What is Payroll Software? Analysis of Features, Types and Pricing

Payroll administration is one of the most important business processes your company performs, yet one of the most cumbersome and time-consuming daily activities. It doesn’t generate direct revenues, so keeping this process to bare minimum in time and cost means savings and more efficiency to your business. This is why you need payroll software, so you can focus on income-generating strategies and daily core tasks.

The American Payroll Association estimates that payroll automation reduces costs from invoice and paycheck errors by 80%. The system requires little input from you, usually just wage details and work hours. Wage calculations, tax withholding, deductions and other backend processes are managed by the system.

What is payroll software? To find out, keep on reading. When you finish reading this guide, you’ll gain a full understanding of the system beyond the definition of payroll management software. You’ll appreciate the benefits of payroll software and its most important aspects. You can use this newfound knowledge to aid your purchase journey and select the best option for your business. Here are the key points you’ll learn in the next few minutes:

  1. Examples of payroll software
  2. Benefits of payroll software
  3. Types of payroll software
  4. Features of payroll software
  5. Factors to consider
  6. Pricing of payroll software
  7. Potential issues
  8. Latest trends

What are examples of payroll software?

Here are a few examples of payroll management software:

  1. BambooHR – An HRIS-integrated payroll management. Winner of our Best HR Management Software Award. It caters to small and medium companies. It has flexible core system and pricing model packaged with custom features allow users to set fields, tables and tabs, create user groups and integrate with related systems like applicant tracking and payroll. You can easily sign up for BambooHR free trial here.
  2. Xero – An accounting-integrated payroll management designed for small business that need to integrate payroll with online accounting. It’s a reliable BambooHR alternative that includes pension and finance management, as well as core accounting, inventory, bank reconciliation and purchase orders.
  3. Wave – A free small business online accounting with professionally templated invoices, estimates and receipts. Being another solid Xero alternative the solution offers credit card payments, income and expense tracking and deposit and pay stub payroll.
  4. UltiProAn HCM-integrated payroll management with payroll administration, tax management and compliant features. This Wave alterantive features advanced underlying technologies as artificial intelligence and machine learning to personalize system activities.
  5. GustoA standalone payroll software built for the small business owner. The solution also integrates with benefits and HR functions like employee onboarding, time-off tracking and document management.

BambooHR is an HRIS system with an integrated payroll administration feature. It allows custom settings and integration with applicant tracking.

Why use a payroll software?

Payroll  software lends to your business automation, data centralization, templates, integration and customization that, together, deliver the following major benefits. Here are more scenarios of the purpose of payroll management software, the better you appreciate this system beyond answering the question–what is payroll management software?

  1. Save time, avoid errors. Payroll processes are time-consuming and error-prone when manually done. A misplaced “0” or decimal point can wreak havoc to your finances. Moreover, the Sarbanes-Oxley Act of 2002, which the US Congress had passed in response to financial malpractices like the Enron and Tyco scandals, added complexities to regulatory compliance, including payroll, to ensure data integrity. You can turn to payroll automation to avoid inaccurate financial statements and penalties. It syncs and consolidates employee data and regulatory rules and automates calculations, leaving no room for an oversight.
  2. Pay employees correctly. Paycheck mistakes not only waste your time, they build distrust and can harm employee morale. Even when mistakes are honest, they damage your reputation and, worse, can fuel demoralizing rumors. Payroll software keeps calculations consistent and accurate. It automatically factors in key items like salary grade, benefits, expenses, allowances and deductions when processing wages.
  3. Pay taxes correctly. If your employees and contractors are spread out across the U.S. or you have offshore teams, tax compliance will bog you down. With nearly 10,000 tax jurisdictions in the U.S. alone, withholding federal, state and local payroll taxes comes in myriad forms and ways. Most payroll automation have built-in location-based tax calculations and reporting or, at least, a system lets you preset tax rules. Automation makes it easy to compute taxes owed and paid per employee, while templates speed up submission of scheduled reports to regulatory agencies. And when a tax law changes, most vendors immediately update their systems. You’ll find payroll management software a necessary tool to avoid costly late payment penalties.
  4. Build transparency. Disputes are settled quickly and clearly with drill-down access to timesheet, benefits, agreements and other related data. Payroll systems can break down records to granular level and pinpoint with accuracy the points of dispute, be it leaves, absences, expenses, adjustments, collective labor benefits and other wage-related items.
  5. Quick access to employee data. Payroll automation centralizes employment data, such as, contracts, CBAs, performance records, leaves, timesheets and conversations. Users with system permission can quickly access the related data from various devices or platforms. In fact, keeping staff records in one place has other merits beyond payroll, for instance, for job evaluation or opex costing.
  6. Customize reports. Whether payroll is attached to HR or accounting, payroll automation can customize reports based on rows &  columns, fields and other rules. You can define what items go into a report, for instance, payslips, benefits, expenses or current or historical data. Generating recurring reports is easily standardized and scheduled with smart alerts.
  7. Added security. The simplicity and ease-of-use of today’s cloud payroll solutions allow you to manage payroll internally. Relying on a third party to handle salaries exposes sensitive data. With payroll management software, employee data are accessible only to you and your authorized staff.

Xero integrates payroll with online accounting core functions for small business.

What are the types of payroll software?

Payroll management software can be classified by: deployment (cloud vs. enterprise), business size (small business vs. enterprise) and target market (general vs. industry-specific). There is another way to distinctly classify payroll software, one that may impact on your workflows.

  1. Integrated payroll management. Payroll, accounting and HRM have overlapping processes.; thus, often, payroll management is integrated as a module in accounting software, HRM or an organization-wide business system like ERP. It can be a standard feature or separately charged as an add-on. An integrated payroll management covers the core tasks like payroll processing, income tax calculations and paycheck printing.
    Examples: BambooHR, Xero, Wave, UltiPro
  2. Dedicated payroll management. These are standalone apps that go beyond core features with specialized functions as time-tracking & attendance,  customized reporting, benefits management and even a tax planner. A good dedicated payroll app should easily integrate with other HRM and accounting systems. This type of payroll system is popular among payroll services and small businesses.
    Examples: Gusto, Intuit Payroll, SurePayroll

What does a payroll management software do?

You’ve learnt what is payroll management software, but what are its uses? Payroll management software automates, streamlines, standardizes and centralizes payroll processes. Specifically, the following features of payroll management software accomplish the myriad aspects of payroll, from calculating wages and taxes to planning employee benefits and managing attendance.

  1. Payroll management. Wages are automatically calculated based on your preset schedule: daily, weekly, bi-weekly or monthly. This, in fact, is one of the main advantages of payroll management software. The module consolidates wage-related items like attendance, salary grade, benefits, reimbursements, leaves, advances, withholding taxes, terms and policies, etc. to compute wages. Most solutions need only to be manually set up with your rules, then the system takes over the payroll process. It can be customized along multiple pay and benefits structures and further configured for specific employees or contractors.
  2. Leaves management. The module allows employees to submit leave claims and monitor their leave balance, while managers can review such requests and notify employees of approved or declined claims. The module also calculates accrued leaves for wage calculation.
  3. Expense management. Expenses, deductions, loans, advances and other employee costs are entered, tracked and calculated in this module. Some payroll systems feature a loan ledger to account for all approved employee loans. This module may also handle reimbursements based on approved expenses.
  4. Benefits, bonus management. The module manages various benefits claims, including CBA,, allowances and other employee perks. Some solutions feature a knowledge base of benefits where employees can select and submit a claim.
  5. Income tax & deductions. This feature processes pre- and post-tax deductions. It helps you comply with various state and federal taxes and social security requirements. The system automatically does the calculations based on latest regulations. The more advanced payroll management solutions provide tools for income tax projections, TDS estimates and annual tax-saving investments.
  6. Time and attendance tracking. Standalone payroll management software may include timesheets or a time-tracking feature to manage attendance. This module tracks absences, increments, leaves and attritions and sync these data with wage calculations. Some advanced features let you manage multiple shifts and transfers and biometric integration to show real-time clock-in/out.
  7. Reports, payslips, forms. This is another key feature, which generates payroll reports like salary statements, benefits reports or leave summaries. Employees can also access this platform to check or print payslips. Likewise, payroll forms can be printed like 941, 943, 944, W2 and W3. Regulatory forms such as Form 16, Form 12BA and Form 12C may also be downloaded and printed.
  8. Record-keeping. Payroll management software also acts as a central repository of employee records and related documents. This feature usually include document management to handle files like offer letter, experience letter, employee profiles, organizational charts and applicable statutes for labor, tax and occupational safety.

Wave is a 100% free, offering credit card processing and small business online accounting tools like invoice and receipt scanning.

What are the factors to consider when getting payroll software?

We’ve answered the question what is payroll management software earlier in the article, let’s now look at how does it work. It depends on many factors. Payroll management software comes in various packages. Some are bundled with HRM, ERP or accounting system, while others are independent solution. Before committing to a plan, consider the following key factors to ensure you’re getting the best value off your budget.

  1. Cloud vs. on-premise. As with most business processes, payroll management can be cloud or on-premise. The list of pros and cons is long for both versions. Cloud has low capital outlay, regular updates, easy setup, near-zero maintenance, readily available support, multi-device accessibility, flexible features and price points. But it commits you to a perpetual monthly cost and sensitive data are stored in servers you don’t have control. On the other hand, on-premise requires: huge investment for licensing and servers; in-house technical talent to install and maintain the system; and downtime for upgrades. But data stays with you and there’s no recurring costs. We have an article that details cloud vs. on-premise comparison, which applies to your other business processes, too.
  2. Total cost of ownership. License fees or monthly subscription isn’t the only cost that comes with payroll management software. Read the fine print and check for hidden fees. Common costs that can quickly bloat the budget include: core features that are separately charged; setup fee; system upgrade; per-user fee; per-paycheck fee; training fee; and support fee. Also mind lock-in terms, which may strap you down with features you’re paying for but don’t need.
  3. Regulatory compliance. Make sure the payroll system support tax laws, social security requirements and applicable local regulations. These include the ability to set the right wage deductions, adjustments and generating required reports for different government agencies. Likewise, a good payroll solution automatically upgrades the system for tax changes, so your processing is consistently compliant.
  4. Key features. Focus on key payroll functions that meet your unique requirements. For example, how do you pay employees? If via direct deposit make sure the system allows bank synchronization; if through paychecks look for software that prints checks. Other key features include: tax withholding (does the system support local laws?); pay period (daily,weekly, monthly?); and supplemental payment (does it support bonuses and commissions? contractual service?).
  5. Scalability. Your payroll management system should stand the test of time and match your growth pace. Look ahead in five years and anticipate what features you’ll be needing. For fast-growing companies, these can mean more users, more employees, more branches, possibly offshore units and other additional operational elements that impact on payroll. In general, cloud payroll systems are more flexible at scaling up features, alongside the corresponding price tiers.
  6. Integration. If the payroll solution isn’t part of a larger system like ERP, HR or accounting, it must at least integrate with them. As your business expands payroll processes get more complex and will need to integrate with other applications, such as, sales ledger, recruitment, timesheets and reporting tools . Aside from system integration, you’ll need to think of compatibility with business and productivity apps you’re using. File export-import should work with standard formats like PDF, JPEG, DOC, CSV and TXT. Integration with cloud storage is also a big plus for backing up records. If you think you need multimedia, look for systems that accommodate videos and graphics.

Gusto is an independent payroll system that can integrate with benefits and HR modules for onboarding, document management and time-off tracking.

How much does a payroll software cost?

Payroll management system is priced differently by vendors, but there are underlying similarities. For example, many vendors charged by number of payee or user. If it’s accounting-integrated system, price may depend on number of invoices or quotes. Payroll management as a feature can also be charged separately as an add-on. Here are examples of the cost of payroll management software.

  1. BambooHR – Pricing is by quote to match your needs with the right set of features.
  2. Xero – It offers three price points starting at $25 per month with its most expensive plan at $60 per month. Its basic plan allows only for five invoices, quotes and bills and twenty transactions, while its premium plan has no limit on the same items.
  3. Wave – It is 100% free for invoicing, accounting and receipt scanning features. The vendor charges for payroll services in select countries.
  4. UltiPro – Pricing is by quote only.
  5. Gusto – It charges by number of users at $6 per month, on top of a base subscription at $39 per month. The basic price includes access to all features.

What are the potential issues with payroll software?

  1. Incompatibility with other systems. This is perhaps the stickiest issue and can wreak havoc to your automation plans. Not all payroll systems are designed to work with other systems like HRM, ERP and accounting software. Imagine your frustration to find out your payroll system can’t manage employee records you’ve stored in another application. Always check for integration–how the system works with the apps you’re using–when looking for the best payroll management solution.
  2. Non-compliant features. Payroll management processes like in accounting are tightly regulated by local, state and federal laws. The system must comply with regulations in an accurate and timely manner, which includes correct withholding taxes, deductions and reporting to relevant agencies. Likewise, the system has to be regularly updated for tax law changes or new regulations. Non-compliance costs you a lot in penalties and surcharges and wastes your time.
  3. Sensitive data in third-party hands. As with other cloud solutions, the issue of storing sensitive data like employee information and payroll details on vendor servers always rears its ugly head in cloud vs on-premise debates. But if the vendor is reputable and established security shouldn’t be an issue considering the alternative: how equipped and qualified is your company to secure its data?
  4. Incomplete features. Some payroll management system focus only on core functions as payroll administration and attendance. They leave out non-core but tools that may be key to your workflows. For instance, you may need check printing, real-time reporting, benefits planning and biometrics integration. The problem is exacerbated when you have an existing accounting solution with incomplete payroll features. Should you get another payroll system? In such case, you’re better off looking at the big picture, maybe consider an ERP that addresses all your business processes.
  5. Too much features. Conversely, a small business with basic payroll needs may end up paying for a fully integrated system. Payroll is often a feature in bigger systems like accounting, HRM and ERP. Make sure you pay only for the features that you use to keep this operation expense at the minimum.

How will payroll software work in the future? Let’s look at some of the trends shaping the category in the next few years.

  1. Hybrid solution. Where before the debate is on in-house vs. outsourcing, there is an emerging trend among companies to combine both. They turn to cloud payroll management to input data, while depend on the vendor or a payroll service provider to process and deliver payroll on time and compliant to existing laws. This trend is evident in vendors like Wave, which offers a free app and relies on payroll services for revenues. Startups are attracted to this setup to gain control over their data while freeing them up from headaches of day-to-day administration.
  2. Mobile and self-service payroll. Mobile payroll apps let employees access their pay details and relevant data such as holidays, accrued leaves and attendance. Employees can also print payslip or keep a digital file of it.
  3. Data-driven. Payroll management is becoming an instrument for data-driven strategic decisions. As it involves major costs and critical resources (talents), companies are turning to the huge volumes of data payroll management systems generate to find patterns and insights that help shape strategies and drive the company’s overall competitiveness. For example, the system can churn out employee turnover rate or overall company mood using leaves and absences as metrics, even if the system is not designed for business intelligence tasks.
  4. Machine learning. The technology is creeping its way into consumer gadgets (IoT) and, now, business solutions, payroll management systems notwithstanding. It’s a self-learning algorithm that studies your daily actions in the system and use these to refine procedures, navigation and UI.
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