What Is Payroll Software and Why Should Your Business Use It?

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While it may not be the most exciting part of running a company, processing payroll is an essential part of any business. Payroll processes have been around a lot longer than any of us may realize, dating all the way back to the 14th century. Any business need with that kind of staying power isn’t going away any time soon. So how can you tackle your payroll needs efficiently? By understanding your specific payroll demands, you can determine if payroll software can help.

Payroll developed as a result of business owners recognizing the need to track not just purchases and sales, but all business finances in order to run a successful business. As a smart business minded person, you already know how important that is. Tracking these kinds of finances can be time-consuming and tedious for a business of any size.

What started as a simple handwritten process of record keeping has grown to be so vital to the business that it is unlikely any company could function without some form of payroll automation. While in the past that payroll automation was commonly outsourced to a pricey payroll service, the rise in technology now allows for businesses to handle all of their payroll needs easily in-house with the use of payroll management software.

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What Is Payroll Software?

If you’re just beginning to consider whether or not you need payroll software, then you probably have a pretty good idea of what processing payroll looks like. But you might not have a complete understanding of what exactly payroll software is or what it does. So what is payroll software? Pretty much exactly what you’d expect. Simply put, payroll software can be described as an application that streamlines and manages employee payments.

You value your employees. After all, they work hard and you couldn’t run your business successfully without them. Because of this, you know the importance of paying them a competitive wage and ensuring that they receive their paychecks regularly without any hiccups. Consequently, the biggest job that payroll software accomplishes is accurately calculating paychecks. Payroll software can easily track the number of hours worked, account for the rate of pay and calculate what an employee should be paid for the pay period.The most effective payroll software can track time and attendance, allow employees to submit time off requests, calculate pre- and post-tax deductions, manage expenses and much more. While it may sound like it’s time to say goodbye to your payroll staff, there may be more to consider. If you have more than 10 employees, you may want to keep your payroll specialist on staff to monitor and keep the system up to date.

While payroll software can certainly do most things, it still won’t take the place of your smiling payroll specialist. Understanding the needs of your business and the capabilities of various payroll software will help you to determine which software will best serve your business and how to implement it.

What is payroll software?

What Does Payroll Software Do?

Fortunately for accounting and HR departments, payroll software can do most of the heavy lifting when it comes to payroll. From conveniently storing basic employee information to keeping you up to date with the most current tax laws, there isn’t much payroll software can’t do for you.

Some payroll systems are included as part of a human resource information system (HRIS), which provides tools to help manage a wide range of HR activities. Manually adding up the number of hours worked in a week can take 20 minutes per employee — and that’s just the first step of processing payroll. You’ll still need to calculate additional factors like the rate of pay and overtime. That’s a lot of time dedicated solely to paying employees. A payroll system that can track time and attendance can do all of this automatically saving hours of effort. Despite the varying capabilities of different software and the fact that there will still be things left over for you or your payroll specialist to do, payroll software is still an incredible time-saver.

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Payroll Management

The obvious use of any payroll software is overall payroll management. The automatic calculation of wages on a preset schedule is a huge advantage. Often this capability will need to be set up manually. However, after set up, the system is able to run the payroll process with little additional effort on your part other than occasional customizations.

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 payroll software. A system that combines payroll and timekeeping eliminates all the hassle created by tracking employee time cards. These types of systems can monitor absences, sick leave, hours worked, overtime and other factors. Then, these systems can seamlessly sync this information in order to efficiently process payroll.

Tackling Taxes

Let’s face facts, tax law is dull and confusing. It’s all too easy to misunderstand state and federal tax laws, much less stay on top of social security requirements. And it certainly doesn’t help that these laws can change frequently. Herein lies yet another benefit of payroll software.

Many payroll software systems update automatically as tax laws change, taking the boring and often confusing legal reading off your hands. Additionally, when it comes time to file tax forms your payroll software might be able to fill out the forms for you, depending on the system you choose. Though you’ll likely still have to sign the forms yourself, your system can help you remember when it’s time to file — saving you the headache of filing for extensions or paying penalties for missing a deadline.

Additional Financial Management

Expense, benefit and bonus management can all be done with payroll software. Payroll software is able to track and calculate various employee costs. Whether your company has to account for mileage reimbursement or offers employee benefits like a paid day off on their birthday, payroll software can help.

HR is often much more than meets the eye. Any system that allows employees to take control of their benefits is sure to be a hit. Some software solutions contain a base of benefits and allow employees to submit claims accordingly. A system that possesses these capabilities ensures that tracking and accounting financial data is easy and accurate.

General Forms

Payroll software can also help by generating various reports and summaries. Your software 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.

Finally, payroll management software may be able to eliminate the hassle of record keeping. This type of feature allows you to easily store, and more importantly locate, employee records. With this kind of organization, you’ll never need to worry about misplaced documents, ensuring your employee and organizational information is accounted for and kept confidential — all conveniently in one place.

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Benefits of Payroll Software

Happy Employees

Perhaps the biggest benefit of payroll software is increased employee retention. The process of filling an open position within your business is time-consuming and often labor intensive. Once you’ve finished interviewing and vetting your candidates, you offer the job to the best candidate in the hope that they accept. If they do accept, it’s likely due to the promises you made them. One of those promises is compensation in exchange for their work. While delivering on this basic promise may appear to be easy work, failing to do so can be detrimental.

A study by the Aptitude Research Partners found that 49 percent of U.S. workers will leave their jobs after just two paycheck errors. That’s not a lot of room for mistakes when you stand to lose your hand-picked employees. Payroll software eliminates the possibility of human error that could result in inaccurate paychecks or other costly payroll mistakes. Simply the assurance of accurate paychecks delivered on a regular basis can be enough to keep your employees happy with their role in your business.

Increased Revenue

For many businesses, tracking basic payroll can quickly turn into a big Excel spreadsheet with many factors to keep track of. Factors such as the hours each employee works, over time, sick hours and rates of pay all need to be accounted for. All of this leaves plenty of room for costly error. A simple typo or misplaced decimal when entering data manually can wreak havoc on finances. Fortunately, these types of errors are entirely unnecessary and easily avoidable with the use of payroll management software.

When you use payroll software, you can rest easy knowing that you’re paying your employees accurately, you’re acting in accordance with current tax law and you can track all of the relevant financial information. It’s nice to know that your HR and accounting department won’t be wasting time correcting payroll errors. The American Payroll Association estimates that this kind of efficiency can result in an up to 80 percent reduction in the cost of payroll processing costs.

Additionally, this kind of software 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) proved to have an important impact on the future of payroll. Payroll software can track all of your data ensuring that you’re paying exactly what you should be paying in taxes and helping you to avoid costly non-compliance penalties.

Easy Customization

Utilizing a payroll software system allows for quick changes to be made in-house without hassle. Even after you’ve input your initial withholdings and deductions. In the event that a change needs to be made later on, authorized users have immediate access to the system and can make the required changes without contacting a third party. With a cloud-based system, users can even update information from the comfort of home so long as they have clearance to access the system. Additionally, the use of an in-house system ensures that critical employee and business information is secure.

Initial Disadvantages of Payroll Software

Learning Curve

While many of these systems strive to be user-friendly, there is still a learning curve to using payroll software. The more advanced features that a software possesses, the more there is to learn and the longer it will take to become totally efficient using the system.


Whether you opt to use a cloud-based or on-premise software, it’s important to be prepared for additional fees. Both types of software can have surprise fees pop up for varying reasons. Consider shopping around to compare prices. Be sure you aren’t overpaying for the system. Also, be aware of the capabilities of the system, and don’t overpay for a system that has abilities you won’t be using if you can avoid it.

Room For Error

While the payroll software eliminates much of the grunt work, there is still room for human error. Especially at the outset, much of the initial data will need to be entered manually to get the system up and running. When onboarding new employees there is also room for error when entering their information into the system. The payroll software will certainly eliminate many of the chances for payroll error, but it isn’t totally foolproof.

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The Wrap Up

Regardless of the size of your business or what your payroll needs are, it’s likely that payroll software can help. There are plenty of payroll software options to choose from; at this point it may be just a matter of picking the right one. Some of the most important considerations will be the size of your business and your budget for the software. 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 software and keep it handy when shopping around so you know which software checks all the boxes — and be aware which ones check too many extras.

What are your top requirements when shopping for payroll software? Let us know by leaving a comment below.

Mariah HansenWhat Is Payroll Software and Why Should Your Business Use It?

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