How to choose the right payroll software for your business
Managing payroll is probably one of the longest-running business uses of computing technology and the options available are legion.
Whether you buy your own stand-alone software, go for a module bundled with your HRMS, or outsource to a third party supplier and let them worry about the technology, the most important factor is accuracy. The slightest error in a salary calculation is guaranteed to result in loud complaints (and rightly so, we all depend on our earnings) and whichever option you choose, there are a number of factors that will impact on that choice.
The following text looks at the key issues associated with payroll management software, including:
- Outsourcing vs. in-house - what’s the best option for you?
- Gathering requirements for a new payroll solution
- Key payroll software features
- Different types of payroll software
- Some recommended payroll solutions - both standalone and HRMS integrated
By its very nature, payroll management is dealing with information (and outputs) in bulk; this makes it particularly suitable for outsourcing to a specialist payroll provider, or to a PEO (professional employer organization) that includes payroll on its list of services.
Whether outsourcing is right for you depends on how the following pros and cons impact on your particular business circumstances
Pros of outsourcing:
- Up-to-date knowledge: it’s reasonable to expect a payroll outsourcer to be an expert in everything payroll-related so that you don’t have to be. After all, that’s what you’re paying for, someone else to keep up to speed with taxes and government compliance, and in different states, countries, and territories, if necessary.
- Cost: it costs to outsource but it also costs to do it yourself. Think about the time and expense of training staff to manage payroll efficiently. Think about hardware like check stock and printers. Then there’s the need to agree a contract for direct deposit transfers. It all adds up.
Cons of outsourcing
- Loss of control: some businesses just like to keep it all in-house and if you do that with payroll then at least no one else is going to let you down, right? Any mistakes are yours.
- Lack of flexibility: outsourced payroll is less flexible. If you miss your deadline for submitting the necessary information, as laid down in your service level agreement, then payroll is delayed. At least with an in-house payroll team (or person) the boss can ask them to stay late. Similarly, your employee and payroll data stays on the premises and despite the security of the cloud these days, some businesses like it that way.
- It can be easier to deal with problems in-house: rectifying payroll errors can involve the payroll team, HR, and finance. If those teams are spread across two organizations, communication often takes longer and problems may not be solved so quickly.
As you research your organizational requirements and consult with various stakeholder groups as to their payroll needs, it’s worth considering the following issues which can be especially relevant to payroll solutions:
- Self-service – by providing self-service functionality to employees, you’re giving them direct access to their own payroll information and avoiding most or all of those everyday inquiries about pay stubs, deductions, and contributions. What’s more, self-service puts responsibility for the accuracy of employee details (such as bank account numbers) on the individual employee.
- Mobile – firstly, payroll self-service offers more convenience to employees when combined with mobile access. Secondly, some providers offer an app that enables the manager/owner to run payroll remotely via a mobile device. If you’re a small business and you need to be ‘on the road’ then this kind of flexibility will likely suit your needs.
- Notifications & prompts – efficient payroll depends on the right action being taken at the right time and while any payroll solution should offer automatic prompts as standard, you need to consider your payroll process and which prompts are necessary.
- Payroll cards – payroll cards (prepaid debit cards which are credited with the employee’s salary) are increasingly popular. If you have this convenient system in place (or are planning to implement it) then you need to know that the software can manage this element of the process.
- Integration – whether outsourced or not, payroll software is dependent on the data in your time and attendance and bookkeeping systems. Seamless integration is the ideal.
- Security – payroll involves some of your most sensitive business information – social security numbers, bank account details and salary figures, payroll records – and as such, the security of that information is extremely important, not least because of the liability should you lose control of it.
Any new software selection or implementation is a golden opportunity to review the processes that you’re automating, and payroll is no exception. The following is a suggested framework for reviewing and designing your payroll process:
In each payroll process, track the flow of information from step to step and from person to person. Look for are bottlenecks, steps or actions that slow the flow of data, these are the points to focus on for improvement.
Likewise, analyze your payroll performance over the last year and look for the parts of the process that caused/experienced the most errors. Again, these are prime candidates for change.
Finally, look for any redundancies, any unnecessary checks or monitoring steps – ask, are they really necessary or are they just slowing things down.
When you begin changing elements of the process, bear in mind:
- The various roles and responsibilities, both in your organization and any outsourced providers
- Opportunities for self-service functionality and mobile access
- Security risk points
- Compliance issues, including legislation, regulations, and reporting requirements
- Any consequences for other HR processes (e.g. time and attendance and benefits administration)
- Employee response – Will your changes be accepted? How can you ‘sell’ them?
The basic purpose of any payroll system is to calculate gross and net employee pay, calculate deductions (taxes, social security, etc.), pay employees (by direct deposit or check), and produce year-end tax forms and returns.
However, in addition to this core functionality, look for the following:
- Self-service & mobile access – as mentioned above, there are various benefits to offering employees direct access to their payroll data and enabling that access via mobile devices.
- Legislative compliance – whichever country your employees are being paid in, there will be a number of legislation mandates for you to comply with. In the US, the following are the four main acts that apply, however, don’t forget your payroll solution needs to also handle any local, state, international and other federal provisions.
- The Federal Insurance Contributions Act (FICA) – recordkeeping requirements for Social Security, disability, and Medicare purposes.
- Federal Unemployment Tax Act (FUTA) – record-keeping and reporting responsibilities relating to the federal unemployment program.
- Fair Labor Standards Act (FLSA) – highly-detailed recordkeeping requirements covering minimum wage, overtime pay, equal pay and child labor.
- Consumer Credit Protection Act (CCPA) – specific employer responsibilities concerning attachment of earnings and garnishments.
- Union issues – in a unionized workplace, it helps if your payroll solution can incorporate issues such as dues checkoff (deducting union dues from salary at source), varying pay scales (union members may be on different pay rates and scales and an automated system reduces the chances of error), and collective bargaining (during negotiations, payroll reports and analytics can be a source of objective and trusted information).
There are three broad types of payroll solution:
- A standalone system
- A module that is part of another enterprise system (e.g. accounting/bookkeeping)
This choice can be particularly important if you are handling payroll in-house rather than outsourcing. Getting your people paid accurately and on time relies on data from your accounting system and time and attendance software; furthermore there are links to benefits enrollment and management, and cost reporting and analytics/reporting.
For these reasons, the use of an integrated HRMS payroll system is increasingly common and the following are some of the advantages of doing so:
- Single data entry – when everything is drawing from a single – or at least, combined – database data input, updates, and changes need only be done once.
- Better quality reporting – as more organizations embrace HR analytics and increasingly rely on data-driven insights when forming strategy, payroll and its associated information is an essential dataset to include.
- Seamless accounting – your finance or accounts team rely on accurate data from HR and payroll. The right HRMS payroll system with the right API (application programming interface) will interface with Xero, QuickBooks or other common accounting software packages.
As the cliché goes, your mileage may vary, and so will your organization’s specific payroll software needs and requirements. What follows is a short ‘starter’ list of established payroll solution providers:
- ADP Workforce Now – ADP (or Automatic Data Processing) is the longest-running name in automated payroll. The Workforce Now HRMS package offers payroll services including a mobile app with self-service features allowing employees to access paychecks and W-2 records.
- Paycor – A combined payroll and benefits package, aimed at providing an easy user experience.
- Quicken – Quicken is a Paychex company, offering stand-alone payroll software aimed at small business owners.
- BambooHR – Fully integrated with their open source HRMS, BambooHR seek to simplify the payroll process without undermining its accuracy or efficiency.
- APS – APS (or Automatic Payroll Systems) have a predictably strong focus on payroll management. This human capital management software includes streamlined payroll functionality fully integrated with everyday HR processes.
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