Payroll Software Guide: Benefits, Best Practices, and Platform Evaluation Tips

Optimize your payment processing with quality payroll software

A company’s payroll experience is key to its entire employee lifecycle. When people receive accurate, timely payments for the work they’ve completed and the hours they’ve logged, that’s the first (and very basic) step in retaining their talent, skills, and loyalty. Get this wrong by missing a payment or undercalculating their tax deductions, and you risk way more than low employee morale and a turnover problem. You could face legal action that damages your reputation and bottom line.

Payroll software can be an excellent ally in ensuring smooth payment processing, so your HR and finance departments can focus on other key responsibilities. This guide outlines the benefits of payroll software, best practices for implementing and using it in your organization, and tips for evaluating different platforms to find the right fit for your business.

What is payroll software?

Payroll software is a digital platform or tool that organizations use to automate and manage payment processing. The software streamlines all the administrative tasks associated with paying employees, such as calculating wages, withholding taxes and other deductions, and processing direct deposits or checks, so your employees are paid on time. Payroll software also may handle other tasks related to employee compensation, such as managing time off and administering benefits, including health insurance.

Why is payroll software important?

Payroll tools offer numerous benefits for companies of any size, including the following:

Operational improvements and efficiency gains

Payroll software frees up time, money, and resources for HR and payroll teams to focus on other important operational work. Look no further than Yuba County for an example of an organization that was struggling with an inefficient payroll system crying out to be automated. Its 900 people spread across 19 divisions have a wide variety of specialized work and pay rules, which resulted in a complex payroll process.

Prior to the county switching to payroll software, two of its HR professionals had struggled to handle their workload using a combination of spreadsheets, non-automated platforms, and third-party payroll systems to house employee profiles, salary, transactions, and benefits information. Yuba County moved away from this labyrinth of information and switched to the UKG Ready® suite to streamline its payroll process and gain access to real-time data.

Accuracy and compliance

Payroll software ensures accurate calculation of wages, taxes, and other deductions, minimizing the risk of errors in individual paychecks and tax payments. Additionally, employers are legally required to pay wage garnishments, a court order under which they must withhold employee funds to meet financial obligations, such as paying child support or student loans.

Automated payroll processes ensure compliance with regulations, tax laws, and reporting requirements like these, reducing the likelihood of penalties due to noncompliance.

Automated employment and income verification

Employees who need to apply for credit, loans, or government benefits must typically prove their employment status and provide income verification details. Payroll software provides fast access to this data, so your workers can easily obtain the paperwork they need to secure new funds.

Manual payroll processing without software

One common question is, "Do we really need to use payroll software?" In the following scenarios, businesses may be tempted to stick to a manual workflow:

If you have a small business with few employees. For SMEs or startups with a small headcount, the simplicity and perceived cost savings of a manual payroll system can be appealing, especially if the low volume of transactions seems manageable without software.
If your organization lacks access to technology. Manual payroll may be an option for companies that operate in a country or region without reliable internet.
If you’re concerned about training. Businesses may be nervous about setting up and learning a new software system. However, this shouldn’t be an issue if you use a quality payroll provider that offers comprehensive onboarding and customer support.
If your business typically resists change. Companies with an “if it’s not broken, don’t fix it” mentality may resist transitioning to an automated software system.

Switching to payroll software could be a decision you put off, but you’ll likely come up against obstacles if you stick to a manual approach.

1. Challenges with scalability

If your headcount changes, you open new offices, or you expand into different regions, payroll software can seamlessly scale to meet your new needs. Without adequate software, you would need to hire additional payroll staff or outsource payrolling processes, which can increase costs and compromise data security.

2. Infrequent payroll cycles

Businesses offering manual payroll may be able to commit to only a monthly payroll cycle, which is inconvenient for employees who want more frequent payments. According to the Bureau of Labor Statistics, nearly half of all U.S. companies offer a biweekly payroll frequency, while weekly employee payments are the second most common. In either case, automated payroll can easily keep pace with more frequent processing.

3. Risk of errors

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Manual processing elevates the risk of human error, as payroll professionals must physically key in sensitive data or copy and paste information from one system to another. When payroll errors occur, this can result in a loss of reputation and action from the IRS, which collects $7 billion yearly in penalty fees. If software costs have been a factor in sticking to manual payroll, ask yourself if you can afford not to invest in an automated payroll solution.

4. Data security vulnerabilities

Employee data (including names, addresses, salary information, joining dates, and Social Security details) is highly sensitive information. If there are any vulnerabilities in your manual payroll setup, this puts your workers and your organization at risk of data theft. Cloud-based payroll software includes security measures to protect this data from unauthorized access or breaches, ensuring that employee information remains confidential.;

How to streamline payroll processes

The beauty of using digital software is that many of the repetitive steps in processing payroll can be automated. Once you’ve set up your payroll according to your organization’s requirements, these tasks happen in the background without any heavy lifting required by payroll personnel. Here are some easy ways to streamline your payroll workflows:

Customizing your software

Your organization may have unique rules governing overtime payments, hourly workers, bonuses, or commissions. Configurable software enables you to create custom rules and calculations, so your employees are paid accurately and fairly without extra work on the back end.

Offering an employee portal

Setting up a self-service hub allows your employees to automatically access vital documents related to their employment. For example, they might use their login credentials to view their pay stubs, tax forms, and personal information. This feature increases transparency and gives employees the autonomy to manage their own details. It also reduces the number of inquiries raised, saving both human resources staff and employees time.

Integrating employee time and attendance tracking

The best payroll software solutions include time and attendance tracking, eliminating the need for a separate system. This feature captures and calculates overtime, tracks employee hours and absences, and provides reports, so managers can make informed decisions about scheduling and labor costs.

Generating printable W2s

Employers are legally required to send W-2 forms to their employees each year. Using accounting payroll software, it’s easy to automatically generate these wages and tax statements to save time and ensure accuracy.

Managing state and global payroll

Software can handle all state and federal payroll taxes, automatically keeping track of changing legal requirements, such as those related to withholding and reciprocity regulations. Payroll can become more complicated when your business operates across borders, but you can switch on global payroll software features capable of managing local taxes, Social Security contributions, and health benefits for your international employees.

Advanced reporting and payroll services

Beyond running regular payroll cycles, organizations also require their software to support them in meeting regulatory requirements while providing insights into business operations.

Compliance assistance

Payroll software can provide compliance alerts and automatically update changes in tax laws and regulations, ensuring the business remains compliant without manual intervention. For example, 1 in 4 U.S. workers lives in a location where employers must share salary ranges with existing employees or in job ads to meet current pay transparency laws. Payroll software can generate this type of information and provide notifications about upcoming tax and reporting deadlines.

Payroll reporting

Payroll teams are required to fulfill certain pay reporting requirements as organizations collectively strive to reduce gender, race, and ethnicity pay gaps. States such as California and Illinois have introduced legislation requiring employers to provide detailed reporting information, which can be obtained from payroll software.

Additionally, comprehensive reports on payroll summaries, expense reports, year-end reports, tax deductions, and other metrics can support better financial planning and business decision-making.

Integrating your payroll software with other key tools

Effective payroll processes don't happen in a vacuum. HR, payroll, and accounting functions all support each other, so it makes sense to integrate the tools used by each department.

Syncing vital data across these critical systems reduces the risk of error and speeds up processing time, as team members don't need to key in the same information across multiple platforms. For example, you might enter a new employee’s information into an HRIS, which integrates with payroll and benefits administration software. The information is entered only once but is accessible to all relevant personnel, ensuring the new hire receives compensation and benefits on time.

An alternative to integrating multiple standalone products is to invest in an all-in-one HR system to streamline payroll functions and simplify workflows. From onboarding to retirement, a comprehensive HR software solution empowers organizations to manage all aspects of the employee journey from a single location. Unlike using multiple systems, there's only one product to customize, troubleshoot, and upgrade when the time is right.

Payroll software pricing

Before selecting a software vendor or looking at specific solutions, it's important to understand the cost of payroll software and the different ways it is priced in the market. Here are some pricing models you may come across during your research:

Free

While many payroll software providers offer a limited free trial, some have a lifetime free version that may appeal to small businesses with minimal payroll needs. Bear in mind that these tools are bare bones, and any advanced features will require payment.

Per employee per month

In this common pricing model, businesses pay a per month fee for each employee on the payroll. This pricing is easy to compare across providers and may be a good fit for businesses with a stable number of employees. However, be aware that extra setup, support, and training charges may apply.

Flat fee

Instead of paying a fee per employee, organizations pay a fixed fee, either monthly or annually, regardless of their headcount. Businesses have access to the payroll software for the entire period, and discounts may be available if you're willing to pay upfront for the year.

Custom pricing

Enterprise pricing figures are typically unavailable on software vendor websites; the total cost is customized to the specific needs and headcounts of the business. Often, vendors follow a modular structure where companies pay a base price for core payroll features and then add on the optional components they require.

How to choose payroll software

Whether you're entirely new to using payroll software or require a new solution to meet your needs, the first step is making the case to change your payroll strategy. As part of your discussions or presentations with key stakeholders, you may need to provide examples of the following types of payroll software:

Common payroll software

Basic payroll software is suitable for organizations of all sizes operating within various industries. It typically includes core functionalities such as:

Automatic calculations and processing
Automatic tax filing
Employee self-service portal
Time and attendance tracking
Benefits management
Reporting
Document storage
Multi-currency and multi-language support
Compliance management

Payroll software for small businesses

Small businesses operate with leaner teams and on tighter budgets than larger companies. They’re more likely to choose:

A low-cost option with predictable pricing
Basic version of the software without bells and whistles
User-friendly interface to avoid intensive training of the new payroll platform
Quality customer support

Best payroll software

Superior payroll systems can be integrated with other key systems, like your human capital management (HCM) system. By aligning data from your recruiting, training, performance management, compensation, benefits administration, and payroll functions, organizations can:

Obtain immediate insights into company headcount and personnel costs
Identify trends in hiring, retention, and turnover rates
Discover areas for improvement to optimize labor spend
Get a clear picture of their cash flow

These system integrations should never feel clunky or inaccurate. Where compatibility is an issue, consider switching to an all-in-one HR and payroll solution that is designed to work seamlessly across all your HR functions. With a single platform for managing payroll tasks, employee data, automating processes, and delivering insights, organizations can save time while ensuring accuracy and compliance.

Payroll software comparison evaluation checklist

Once you're ready to compare different payroll vendors and their specific solutions, work your way through this valuable resource to narrow down the sea of options and find the best fit for your business:

Key features and functionality

Does the software support your core payroll functions, including tax calculations, benefit deductions, and time tracking?
Can it handle unique payroll situations specific to your business, for example, contractors, freelance workers, or overtime calculations?
How does the software handle updates and improvements?

Compliance

Does the software automatically update according to the latest tax laws and regulations?
Does it support compliance with local, state, and federal payroll-related legislation?
Can the software generate payroll reports and documents for audit purposes and regulatory compliance checks?

Integrations

Does the software integrate smoothly with your existing tech stack, such as your preferred HRIS or accounting software products?
Does it offer APIs or other integration options for future needs?
Is there a limit on the number or type of systems it can integrate with?

Usability and accessibility

Does the platform offer a user-friendly interface that is easy to navigate?
Is it a cloud-based solution that you can access remotely?
Does the software offer customizable dashboards or settings to tailor the user experience according to different roles within the company?

Scalability

Will the software accommodate business growth in terms of employee numbers and complexity?
Does the software offer unlimited payroll runs?
How do the software's performance and speed scale with increasing users and transactions?

Security

What security measures are in place to protect sensitive payroll data?
Does the platform offer a reliable backup and recovery system?
Is there a history of security breaches with the software, and how has the vendor responded to such incidents?

Pricing

What is the pricing structure, for example, per month per employee or fixed?
Is the pricing transparent or are there any hidden costs, such as setup fees, support charges, or costs for updates?
Is there a free trial or demo to test the software before committing to premium pricing tiers?

Support and training

Does the vendor provide comprehensive support and training resources?
What are the support hours and channels (e.g., phone, email, or live chat options)?
Are there additional costs for premium support or specialized training services?

Customer reviews

How do existing customers rate the software’s user experience, reliability, and customer support?
How does the software compare to competitors in terms of customer satisfaction?
Do customers mention common themes, such as issues with downtime?

Data export capabilities

Is it straightforward to export data if you need to switch providers or integrate with other systems?
Does the software allow easy data transfer for reporting purposes?
Is there a limit on the volume of data you can export?

UKG: Modern, flexible payroll software

Access to online payroll software could be the difference between a successful, growing business and one constantly playing catch-up. At UKG, our payroll solutions are designed to meet the unique needs of businesses of all sizes and industries. With a modern, cloud-based platform, we offer reliable support for compliance management, scalability, data security, and more. Here are two options to consider:

UKG Pro® is an award-winning payroll engine that simplifies complex payroll processes in medium to large-size organizations. Its features ensure your payroll administrators can:

Easily process hundreds of payroll computations in U.S. and Canadian dollars, with no extra calculations or programming required
Stay abreast of an ever-changing regulatory and compliance landscape
Compensate all employees fairly and accurately, every time
Offer instant pay information, accessible from any device
Build a purpose-driven culture with financial wellness and pay equity at its heart

UKG Ready® streamlines day-to-day people processes, pay, and compliance for small businesses to save time and money. This fast, on-demand solution allows SME teams to:

Optimize limited resources
Streamline time tracking with consistent, fair rules 
Deliver the perfect paycheck every time

UKG ’s payroll solutions offer an innovative, flexible approach to managing payroll that can help organizations of all sizes optimize their processes and stay ahead in the ever-evolving world of HR. Whether you’re a growing SME or an established enterprise, take a tour of UKG’s award-winning payroll software solutions. 