Looking for guidance on how to choose payroll software that you and your employees can rely on? While researching different vendors takes time, doing your homework can help you find a reliable provider and sort through the many different feature sets, integrations, and customer support options available.
In this employer’s guide, we’ll cover what to look for when researching payroll software, as well as the must-have features to ask about and other amenities that providers bundle into payroll software tools in order to make it easier to manage the back office tasks associated with human resources administration.
Understanding what payroll software does
Simply put, payroll software is a tool that takes the complexity out of running payroll by automating the calculations and withholdings. Payroll software handles intricate math like calculating federal, state, and local tax withholdings, as well as employer payroll tax obligations like FUTA unemployment taxes. Payroll software ensures that these tax amounts are remitted accurately and on time to the appropriate agencies.
Beyond taxes, payroll software also automates pre-tax and post-tax deductions for employees, such as contributions to 401(k) retirement plans, health insurance premiums, and other benefits. Instead of having to manually research tax rates, contribution limits, and deduction rules, the software crunches the numbers for you. In other words, you won’t be sitting around with a calculator each quarter trying to figure out how much your business owes the IRS in FUTA unemployment taxes.
No matter which company you ultimately choose, all providers should automate detailed payroll calculations and tax filings right out of the box.
Next, let’s talk about some of the other ways this type of software can have a positive impact on an organization.
Advantages of payroll software
Full-service setup
Most payroll software providers recognize that establishing payroll systems may not be in your wheelhouse. They also recognize that some entrepreneurs may be brand new employers in growth mode, bringing on W-2 employees for the first time.
When searching for a new payroll software provider, it’s a good idea to find out whether the vendor you are talking to schedules time to go over the details of your payroll history and helps you onboard properly so that nothing falls through the cracks.
For example, if you are switching from another provider and have already paid employees during the year, even if they are no longer employed with your company, a new provider is going to need prior wages. This is so they’ll be able to correctly deduct unemployment tax and file it on your behalf at the end of the year.
Though we won’t cover the ins and outs of setting up your payroll software in this article, the takeaway is that some companies will help you with the administration, but not all do. It’s a good idea to confirm that you’ll have onboarding personnel to help you along the way if this is beyond your skill set.
Information repository
It can be helpful to think of these tools as an online filing cabinet (not one that’s in the corner of the office collecting dust). Payroll software serves as a database that organizes all employee records and information in one central location. That means if you ever need access to employee data – such as tax forms, personal information, or salary changes – you won’t need to track down spreadsheets from all corners of your computer network. Instead, with a few clicks, you can retrieve any payroll-related information from your new software, eliminating the need to search through stacks of paperwork or spreadsheets.
From running payroll to reporting
At its core, payroll processing is usually the main reason companies decide to use software when paying workers. In fact, our research found that a little over half looked for software primarily focused on payroll. But as you shop around, keep in mind that many modern payroll software companies can help with much more than running payroll (which lines up with some other ways SMBs are thinking about what providers should offer).
What do we mean? In the same survey, almost 40% of small businesses shared that they have other administrative extras on their minds during their search, such as benefits administration, human resource management, and other amenities to streamline their business. The key takeaway here? Don’t overlook that you can get a lot more value for your investment when shopping for payroll software.
Here are some other features to look out for:
Reporting
Some software platforms have built-in reporting and analytics features. These features allow you to generate various reports, such as employee earnings, tax summaries, and payroll expenses, to gain insights into your company’s payroll costs and financial health. You can use these reports for budgeting, auditing, and compliance purposes. In addition, reports can be customized, or may have a variety of templates you can choose from.
From onboarding to human resources
When hiring employees, there’s certain documentation you really can’t neglect. For example, you’ll need new hires to get their I-9 form to you almost immediately. This step is necessary to verify that the employee is legally allowed to work in the United States. Also, don’t let Form W-4 (known in HR circles as the employee’s withholding certificate) fall by the wayside. You’ll want this completed by new hires within the first couple of days on the job so your company knows how much to withhold in taxes from their wages.
The good news is that software tools designed to handle payroll are likely to have functions bundled inside to address these types of tasks as well in just a few clicks. Many payroll programs provide a variety of products and services for the price of one. HR software, for example, is something that will often be part of payroll software bundles. That means you’re almost getting a human resources assistant built in.
Benefits balancing act
Many employers will use employee benefits as a way to attract talent and build their team. In fact, health insurance and retirement savings programs are among the benefits that employees want most. Instead of searching for different providers to assist with adding employee perks to your organization (just trying to figure out the rules and regulations behind how benefits deductions work can be time-consuming), you won’t have to go far. That’s because many companies in the payroll space have entire departments dedicated to employee benefits administration. These consultants can help your business parse through nearly any requirement you may need to deal with.
For example, a number of states have laws that require some employers to offer their employees access to retirement savings programs, including California, Illinois, and Virginia. A payroll service provider can help your company comply with these laws.
In addition, there are some types of insurance that businesses must have in order to remain compliant with state laws — we’re looking in your direction workers’ comp. Almost all states, plus the District of Columbia, require it and even the two states that don’t, South Dakota and Texas, highly recommend it. The takeaway is to look for a software company that offers resources to help your business with these types of requirements and issues. Take the time to find the plans that sync best with your employee needs, and negotiate competitive rates.
Payroll software selling points: Important features
Secure interface
Because there’s an uptick in online fraudsters trying to get access to personal information, ask companies how they help you keep data and information security at the top of their priority list. For example, companies like OnPay require multi-factor authentication before employers and employees can access dashboards within the payroll system. When an employee tries to log in to their account to see pay stubs, for example, a message will be sent to their phone with a code, ensuring only the authorized employee can access the account.
Pay schedules
Do you have a type of pay period you prefer to use and is the payroll system you’re considering able to support the frequency? Chances are the platform you’re considering will be able to handle your pay schedule without any issues, but it pays to look at the fine print. In some cases, payroll runs may not be unlimited. If, for example, you pay your employees every week, you probably don’t want a payroll system that charges per payroll run. Again, look for a provider that lets you run unlimited payrolls without extra charges.
Time tracking and employee hours
Look for payroll systems that have time and attendance software integration. In most cases, your employees will enter their hours, and you review and approve the timecard. And then, within a few clicks, you can seamlessly send the hours to payroll. This helps to make it clear to employees that they are being paid accurately and can help you figure out if you are overstaffing certain shifts. It can also help prevent time theft in the form of buddy punching.
Investment
For any budget-conscious business, cost is likely a factor. Some payroll solutions have a monthly base fee, and some charge per pay run (it’s one of the reasons you’ll want to find out whether the provider can work with your preferred pay schedule). Some payroll solutions will bill monthly and charge a fee per employee.
Though some free software options are available, there are some things to keep in mind. For example, tools without fees typically require organizations to allow advertising on their platforms. In other words, when you or an employee logs into the account, display advertising will appear. That means you may be seeing ads when running payroll or those working for you will see advertisements when updating their employee benefits.
What are the three most important points to consider when researching payroll software?
Our research found that if businesses had to choose three main things during their research, it would be:
- Features and functionalities (56%)
- Competitive pricing (47%)
- Nearly 2 in 5 SMBs say positive reviews, testimonials, and recommendations from trusted sources (colleague or friend) were also key factors
Source: OnPay 2024 Small Business Market Survey
Employee access
We touched on this earlier in the article, but many companies offer more resources than just calculating and distributing wages. Employee-self service should be part of the equation. For example, you can make it very easy for employees to self-onboard. Imagine setting up a workflow for new hires where they are prompted to complete necessary documentation such as Form W-4 and Form I-9 within a few clicks of a personalized dashboard.
Many platforms provide access for employees to:
- Download pay stubs
- Securely update personal and banking information
- Review withholdings
- See paid time off accruals and request time off
- Download W-2s and 1099s
Taxes should be tied up
Having to deposit and file taxes on your own involves a great deal of mental gymnastics, and once you calculate the numbers, you need to make sure the tax payments are deposited correctly and per deadlines set by the IRS.
All the payroll software options you are considering should deposit taxes on your behalf. One of the reasons you are investing in a payroll software program is the peace of mind that comes with knowing payments are made on time and without errors.
Integrations of interest
Make sure you’ll be able to sync up the accounting software you use with your payroll software. Also, this can be a good time to take stock of your tech stack so you can make sure the software you select is going to align with the tools you use. For example, OnPay has integrations with 401(k) providers, harassment training providers, tax credit companies, and more.
Year-end should not be eventful
Any payroll platform you invest in should make it easy to process must-share documents. For example, all your employees need to receive W-2 forms by January 31. Work with freelancers or independent contractors? They’ll also need to get their 1099’s by January 31. This should be a standard service offered by the payroll provider you are considering. There can also be financial costs associated with not getting W2s to workers. Avoid W-2 penalties by making sure you’ll have this help from your payroll software.
It pays to be picky
Furthermore, you’ll want to be sure whoever you choose to use is reliable. Though unlikely, there have been times when challenges after implementing tools have made headlines, so it’s always a good idea to do your research. Use our payroll service provider comparison tool to compare vendors side by side.
Employee self-service
In most cases, employees will want to be able to pull pay stubs or periodically access employment documentation. Employees like to be able to do this when it works best for their schedule, which could be in the middle of the night (when your human resources team or payroll administrator likely will be logged off).
Given this reality, providers typically include portals where employees can access their account dashboard as long as they have access to an internet browser. Some platforms even allow employees or contractors to access personal tax documents or past pay stubs, even after they leave your company. This can help your people and culture teams stay focused on team building, rather than looking for paperwork for previous team members.
Can you give it a try (as in a free trial)?
The reality is that once you move forward, you’ll likely have made a time investment, moving over employee data such as Social Security numbers and prior wages. Before making this type of time investment, you may want a sandbox to play around with.
What do we mean? In most instances, the payroll software providers you’re researching will offer a complimentary period of time during which you can have a product tour and even log in to test whether you’re comfortable with their user interface.
Put your best forward when choosing payroll software
Even though payroll requires a lot of time and effort, your employees expect it to run like clockwork. When picking payroll software, you should feel secure knowing calculations are being made correctly and all tax filings, deductions, and withholdings are taken care of without any errors.
The reality is that once you decide to add a tool to your business operations (and make the time investment to get set up), you don’t want to have buyer’s remorse. Taking your time makes sense and helps ensure that you made the right choice.
If our team can help you during your search, let us know and we hope you’ll take a closer look at what OnPay has to offer.
