11 Key Payroll Software Features + 5 Advanced
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.
Managing payroll can be a complex and error-prone task for businesses of all sizes.
The top three challenges in payroll are the pace of change, compliance with rapidly evolving rules, and data security.
Wage miscalculations, tax withholdings, or compliance can lead to employee dissatisfaction and potential legal issues. Implementing robust payroll software is key to streamlining these processes, reducing errors, and ensuring timely and accurate employee payments.
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?
The definition of payroll software is: A digital tool that automates the management of employee payments, including wage calculations, tax withholdings, direct deposits, and compliance with tax laws.
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.
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11 Key Payroll Software Features
While this will vary across applications, solutions typically include the following features if they're going to be competitive in the payroll software market:
- 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 & benefit deductions: It calculates federal, state, and local taxes to be withheld, ensuring compliance with tax laws. The software should also handle deductions for benefits such as health insurance, retirement contributions, and other employee benefits.
Clear, transparent payroll information—like salary, benefits, and equity details—builds trust and satisfies employees.
- Tax compliance forms: Compliance tax regulations require payroll software to prepare year-end tax forms for employees such as the W2 and T4 forms.
- Pay distribution: It can facilitate direct payroll deposits to employees’ bank accounts, produce checks, and manage other forms of payment distribution such as unlimited payroll runs or flexible pay or pay-on-demand options.
- Time and attendance tracking: Many payroll systems also include timekeeping features that track employee hours, absences, and leave balances.
- Customizable payroll reports: Customizable compensation reporting 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.
- Expense Management integration: Sync payroll with expense management tools to automatically process employee reimbursements alongside regular pay runs. Streamlined reimbursement automates approval workflows and ensures tax-compliant reimbursements are reflected accurately in payroll.
- Analytics: Dashboards, graphs, and reports to analyze payroll data to gather insights about your staff. These analytics support your organization’s workforce planning efforts.
Mergers and acquisitions often inherit old payroll practices, leading to compliance gaps. Regularly reviewing controls as headcounts grow or change is paramount.
- Compliance: Helps ensure compliance with employment laws and reporting requirements, such as end-of-year tax forms. For example, selecting a payroll system designed for Canada ensures your software supports region-specific needs.
- Built-in global payroll functionality: Offers centralized control with localized execution—so you can pay teams in different countries without spinning up separate tools or vendors.
- Direct deposit integration: Automatically sends employees' pay straight to their bank accounts without extra steps.
Advanced payroll software features
- Multiple currencies: Some software systems may offer the option to pay in different types of currencies. If you’re running multinational 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.
- Compensation Management Tools: Enable HR and finance teams to plan, track, and adjust employee compensation—including bonuses, raises, and incentives—within the payroll system. With strategic pay structuring, you can support equitable and competitive compensation strategies by aligning pay data with performance metrics, market benchmarks, and budget planning.
- Audits. This is a handy feature. Some solutions allow you to set up pre-submit audit flags notifying you something looks irregular e.g. someone receiving significantly more than their typical pay.
- Financial management tools. Financial well-being is obviously important and some payroll software solutions have features to help workers save and better manage their finances.
- Employee benefits strategy. Do you have other types of compensation, like profit-sharing or commission, that the payroll tool should be able to handle?
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 repetitive bi-weekly 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. Often, payroll modules within an HRMS are also linked with time and attendance data too (read more about what an HRMS does to learn more about their benefits).
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.
Related read: Automated payroll system benefits.
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:
When selecting a system, it’s important to first map out what your core needs are. Think about things like integrations, compliance, and employee management—if these aren’t handled properly, it’ll cause a lot of headaches down the line.
| When scaling payroll systems, it’s critical to conduct a risk analysis and requirement spec before choosing a vendor. Develop a robust scorecard to select the right partner for your needs. | Keith O’Brien, COO of Payroll Geeks https://www.linkedin.com/in/keith-o-9858a1101/ |
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.
Be cautious with hidden costs. Customizations, integrations, and data migration from legacy systems can add up. Avoid over-customizing as it makes upgrades and scaling harder in the future.
- Balance cost and value: Ensure that the solution offers good value for money by comparing features against the payroll platform costs.
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
In payroll, strange things happen all the time, and that’s where customer service becomes critical.
- 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.
- Solicit RFPs: If you want to take a more formal approach, put out an official request for proposals (RFP) to the top payroll providers on your shortlist.
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.
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