How do you determine the best payroll system for your business - woman running payroll from her home office

How do you determine the best payroll system for your business?

Sunday, December 21, 2014

A payroll system is a critical element for any business with more than 25 employees. But not all payroll systems are created equal. Taking time to understand the unique needs of your business and choosing the appropriate payroll system will go a long way.

With the right system, you can quickly and efficiently tackle all of your payroll activities, including wage calculation, timekeeping, withholding, tax reporting. A good system will also mitigate common payroll mistakes.

What is payroll software?

The best place to start is understanding what payroll software is and what it entails. The purpose of having a payroll system for your business is to make the processes more manageable and reduce the burden of payrolls for your business.

The system is electronic and secure. It accesses and updates employee data and customizes reports, among other features, depending on the type of system you choose. You will spend less time calculating and paying salaries, taxes, and wages with good payroll software. You will also have fewer errors, which is vital to any business.

Why should you invest in a payroll system?

A payroll system comes with many benefits for businesses—from reducing costly errors, saving you valuable time, and guaranteeing better data security, among others.

Let's take a look at these benefits in more detail:

Error-free calculations

Being human means you’ll inevitably make errors. As long as you're calculating your payrolls yourself, you're bound to make mistakes. This is one of the main drawbacks of traditional paper-based payroll processing. At times, these errors are costly.

With an expanding employee base, the HR department will find it challenging to manage the workload and the detailed analysis of the numerous employees. Payroll software will take away the pain and drastically reduce the chance of costly errors.

Save time

In business, time is money, and it is valuable to every business. A payroll software saves you the worry of spending days entering pay stubs and payroll calculations. In the beginning, you will enter the employee data and payment structure. But after that, the system will take care of the steps that follow and even update itself.

Having a good payroll system to handle the time-consuming and laborious tasks gives you more time to grow and improve your business.

Better data security

A payroll system greatly enhances data security. Compared to having papers scattered all over the office, which is easily accessible, the security that comes with a payroll system is substantial.Some of the best payroll systems provide data encryption to guarantee safety.


Purchasing the payroll software isn't cheap, but in the long run, the time you save by having one in place will more than pay for itself. Your business can save on costs spent on professional payroll services and help you get a better grip on your payroll, and increase your returns.

Customer support

Most competent payroll software companies have a vibrant and responsive customer support system that will walk you through the challenges and obstacles you face when using their system.

The customer support teams are easy to reach and take care of your concerns and queries quickly and effectively. Knowing that you have a support system behind you gives you some sense of peace.

Up to date taxes

Payroll tax rules are constantly changing, and keeping up with them can be hard. You don't have to worry about that with a sound payroll system.

The software will give you instant updates on new tax laws and forms and how they impact the final check. The software will direct the system to deduct all the necessary tax amounts before making the final payments. This way, you always pay out the right amount and distribute it on time to your employees.

Why do companies need a payroll system?

Small, medium, and large businesses and companies can benefit from having a payroll system and its automated payroll function. It makes it easier for you to look after your most important resource—your employees. With a payroll system, you can:

  • Pay everyone on time and accurately according to their employment agreement.
  • Handle leave requests promptly and fairly.
  • Manage a good review system that rewards bonuses and commissions to your staff.

A good payroll system will ease the burden of payroll management and ensure you always pay your employees on time, create reports in real-time, and log hours and review wages.

Types of payroll systems

Payroll systems come in a variety of forms:

On-premises payroll system

An on-premises payroll system is a good option for large corporations who maintain an on-site payroll team.

The system is installed and stored on an in-house server or computer. This option simplifies payroll management by computerizing all the processes. It also enables you to rely on a dedicated in-house team.

You can integrate some on-premises payroll systems with your Human Resource Information System (HRIS) to smooth information flow from the HR department to payroll.

Although in-house payroll systems give you better control of data, they can be expensive to run and maintain because you have to compensate the entire HR and Payroll team, maintain the server hardware, and have in-house IT support.

Bookkeepers and CPAs

Some businesses outsource their payroll to a bookkeeper or a certified public accountant. The bookkeeper prepares the payroll and maintains tax records but doesn't offer bank interface services like direct deposits or deductions. This type of payroll service only solves some of your problems. You're still responsible for making accurate deposits and paying federal tax liabilities.

Cloud-based payroll system

A cloud-based payroll system is housed and controlled in the cloud. It doesn't require an in-house server and is a more cost-effective and easily scalable option for most businesses. These systems have the same integrative capabilities that on-premises solutions have. There is no software to install, and the SaaS vendor provides IT support.

Overall, having a cloud-based payroll system provides you with better data security, is more cost-effective, and ensures you have a support team when you need it.

Outsourced payroll system

This type of business payroll service merges the efficiency of payroll software and the accuracy of a professional payroll agency. The agency manages the complete payroll responsibilities of your companies, including making salary deposits and deductions for every month. Using this approach, you're assured of total accuracy and avoid late payments. Good payroll software for large businesses will often include this feature.

What are some of the payroll system features you should consider?

Every business has unique business needs. The requirements for the payroll software might vary depending on the size of the company and your necessities. But as a basis, good payroll software should have the following features:

Tax filing

The software should accurately document and manage payroll taxes, which can be a tedious process regardless of the nature and size of the business. The software should simplify this process by automatically generating and filling in the state and federal taxes. This feature helps business owners and administrators navigate the challenges of filing taxes and managing deductions.

Direct deposit

Paper checks are time-consuming and frustrating for the employees and the business owner. The direct deposit feature is critical in streamlining your payroll processes and ensuring you pay your employees on time.

With such a feature, the business administrators don't need to physically complete and distribute the check, saving you time, effort, and resources.


Different payroll systems have various integration features. You might not need all of them, but having software that integrates with the HR software and the accounting software will significantly improve efficiency and better manage information from different departments.

If it is necessary for your business, you can also consider a system that integrates with time cards. This way, you will save yourself the trouble of tracking employee hours manually.

Employee self-service portal

With a self-service portal, your employees have easy access to their payroll data. Employees can view and manage their data in a few clicks. At least, the system should allow employees to access their pay stubs, year-end tax forms, and time-off balances. This feature is not only convenient but encourages transparency within the business.

Employment options

In most business environments, not all employees have the same employment terms. Some are contractors, while others are full-time employees. Most payroll systems will only handle one or the other type of employment. But if you're in a business environment where you regularly have full-time employees and contractors, you will find that payroll software is capable of performing payrolls for both employment terms.

Mobile access

Opt for a payroll system that is convenient and offers easy access. Ultimately, you want software that also provides a mobile app or has a mobile-friendly website. This feature is vital for businesses with multiple locations and teams and essential for business owners who are always on the road.

New hire reporting

New hires occasionally occur, even for businesses with a high employee retention rate. The payroll system should report the new hires to the New Hire Reporting Department in the relevant state.

Payroll reports

The payroll system you choose should have good payroll reporting functions, which can help you determine the financial health of your business. It should also provide wage and labor reports, payroll summary reports, and tax payment reports.


The payroll software that you choose should offer SMS and email alerts and have reminders and push notifications. These features help with the efficiency of the payroll process, ensuring everything is done on time.


The payroll manages sensitive company and employee information. It should have robust security features, including password protection, secure storage, and limited access control for various management levels. Although security is listed last, it is a top priority.

How to choose the right payroll system

There's no shortage of payroll systems to choose from. Each is made with different businesses in mind and has varying features. It's important to establish a clear idea of your business's needs regarding features, cost, size, durability, and ease of use. If the business is rapidly growing, scalability will also come up.

For the best results, here is a look at some of the factors and questions you should consider when choosing payroll software.

Define your business's payroll needs

Before you even start looking at what the payroll software market has to offer or the features of the systems you're considering, you need to understand your business and its payroll needs. This will save you the trouble of evaluating payroll systems that aren't a good fit for your business and will be a waste of time.

  • Ask yourself the following questions to help you create a basis for understanding your payroll needs and your business:
  • How many employees do you have?
  • Are your employees temporary or seasonal?
  • What is the size of your business?
  • What budget do you have for your payroll system?
  • Do you have benefits for your employees?
  • What is the frequency of your payroll?
  • Who will be in charge of the payroll system? Do they have experience in managing such a system?
  • Do you want to print pay stubs for your employees?
  • Do you want a standalone software or one that you can integrate with other existing systems in your business?

The answers to these questions will help you determine the most viable payroll system for you and help you come up with some of the base features to look for when researching the different options in the market. Most importantly, it will help you eliminate wrong choices.

What is your level of analysis?

Payroll systems have different levels of analysis. Determining your analysis requirements will make it easier to select a more suitable system for your business.

  • Do you need the software to assign payroll costs to separate cost centers in the business? This is critical for a large company with different fields.
  • Should the software analyze the payroll costs of different departments?

Go for software that can manage your business's reporting requirements and can generate accurate reports, among them payroll summaries, contributions, deductions, tax liabilities, tax summaries, wage summaries, and W-2 summary reports where necessary.

Legislation compliance

There are payroll legislations that your company needs to follow. Some of the legislations are standard, and others depend on the nature of the business. There might be some additional legislation. These include federal, state, and local regulations. Your payroll package should be legally compliant with all the laws that apply to your business.

This feature can help you avoid costly penalties and financial losses associated with non-compliance.

If you're uncertain of the legal payroll responsibilities that apply to your company, you can contact the American Payroll Association for clarification and information. You can also read through the main laws of the Department of Labor to help you understand your legal payroll responsibilities.

Now that you understand your business, its needs, and its legal commitments, you can now shift your focus to researching and examining the different payroll systems and their features.

Evaluate different payroll software and their features

There is a wealth of payroll processing systems suited for different businesses and fields. The features offered by each system are different, and some allow for beneficial add-ons that make the payroll software more versatile.

Based on your business needs, evaluate the features of each payroll system, both must-haves, and add-ons, to determine the one that fits your business best.

These features can include tax filing, self-service terminals, and integrations, among others. Take your time in this step because it can help you determine the best-suited software for your business. Keep in mind that your list of features will affect the ease of use and the accuracy of the payroll.

Use the free trials

Many payroll management systems offer a free trial. This is a crucial resource you must use when choosing the right system for your business. Although, on paper, the payroll software might seem perfect, the same might not be the case when you start using the software.

Typically, the software developer will limit the features and usability of the software on a free trial. But they provide you with the basic tools and experience to make a more informed decision and determine if this payroll solution is suited to your business's payroll needs. Taking advantage of the free trial ensures you get first-hand experience using the software before you decide to spend on it.

Determine your payroll budget

Payroll is a substantial expense for many companies. For some, it is the most significant expense. It is a daunting task that can determine the success or failure of the business. A good payroll system and good payroll system providers can ease the process. But that also comes at a price.

You should have a payroll budget, which is pivotal in the decision-making process. The payroll costs vary wildly, from as little as $20 per month to hundreds of dollars per month. The final cost of the system will depend on the system you choose and the demands of your business.

Some payroll service providers charge a base fee to use the software and additional fees to use certain features, while some might require a one-off payment for the standalone, in-house payroll software. Some of the core cost factors to keep in mind when coming up with a payroll budget include:

  • Base fee: This is a subscription fee payable to use the standard features of the software. Make sure you ask about the features you can access for this price.
  • Tax and compliance: Some payroll management systems will charge you for tax and compliance support. The fees might include but are not limited to mailing, reporting, and W-2 printing.
  • Pay runs: The software will charge either a base fee based on how you administer the payroll or the number of workers you administer the payroll for.
  • Setup fees: Some payroll systems might charge some installation fees.
  • Miscellaneous: Expect direct deposit charges, check signing charges, and per-envelope stuffing charges with some options.

Before settling on any payroll service for your business, it's critical to understand the fee structure and everything you're expected to pay for. Initially, the service might appear within budget, but these hidden costs can drastically add up and get out of control if you have a limited budget.

Read through customer reviews

Every payroll service and system markets itself as widely successful and responsive to its customers' needs and concerns. From experience, this isn't always the case. The best way to determine such a system's actual performance is to read through the customer reviews.

This gives you first-hand advice and insight into how customers who have purchased the system find the experience.

Using the reviews, you will get a list of the pros and cons of each software. If you come across an overwhelming number of bad reviews, it's best to consider another alternative.

Select the payroll software

At this point, you've collected information on various options and possibly come up with a shortlist of the most suitable systems for your business. In rare instances, you might need to expand your budget slightly, but if the software meets your employee needs and is perfect for your business type and size, spending a little more now could give you significant savings down the line.

Bottom Line

Finding the right payroll software is a challenging and tedious process. Heartland offers a full range of POS, payments, and payroll solutions for businesses and entrepreneurs at all levels. Over one million entrepreneurs trust Heartland with their back-office processes and to guide them through market changes. Learn more about how Heartland can ease your payroll processes and make them more efficient and effective.