually obtaining and securely storing employee documents and more.

What many companies ultimately land on is a combination of in-house work and out-sourcing other tasks like payroll, health benefits or retirement vehicles. 

A company will have some software that resides in-house and staff whose duties involve payroll, but they’ll also have a third-party software solution (Everee, Gusto, Paylocity, ADP, etc.) that creates efficiencies by removing a lot of the day-to-day time-consuming tasks. The company is left with a staff that’s involved in payroll instead of consumed by it. Moreover, in a world where payroll is more and more digital, they have software that’s user-friendly enough for both payroll staff and employees to not only get paid, but access things like tax information, withholdings, retirement contributions, etc. Most of these tools also offer features around things like timeclock, employee onboarding, document storage and more, to lessen the burden of HR tasks as well as payroll. 

The difference between payroll, HRIS and HCM

If you’re considering purchasing payroll software for the first time, you might not be clear on the differences between payroll vs. HRIS vs. HCM. 

When an employee gets paid, what goes into the final number that’s on their paycheck can come from a myriad of different sources. How well those sources work and play with one another can determine how efficient your overall payroll process is. 

A person’s net pay is more than just an hourly wage multiplied by time worked or a big number divided out over 52 weeks or 26 pay periods. If it were that simple, payroll software wouldn’t exist. 

A paycheck can also take into account withholdings from federal, state and local tax authorities, contributions to retirement plans, elected contributions to things like company-sponsored life insurance, 401(k)s, child care and medical savings accounts, stock options, transfers to savings accounts, short and long-term disability, etc. Paychecks may also include deductions due to absences or PTO, where pay isn’t negatively affected, but where it’s important to keep track of these hours as well. 

The ability for a company to offer these benefits to employees and the need to efficiently and accurately keep track of them over time increases the need for software that can handle these tasks. A lot of the software available that offers these features fall under the HRIS and HCM categories, both of which include a lot of functionality a small business might not need yet—and might not want to pay for. 

The distinction between HRIS and HCM is delineated by the tasks that they handle. An HRIS (Human Resource Information System) typically assists an HR director with HR-related tasks such as recruiting, training and development, personnel tracking, workflows/org charts, and benefits administration. However, there are HR tasks that directly interface and overlap with the payroll world such as absence management and compensation management.

By contrast, the HCM system (Human Capital Management) handles things more commonly associated with the manager of an employee, someone with more day-to-day contact than HR personnel would have. HCM systems handle tasks such as employee reviews, employee onboarding, and employee/team analytics. An HCM system can certainly affect what data goes into the HRIS system because of things like employee reviews causing increases in salaries.

Whether or not you need the functionality of HCM or HRIS software will depend on the stage of your business and number of employees. Many small businesses simply want employee document storage, employee demographic data and payroll functionality, and there are some payroll platforms available that provide this level of support at a more affordable cost than going with a full HCM or HRIS platform. 

Choosing payroll software: Worth the investment

The drawbacks of choosing a poor payroll provider are obvious. For team members, not getting paid on time or accurately causes low morale and poor performance. For employers, administrative issues create reputational difficulties at the least and legal difficulties at worst. A good payroll system can eliminate these issues by increasing the efficiency of payroll procedures, which in turn increases a business’ confidence that it can pay their employees accurately and promptly.

Simply put: a good payroll system is worth the investment. It removes administrative overhead from your accounting and payroll staff, alleviates obstacles to compliance, and creates consistency that your employees can count on. For a business owner, it’s an important, well-balanced feature of your business that has one foot in the ongoing operation of your company, and the other foot in the long-term strategic plan for your business. 

In an era of growing expectations for the employee experience, the reputation of your company and satisfaction of its workers is something worth protecting. Taking the time to do the research into investing in the right one is time worth spending.

Need an easy-to-use, full-service payroll software? Learn more about Everee.

Leave a Reply

Your email address will not be published. Required fields are marked *