Payroll software is important for all business owners who want to expand their organization. But choosing a good payroll software isn’t so easy. For many business owners, choosing the right system can be very confusing, especially if they do it for the first time.
If you are one of the first-timers, don’t worry. This blog is specifically drafted to ensure you don’t miss out on any details on purchasing the best payroll software.
Choosing the Right Software
Firstly, businesses have to consider the pricing models before making their final decision carefully. Even the best payroll software requires a special setup and additional expenses.
The majority of software vendors choose not to offer pricing plans on their websites. The companies need to contact them directly if they want a price quote.
We have curated an extensive expense guide along with some of the most common pricing models (plus additional costs) for you to consider and understand the payroll software market well.
Let’s get started.
Payroll Software and Its Features
What is Payroll Software?
Payroll software can help businesses reorganize and restructure complex payroll processes by using automated calculations and payments.
The software can help reduce time spent on administrative tasks, such as printing checks and reviewing timecards. Apart from reducing costly errors, companies can also manage compliance with federal, state, and local regulations and simplify tax filing.
What Are the Features of Payroll Software?
Here are some of the most common feature included in the majority of payroll management systems:
1. Payroll Processing
With the help of the payroll processing feature, companies can automatically calculate gross employee pay based on the hours worked they have worked. This functionality can also display information on any deductions for taxes, insurance, and retirement contributions, along with taking into consideration bonuses, raises, and overtime pay.
2. Tax Management
The tax management feature allows companies to calculate state, local, federal, Social Security, and Medicare taxes. It can also help with deducting tax money from employees’ paychecks. Every time the tax codes change, this feature automatically gets updated.
3. Tax Form Preparation
W-2, W-4, and 1099 tax forms are regularly prepared at the end of a year or quarter. Companies typically either print these forms or file them electronically whenever they submit taxes to the IRS or report employee withholdings. A payroll system can efficiently help simplify and automate this task for businesses.
4. Time and Attendance
The time and attendance feature can efficiently capture employee hours with the help of a manual time clock or time-clock software. Businesses can use these extra hours to calculate their employees’ pay. This feature can also help in keeping track of vacation and sick time.
Note: While some payroll systems can have inbuilt time and attendance features, others may require additional integration or a separate module.
5. Benefits Management
The benefits management feature allows businesses to keep track of vacation/sick time insurance, retirement, and other benefits.
Again, this may be a built-in feature, or you may have to purchase a separate module for it.
6. Payment Processing
Companies can now easily process employee payments by simply sending direct deposits to their bank accounts or printing paychecks. In special cases, businesses can also pay employees through pay cards (they are just like debit and credit cards).
Reporting includes custom reports and templates for metrics, including compensation analysis, taxes and deduction analysis, and gross-to-net payroll register.
8. Employee Self-service
Using this feature, portal employees can easily view all the information related to payroll, time and attendance, and benefits using either a web browser or mobile app.
Should You Outsource Your Payroll or Keep It In-House?
The payroll process does not end once you cut a check for your employees; it goes way beyond it. There are deductions for specific benefits, wage garnishments as well as taxes to withhold. This process can get incredibly tricky and complicated for independent contractors.
While larger organizations can have the resources for hiring a dedicated in-house payroll administrator, small to medium-sized companies (SMBs) typically have accounting, human resources (HR), or even the business owners to handle their payroll duties.
Suppose the company is small and is incapable of handling complex tax codes and employment laws within the organization. In that case, they can entirely outsource the payroll function to a reliable third-party provider.
Challenges of Outsourcing Payroll
Outsourcing payroll has its own set of challenges that companies need to be aware of.
Outsourcing this service can often cost a company more than payroll software. Even the most renowned outsourced organization will always present full scope of making mistakes with an employee’s paycheck. Most importantly, businesses cannot be fully sure if their employees’ personal details are in safe and secure hands or not.
Nowadays, outsourcing payroll is not as risky as it was before. Software vendors have ensured to roll out hybrid solutions that can effectively combine payroll software and payroll outsourcing together.
With this unique option, except when an accountant reviews and files for taxes, companies can seamlessly handle payroll internally throughout the year.
Companies that want payroll data can significantly benefit from this option and can easily make do without having to bear with the headache of running the entire payroll process by themselves.
Payroll Software vs. Payroll Module
The payroll management system is often included as a module within human resources management systems (HRMS), the accounting software, and the enterprise resource planning solutions.
Unlike payroll solutions that have better integration with different business processes, payroll modules generally have fewer features to offer users. If your company has already invested in dedicated and comprehensive accounting, HRMS, or ERP software, purchasing separate payroll software will only add to extra, unwanted costs.
Anyway, if companies need an advanced payroll functionality, they will have to consider investing in a specialized payroll management system.
Payroll Pricing Models
The cost of Payroll software is usually dependent on the number of employees in an organization and the level of features the software offers.
The market offers the following three common payroll software pricing plans to businesses:
Per month, per employee monthly subscription plan
The software-as-a-service (SaaS) pricing model offers companies to pay a monthly fee for accessing the payroll software through the cloud. Most companies prefer taking this subscription plan for payroll software as it offers a per month, along with per employee monthly fee.
For instance, the Patriot Software company charges users a fee of $10 per month. Additionally, it costs $4 per employee each month for subscribing to its Basic plan. Taking that into account, a company which has 100 employees will have to pay $410 per month.
Payroll software companies roll out monthly subscription plans in several tiers along with offering varying levels of features and services. Some top features of the expensive plans include HR advice, higher technical support, as well as a dedicated accountant for reviewing and filing taxes.
All business sizes are comfortable with this option because the monthly fee translates into a reasonable amount; on top of that, the per employee, per month cost is scalable. This option provides companies with decent flexibility in the features that they wish to deploy.
Per month subscription plan
There are a few vendors in the market that offer a monthly subscription plan, which usually includes an unlimited number of employees. The only setback about such solutions is that they offer limited functionality and support.
This type of plan is best suited for small businesses that do not require an extensive payroll management service. The plan is not suitable for larger companies because they will most likely need more comprehensive features that include tax filing and editing employee checks.
Perpetual license fee
All those companies that deploy HRMS, accounting solutions, or ERP on-premise will require purchasing a perpetual license for their payroll module too. This is a one-time fee, which is generally very high compared to the monthly subscription price. Plus, it doesn’t include any upgrades.
A perpetual license provides companies with more opportunities for customizing their software, and the payroll module is very well integrated with other modules such as HR, time & attendance, and accounting.
All payroll software systems have additional features that incur apart from the subscription or license fee.
Here’s what businesses can consider before investing in a payroll:
Implementing the software involves adding business tax data and employee information. It also includes integrating the software with other solutions like time and attendance, accounting, or an HR self-service portal. While vendors may involve the implementation process with their expensive monthly subscription plans, others might charge an extra fee for it.
A few limited support functionalities such as knowledge base, email support, etc. are generally included in basic subscription plans. If you want priority support and require access to a dedicated customer service manager, you will have to shell out extra bucks to enjoy the higher tiers list of features.
All kinds of software, including payroll systems, require ongoing maintenance such as updates, patches, and upgrades. This is very important because tax codes change every year. Even if your company has a perpetual license with the vendor, obtaining software upgrades will require investing additional fees from time to time.
Some popular payroll systems include:
- CheckMark Payroll
- Rippling Payroll
- Patriot Software
As mentioned earlier, the majority of payroll software vendors have monthly per employee subscription plans offering different levels of features. Companies looking for a payroll management system should carefully analyze their needs before settling with one vendor. If needed, they may also take assistance from an accountant or HR professional to make an informed decision.