While it may not be the most exciting part of running a company, processing payroll is essential to any business. Payroll systems have been around longer than we may realize, dating back to the 14th century. Any business need with that kind of staying power isn’t going away soon.
Thanks to the evolution of technology, payroll software makes the process less complicated and more efficient. But what is a payroll system and how can it help you?
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Since payroll automation is the bloodline for running a successful business, the product you choose should seamlessly adapt to your organization’s needs. The program automates, manages and organizes tax filings and pays employees at baseline.
Instead of outsourcing to a costly payroll service, keep reading to learn how payroll systems help redistribute time and effort into your business.
Table of Contents
What Is Payroll Software?
A payroll system is a program used to streamline and manage employee payments. It manages and automates payments to employees, ensuring on-time paycheck delivery and compliance with local and federal regulations. Payroll software frees up human resource teams to do other tasks, such as planning and budgeting.
The payroll system developed as a result of business owners recognizing the need to track purchases, sales, and all company finances to run a successful business. As a smart, business-minded person, you know how important that is. However, tracking these kinds of finances can be time-consuming and tedious for a business of any size.
Overview
If you’re considering implementing a payroll system, you’ve probably had first-hand experience processing payroll. Many find the operation complicated or overwhelming because there’s still confusion about what it is and how to perform it accurately.
Your employees are valuable. After all, their hard work and dedication help your business to run like a well-oiled machine. With that in mind, you realize the importance of paying them a competitive wage and ensuring they receive their paychecks on time as scheduled.
The most critical responsibility of payroll systems is calculating payment details accurately. Systems with full-suite capabilities allow you to manage time and attendance, business finances and salary structure.
Example of a dashboard in a payroll solution. Source
With the rise of RPA (robotic process automation) and AI, payroll professionals have trained their cloud-based counterparts to perform the more tedious parts of monitoring and analyzing payroll.
However, certain aspects of automated payroll still rely on human governance. Understanding the needs of your business and the capabilities of various payroll systems helps determine which method will best serve your business and how to implement it.
Key Features
Fortunately for accounting and HR departments, payroll systems can handle most of the payroll burden. From conveniently storing basic employee information to keeping you up to date with the most current tax laws, there isn’t much a payroll system can’t do for you.
Payroll automation is compatible with existing back-end systems to handle the heavy lifting of calculating time, wages and taxes while simultaneously maintaining compliance. Some are part of a human resource information system (HRIS) that helps implement HR functions.
According to the American Payroll Association, some payroll automation tools are coding data with 99.5% accuracy. Any payroll system you choose should reduce errors while increasing your time to manage more pressing tasks.
Payroll Management
The obvious use of any payroll system is overall payroll management. The automatic calculation of wages on a preset schedule is a huge advantage. Often, small steps require information like an EIN, payroll schedule, employee classification type and state ID number.
You can also incorporate policies from your company handbook and assign access to designated specialists. After setup, the system runs the payroll process unattended unless you have specific customizations to add manually.
Time and Attendance Tracking
For any business that pays employees an hourly wage, the ability to track time and attendance can be the most beneficial ability of a payroll system. A payroll and timekeeping system eliminates the hassle of tracking employee time cards. These systems monitor absences, sick leave, hours worked, overtime and other factors. Then, they seamlessly sync that information to process payroll efficiently.
Tax Filing
Do you find tax law to be mentally taxing? If so, automating this complicated task will feel liberating. Staying on top of changing requirements and understanding the complexities of state and federal tax mandates takes time and effort.
Thankfully, payroll solutions automatically update as tax laws change. When the time comes to file tax forms, your payroll system may send out and pre-fill the documents for you.
Though you will probably have to sign the arrangements yourself, your system will alert you when it’s time to file — saving you the headache of filing for an extension or paying penalties for missing a deadline.
Financial Management
Your payroll solution will handle expense, benefit and bonus management. A payroll system tracks and calculates various employee costs. Whether your company has to account for mileage reimbursement or offers employee benefits like a paid day off on their birthday, a payroll tool can help.
HR is much more than meets the eye. Any system allowing employees to take control of their benefits is sure to be a hit. Some solutions contain a base of benefits and allow employees to submit claims accordingly. Systems with these capabilities ensure tracking financial data is easy and precise.
Example of a financial tracking dashboard in a payroll solution. Source
General Forms
A payroll system can also help by generating various reports and summaries. Your system may be able to generate reports, such as salary statements or benefits reports. Even more useful are systems that allow employees to access and print forms like their payslips or W-2.
A proper system eliminates the hassle of record keeping, allowing you to quickly store and locate employee records. With this kind of organization, you’ll never need to worry about misplaced documents.
Primary Benefits
Time Savings
The biggest benefit of a payroll system is saving time. Payroll software grants capabilities to automate core payroll tasks, which would otherwise take a lot of manual work.
Payroll software can store employee information, keep you up-to-date with the current tax laws and even automatically calculate wages alongside taxes.
Most software allows deluxe customizations that let you determine the specific processes your company needs from the payroll system.
According to a 2021 survey by National Payroll Week, 95% of employees use direct deposit because it’s the most convenient option. Similarly, 28% expressed that delaying their check would make it difficult to meet financial obligations. Therefore, assessing your payroll solution and transforming your back-office function into a convenient payroll delivery experience is essential.
Fewer Errors
For many businesses, tracking basic payroll can quickly turn into a big Excel spreadsheet with many factors to keep track of. Everything from everyone’s work hours and overtune to sick hours and rates of pay.
All of this leaves room for costly errors. A simple typo or misplaced decimal when manually entering data manually can wreak havoc on finances. According to the IRS, 33% of businesses make payroll mistakes yearly. Fortunately, payroll systems eliminate errors to prevent your organization from leaking profit.
When you use a payroll system, you can rest easy knowing you’re paying your employees accurately, acting under current tax law and tracking relevant financial information. It’s reassuring that your HR and accounting department won’t waste time correcting payroll errors.
Additionally, this kind of system can help you to avoid costly penalty fees that result from inaccurate bookkeeping. The early 2000s witnessed the Enron scandal that resulted in a slew of stricter financial regulations.
These strict regulations (like the Sarbanes-Oxley Act of 2002) have an important impact on the future of payroll. A payroll system tracks all your data, ensuring you’re paying exactly what you should pay in taxes and helping avoid costly non-compliance penalties.
Easy Customization
Using a payroll system allows for quick changes to happen in-house without hassle. Even after you’ve input your initial withholdings and deductions. Later on, if a change needs to happen, authorized users can immediately access the system and make the required changes without contacting the third party.
With a cloud-based system, users can update information from the comfort of their homes so long as they have clearance to access the system.
Disadvantages
Learning Curve
While many of these systems strive to be user-friendly, there’s still a learning curve. The more advanced a system’s features, the more there is to learn and the longer it will take to use the system efficiently.
Fees
Whether you use a cloud-based or on-premise system, you have to deal with additional fees. Both types of systems can have surprise fees pop up for varying reasons. Consider shopping around to compare prices to be sure you aren’t overpaying. Also, be aware of the system’s capabilities, and don’t overpay for a system with features you won’t use if you can avoid it.
Room For Error
While the system eliminates much of the grunt work, there is still room for human error. Especially at the outset, you’ll need to enter data manually to get the system up and running. When onboarding new employees, there’s room for error when entering their information into the system. The system eliminates many of the chances for payroll errors, but it isn’t foolproof.
Example of a compliance dashboard in payroll software. Source
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The Wrap Up
Regardless of the size of your business or what your payroll needs are, it’s likely that a payroll system can help. There are plenty of payroll system options to choose from. The tricky part is picking the right one. Some of the most important considerations will be the size of your business and budget.
But there will certainly be other considerations you won’t want to compromise on that are specific to your business. Compile a list of what you need from a payroll system and keep it handy when shopping around so you know which system checks all the boxes — and be aware of which ones check too many extras.
What are your top requirements when shopping for a payroll system? Let us know by leaving a comment below.