do small businesses need payroll software-man and woman talking in a retail store

Do small businesses need payroll software?

Saturday, December 20, 2014

Do Small Businesses Need Payroll Software?

Streamline your small business functions with payroll software

As your small business grows, the number of tasks that you perform also grows—marketing tasks, payroll tasks, human resource tasks, day-to-day administrative tasks, etc. In the beginning, your small business might employ two people, and you might run it out of your garage. But after a year, you may find that you're employing 10 or 20 people. And after a few years, that number might grow to 250.

Depending on the industry in which it is based, a small business can hire up to 1500 people. And it's definitely going to need payroll software. You may be able to pay 10-20 employees by calculating their salary manually (although even this might get to be tough), but you definitely can't manage more than that without involving spreadsheets, timesheets, someone to calculate taxes, cut checks, report deductions, pay taxes, and so forth.

You want to make sure that your employees are happy working for you. And this means you need to have a good company culture. But even the best possible company culture isn't going to be helpful if your employees aren't getting paid on time, are getting paid the wrong amount, or their deductions are incorrect.

Not using payroll software can create confusion across the board. Investing in good payroll software can help you with several accounting and bookkeeping tasks, including keeping track of employees' hours, paying them, issuing their benefits, withholding taxes and printing out the necessary tax documents at the end of the year. The right payroll software can be a one-stop solution to various problems.

What can payroll software do for you?

Payroll software automates the tasks related to paying your employees and providing them benefits. These tasks can be broken down into the ones that are done when the employee comes on board (filling out I-9s, W-4s or W-9s), the ones performed while the employee is working with you (paying the employee on a weekly, bi-weekly or monthly basis, after deducting their taxes) and the ones that need to be completed at end of the year (printing out the necessary forms such as W-2s and 1099s). Let’s take a closer look at these tasks.

I-9 forms ensure employee eligibility

The employee's journey with your company starts on the first day they start working for you. But before they can begin working, you need to make sure that they are eligible to do so. This is what the I-9 form is, an employment eligibility verification that the new employee is qualified to work in the United States.

Payroll software is set up to prompt you to complete this task. It will produce the latest form and allow you to save it electronically after the employee fills it out.

W-4 forms indicate tax withholdings

The W-4 form indicates how much tax the employee wants withheld. This information is crucial because it determines how much tax the payroll software withholds from the employee's paycheck. The employee can have the maximum tax withheld if they are single with no dependents, less tax withheld if they are married, and even less tax withheld if they have other dependents. 

W-9 forms are used for independent contractors 

An independent contractor is a self-employed person such as a consultant or a freelancer. As a general rule, you might employ them to perform specific tasks for your company, but you don't use them continuously. If you hire independent contractors rather than employees, they will need a W-9 form rather than a W-4. 

The difference in paying independent contractors is that they don't have taxes taken out of their paychecks. They are responsible for paying their taxes at the end of the year. Your payroll software will automatically adjust the settings once you input your independent contractor's information and won't deduct any tax from their paychecks.

How do you pay your employees?

Another piece of information you'll have to put into the payroll software is whether the employee is paid on an hourly basis or whether they are salaried. If the employee is hourly, the payroll software will automatically calculate their hours. The employee will have to log in when they arrive and log out when they leave. The payroll software will calculate the number of hours worked that week or month and generate the employee's paycheck accordingly, leaving the time you would spend performing this task free for other activities.

If the employee is salaried, then the process is more straightforward: they'll just get paid the same amount on a weekly, bi-weekly or monthly basis. The payroll software will figure out this number by just entering the employee's yearly salary.

How often do you pay your employees? 

Once the employee has filled out the necessary forms and you have saved them electronically, you'll need to tell your payroll software how often you want your employees to be paid. Is it once a week, bi-weekly or on a monthly basis? This is something that varies from company to company.

Payroll software can track employee hours and benefits so you don’t have to

When you're working without any kind of payroll software, it may be difficult to track employee hours. Only very conscientious employees are going to give you their exact hours each day. And if an employee is not very conscientious, they might add a little time here and there to increase their pay. Short of watching them constantly, there's nothing you can do to make sure they report their hours exactly. But payroll software changes all that by forcing employees to log in and out on their shift. This allows for accurate time tracking. 

Tracking employee benefits

If you provide benefits such as health and dental insurance, you'll need to deduct a certain amount from each of their paychecks. Generally, most companies pay a certain percentage of the insurance premium and expect employees to pay the rest. Payroll software automatically handles these deductions. 

Withholding taxes and making timely tax payments

As mentioned above, the W-4 indicates how much in taxes to withhold from each paycheck. The payroll software handles these calculations and will calculate the taxes that your business needs to pay to the IRS. The payroll software will also prompt you when these taxes are due.

All these tasks need to be done accurately and timely so that neither you nor your employee ends up owing taxes at the end of the year. It might be challenging to come up with a lump sum at that time, but when the taxes are deducted and paid with every paycheck, it makes life easier for everyone.

Issuing W-2s and/or 1099s at the end of the year

At the end of the year, you'll need to issue W-2s to your employees who work with you on an hourly or salaried basis and 1099s to your independent contractors. These documents include important information that your employees will need when they file their taxes. Payroll software will automatically generate these forms for you.

Why should you use payroll software?

Payroll software is there to automate the process of overseeing and paying your employees. It ensures that you are paying employees the right amount, withholding the right amount and filling out/printing all the documents required by law.

Could you do all these tasks without using payroll software? Yes, technically, you could. But when you use the software, you remove the probability of human error while saving hours of time.

If you set out to do all payroll tasks manually, you would need to employ at least a part-time person just to pay 10-20 workers. But when you use a payroll software, it takes care of so many tasks for you that you could have your payroll taken care of by the office manager.

Does your business need payroll software?

If you're considering investing in payroll software, then chances are you need it. It all depends on the size of your small business, the types of employees you have and whether you've managed to streamline your payroll process enough.

If you find that a number of mistakes are being made with regard to payroll every month or that many payroll tasks seem to be put off indefinitely and that you don't have the time to perform them, then you need payroll software. Here are some of the things you need to consider:

Do you hire employees or only independent contractors?

As mentioned above, independent contractors only work on specific tasks/assignments, and you don't need to take taxes out of their paychecks. This means that the process of paying them is a lot simpler than the process of paying employees. Independent contractors don't have to fill out I-9s, only W-9s.Additionally, there are no benefits to calculate for independent contractors. 
As a result, you may not need payroll software if you only hire independent contractors. You can simply cut a check for the agreed amount once their task or assignment is complete.

On the other hand, there's more paperwork for new employeesPlus, you have to calculate the taxes to be taken out of their paychecks, oversee how many hours they worked, and handle their benefits correctly. So when you hire employees rather than working with independent contractors, it makes more sense to invest in payroll software.

How much time do you spend on payroll each month?

Is it relatively simple to make sure all your employees get paid? If they are all salaried and you've already worked out how much tax must be deducted from each of their checks, then the process might not take too long.

On the other hand, if your employees work on an hourly basis and turn in timesheets every week, you'll have to check the timesheets, put their hours into a spreadsheet, and cut checks for each one after calculating and deducting their taxes. This is very time-consuming. So it would be better if you had payroll software.

In general, if you're spending more than a couple of hours on payroll tasks, then your business would benefit from investing in payroll software.

Have you had mistakes or miscalculations in the past?

There are some things that humans do better than machines, such as communicating, empathizing, understanding, etc. But when it comes to calculations, machines outperform humans.

It's possible for a human being to make mistakes when doing payroll. And this can happen at a number of levels. They might make a mistake in checking the employee's hours, adding up all the hours, calculating how much the employee needs to be paid, and figuring out how much needs to be deducted from their paycheck in terms of taxes. Payroll software, however, isn't going to make these mistakes, as long as it has all the information it needs.

How is payroll software a good solution for small businesses?

There are many advantages to using payroll software. Not only does it automate repetitive tasks, allowing you to focus on other activities, but it will also reduce any anxiety you might have about payroll-related mistakes.

Grow your business

Payroll software allows business owners and managers like yourself to free up your time so that you can focus on business strategy and growth. It's also a good investment if you are planning to hire more employees. Your payroll software will already be in place as your business grows, and you won't have any issues onboarding new employees.

Avoid costly mistakes

When you run a business, mistakes happen. They might be small mistakes which can be easily rectified or they might be big mistakes that cost your business considerably. A small mistake would be if an employee gets paid a few dollars less on one paycheck because their hours were miscalculated. A big mistake would be if you forgot to have an employee fill out an employment authorization and later realized that they were, in fact, not authorized to work in the country.

Payroll is a sensitive matter, especially since it involves monetary dealings with the government. If you deduct the wrong amount of taxes or neglect to send the taxes you've deducted to the IRS, you might end up having to pay a hefty fine.

From helping with end-of-year filings to calculating and withholding taxes, the best small business payroll solutions will help you avoid the most common payroll mistakes. 

But that's just a slice of what they can do. So solid are some of these software solutions that they can automatically update your payroll schedule, send you alerts when you have an impending tax deadline, and ultimately help you stay on top of all changing state and federal tax requirements.

Reduce expenses

When you install payroll software, you don't need to have someone specifically to do payroll. And you can use the money saved to expand on some other aspect of your business.

Employee portal

All the information that you put into the payroll software will also be there for your employees to access as and when they need it. Employees will be able to edit personal data, view and print pay slips, see their deductions, and access their payroll forms. 

How do you choose payroll software?

The best small business payroll systems are those that are inherently full-service. Your software of choice should have the following essential features:

  • Payroll processing and management
  • Direct deposit
  • Tax filing and calculations
  • Payroll compliance
  • Employee portal
  • Accounting integration
  • Expense management
  • Reporting capabilities

If you're after a software that's more business-oriented, consider looking for additional features:

  • HR onboarding
  • 401(k) contribution tracking
  • Workers' compensation
  • Wage garnishments
  • Automated check printing
  • Bonuses and deductions
  • Time tracking
  • Mobile scheduling capabilities, etc.


Ready to work with a partner who understands small business payroll?

Heartland Payroll+ is custom-made for small businesses like yours—complete with a dedicated representative who knows your enterprise inside out. With margin-friendly pricing, robust payroll tax management functionalities, and a slew of top-notch integrated solutions, we believe Heartland Payroll+ is the perfect solution to cover all of your workforce management bases now, and into the future. To learn about our products, visit