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As someone who's helped manage payroll, I have seen how complicated it can be and how fine the margins for error are.

In truth, the thought of managing payroll without help from software gives me the heebie jeebies.

In this article, I’ll highlight some key payroll software features and give practical tips to help you find the best payroll software.

What Is Payroll Software? 

Not to be confused with a payroll service, payroll software is used to manage and automate the payment of compensation to employees. It helps streamline the payroll process including calculating salaries, deducting taxes, and managing employee time cards.

10 Key Payroll Software Features

While this will vary across applications, payroll software typically includes the following features:

  • Pay calculator: The software must be able to process your employee’s pay, including automatically calculating wages, deductions, and taxes. This eliminates manual errors and saves time, making the process more efficient.
  • Tax deductions: It calculates federal, state, and local taxes to be withheld, ensuring compliance with tax laws.
  • Tax compliance forms: Compliance tax regulations require payroll software to prepare year-end tax forms for employees such as the W2 and T4 forms.
  • Benefit deductions: The software often handles deductions for benefits such as health insurance, retirement contributions, and other employee benefits.
  • Pay distribution: It can facilitate direct deposits to employees’ bank accounts, produce checks, and manage other forms of payment distribution such as unlimited payroll runs or pay-on-demand options.
  • Compliance: Helps ensure compliance with employment laws and reporting requirements by generating necessary reports and forms, such as end-of-year tax forms.
  • Time and attendance tracking: Many payroll systems also include timekeeping features that track employee hours, absences, and leave balances.
  • Customizable payroll reports: The ability to customize your payroll reports to track payroll taxes, employee deductions, and other expenses can help with budgeting and financial forecasting.
  • Self-service: Many apps have a self-service portal where employees can access digital copies of their pay stubs, see their contributions, and manage their retirement accounts.
  • Analytics: Dashboards, graphs, and reports to analyze payroll data to gather insights about your staff. These analytics support your organization’s workforce planning efforts.

Advanced payroll software features

  • Multiple currencies: Some software systems may offer the option to pay in different types of currencies. If you’re running global payroll this feature will most likely become useful to you.
  • Customization: The payroll software you choose may give you the option to be customized to your unique business needs. Upgrades or additions can often be added to the software in order to accommodate unique timings, currencies, or tax settings. 
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Types Of Payroll Software

Payroll software comes in various forms, each suited to different business needs based on size, budget, and specific requirements. Here are the primary types of payroll software available:

Installed payroll software 

This traditional type of payroll software is installed directly on a company's computers or servers. It offers full control over payroll data and processes but requires in-house IT support for maintenance and updates.

Cloud-based payroll software

Also known as Software as a Service (SaaS), this type of payroll software is hosted on the vendor's servers and accessed via the internet. 

It offers the advantage of being accessible from anywhere, typically includes automatic updates, and reduces the need for extensive IT infrastructure.

Integrated HR and payroll systems:

These systems have payroll functions within a larger system such as human resource information systems.

This integration can help streamline HR processes and improve data consistency across the organization.

Enterprise resource planning (ERP) systems

ERP systems include payroll modules as part of a broader suite of business management software. These systems are ideal for large organizations that need tightly integrated systems for finance, HR, sales, and other departments.

Freeware and open-source payroll software

There are also free and open-source options available that can be particularly useful for very small businesses or startups with limited budgets. Examples include Payroll4Free and HR.my.

However, these may require more manual intervention and might lack comprehensive support and updates.

Benefits Of Payroll Software

Payroll software offers several benefits for organizations as a whole, and for those who use the software regularly to manage payroll processes. 

As you're evaluating the different options for payroll software, understanding these main benefits is key to making an informed decision.

Time and cost efficiencies

Since payroll software automates many elements of the payroll process, it can significantly reduce the amount of time and effort required to complete payroll tasks, especially if your staff are currently relying on manual calculations for some aspects. 

This efficiency then translates into cost savings, as it reduces the amount of manual labor required.

Increased accuracy

Calculating payroll can be quite complex and accuracy is of the utmost importance.

Payroll software helps reduce human error in calculations for wages, deductions, and taxes, ensuring that employees are paid correctly and on time.

Improved compliance monitoring accuracy

By automatically updating with the latest tax rates and regulations, payroll software reduces the risk of compliance-related issues due to incorrect payroll calculations.

Enhanced data security

Payroll software offers secure data storage, encryption, and role-based permissions to restrict access to sensitive employee data to only those who need it, which is a significant improvement over manual payroll processes or paper-based data storage.

Integrated reporting and analytics

Payroll software is often one module within a larger HR management system, allowing users to generate reports on more than just payroll data. 

For example, you may also be able to run reports to assist with financial planning, budgeting, and decision-making, or monitor details such as employee hours worked during key times to predict future demand.

Employee self-service portals

By empowering employees to access their pay statements, tax documents, and personal information, you'll reduce the administrative demands on your HR staff, freeing them up to work on other tasks.

Employee portals also give your staff more control over their personal details, providing a smoother experience for simple tasks such as changing addresses or updating bank account details.

How To Choose Payroll Software

Choosing the right payroll software is crucial for efficiently managing your business's payroll operations. Here’s a guide to help you select payroll software that suits your business needs:

Step 1: Define your payroll software requirements

  • Identify specific needs: Consider the size of your workforce, frequency of payments, types of employment (e.g., part-time, full-time, contractual), and any unique payroll complexities related to your industry.
  • List essential features: For example automated payment calculations, benefit management, compliance features, and payroll reporting.

Step 2: Set a budget

  • Determine financial limits: Decide how much you can afford to spend on payroll software, taking into account both upfront costs and ongoing expenses such as monthly fees and updates.
  • Balance cost and value: Ensure that the solution offers good value for money by comparing features against the cost.

Step 3: Evaluate software features and functionality

  • Read online reviews: Use articles such as ours on the best payroll software to compare the cost of payroll software, key features and USPs. Some pointers for what to look out for beyond features:
    • Customer reviews regarding usability
    • Scalability
    • Integration
    • Security
    • Customer service scores.
  • Book demos: Create a shortlist and reach out to book a sales call with your chosen vendors to ask questions and get a demo of the product in action.

Step 4: Make a decision

  • Compare finalists: Narrow down your options based on the assessments above and choose the software that best fits your needs.
  • Implement: Create an implementation plan with the vendor to facilitate a smooth rollout, ensuring that all necessary training and support structures are in place.

Need expert help selecting the right Payroll Management Software?

If you’re struggling to choose the right software, let us help you. Just share your needs in the form below and you’ll get free access to our dedicated software advisors who match and connect you with the best vendors for your needs.

By Kim Behnke

Kim Behnke is an HR Tool Expert & Writer for People Managing People. She draws on her 9 years of human resources experience and her keen eye for systematic processes to support her analyses of the top HR tools on the market. She is passionate about maximizing efficiencies and streamlining workflows to ensure internal systems run smoothly. Kim's HR experience includes recruitment, onboarding, performance management, training and development, policy development and enforcement, and HR analytics. She also has degrees in psychology, writing, publishing, and technical communication, and recently completed a Certified Digital HR Specialist program through the Academy to Innovate HR. When away from her desk, she can usually be found outside tending to her ever-expanding garden.