What Is Payroll Software & Does Your Business Need It?

Payroll software will allow your business to manage and automate the process of paying your workers. The best payroll software will be easy to set up, cost-effective to use, and come with integrations to other important business software such as accounting or employee benefits services.

Ensuring your employees and contractors are paid on time is a key part of running a company, so it makes sense that payroll management is among the most important software for small businesses. Larger companies may be best suited to a payroll service with a dedicated account manager, but a monthly software subscription is likely best for a small or medium-sized operation.

If you’re ready to start exploring the best payroll software available today, some top brands to consider include Rippling Payroll, Gusto, and Paychex. Or, read on for our expert guide explaining all the costs, features, and integrations you need to know.

In this guide:

• What Is Payroll Software?
• Which Payroll Software Is Right for Your Business?
• How Does Payroll Software Work?
• How Much Does Payroll Software Cost?
• Do I Need Payroll Software?
• What Are Outsourced Payroll Services?
• Ready to Start Using Payroll Software?
• FAQs

What Is Payroll Software?

Payroll software automates the process of paying employees. Businesses can use this software to pay their hourly, salaried, and contract workers via check or direct deposit on a weekly, biweekly, or monthly basis.

What are the benefits?

Any good payroll software will let your human resource administrators enroll each employee, track taxes, and handle benefits including health insurance, paid time off days, and bonuses.

• Automate payroll: Each employee may have a unique amount and form of payment
• Automate taxes: May include federal (Medicare and Social Security), state, local, and unemployment
• Manage insurance benefits: May include general health, eye, and dental
• Manage retirement contributions: Roth IRA and 401k
• Centralized payroll data: Reports may include tax liability, employee summaries, time tracking, and more

Since each pay period rolls around on a set schedule, it makes sense to automate everything, while logging it all for easy annual reporting as well.

What are the drawbacks?

Payroll software handles most business needs, but two types of businesses may want to consider other options: tiny businesses and large corporations.

• Software might be too much for a tiny business: If you have a truly tiny operation like a food truck or a market stall, you might save money by cutting the checks yourself.
• Software might not be enough for a large business: A business with hundreds of employees is a large enough payroll that they’ll need a dedicated payroll manager to ensure everything is maintained, and ouitsourcing to a payroll service will be a better fit than opting for a software solution.
• Software can glitch or fail: No software system is perfect, and the odd bug or failed software update might delay payroll. This doesn’t mean you shouldn’t automate, but it does justify checking in once in a while to make sure it’s working. It’s also worth having a contingency plan in place to appease employees should something go wrong.

Which Payroll Software Is Right for Your Business?

Your business will need payroll software that can handle your specific budget and goal structures. Ideally, it will also offer integrations with any other business software you use.

Our research team found that some software solutions are better than others, and this table below will highlight the key benefits, deals, and support options for each of the top software solutions.

How Does Payroll Software Work?

Managing your company’s payroll will involve a handful of core tasks. You’ll need software that allows you to add each worker with a profile that automatically calculates all deductions (the big three are tax, insurance, and retirement), and can issue checks or a direct deposit.

Common and useful payroll software features include wage garnishment tracking; tax form creation; and access controls to protect sensitive employee data, like bank account details, from anyone who doesn’t need it. Many payroll software solutions will break the process down by allowing users to group employees by pay bracket or type, which will help ease this process for you or your HR administrator.

How Much Does Payroll Software Cost?

Payroll software typically comes at a base monthly subscription cost, with an extra monthly fee charged per employee. This base cost is between $20 and $35, but it can reach over $150 for the pricier, feature-rich software. The per-employee cost starts from between $4 to $8, and can often decrease as a business adds more employees.

Payroll software can be bundled with other key business software – accounting software is the most common.

While the cost may seem high, particularly thanks to the per-employee costs that stack up fast, the right payroll software will save your business a lot more time and money than it costs. Manually tracking payroll and writing checks will quickly become a full-time job.

Read more with our guide to how much payroll software costs.

Do I Need Payroll Software?

As with any software solution, the time for your business to adapt payroll software is when not having it becomes more expensive than paying for it. For payroll, that “cost/benefit analysis” moment comes fairly early on in the business life cycle. After all, paying your employees is the first step to keeping an operation running – and you risk being audited if you fail to do so.

Here’s what to consider before springing for payroll software:

• Budget: You’ll need to allocate a budget for payroll software and, since you’ll likely save the most money by paying annually, the cost could easily work out to a four-figure bill.
• Business size: A tiny business may be able to handle payroll manually, and a large one may want to outsource to a payroll service. Payroll software is best for all businesses between the two. Some software can even process international pay runs, such as Rippling Payroll.
• Specific needs or challenges: Will you need to consider inter-state tax differences or currency exchanges? Not all payroll software will be equipped for all of your needs.
• Industry: One big benefit of payroll software is staying in compliance with legal regulations, both state and federal. If you are in a heavily regulated industry, or one with frequently updated rules, payroll software will give you that extra peace of mind.

If you’re in doubt about any of these issues, a free trial or a demo can help clarify your specific business needs.

What Are Outsourced Payroll Services?

If your company is large enough, you’ll want a payroll service rather than payroll software. The difference between the two is just like the difference between filing your taxes online vs having H&R Block file them for you (and, since payroll is so closely connected to employee taxes already, many services will handle both at the same time).

The key difference between using software and outsourcing to a service is the chance for human error. If you’re using software yourself, any mistakes are your own. But a payroll service will have a dedicated manager who can triple check it all. As a result, it will cost more, but the benefit is that you’ll know it’s being done right.

FAQs