Choosing a Payroll System: 8 Factors to Help You Decide

If you’ve decided you want to use software to run your business’s payroll, you might worry about the difficulty of choosing a payroll system. To weed through the many services out there, you need to know what to look for.

Choosing a payroll system can be easier than you think if you pay attention to key factors. Take a look at these tips to help you pick the best payroll system for your small business.

Choosing a Payroll System

Using payroll software can save you time and money so you can focus on growing your business.

You don’t need to be a payroll expert to use payroll software, but you do need to purchase a system that integrates with your business needs. The following eight factors will help you learn how to choose a payroll service.

1. Online vs. desktop software

There are two types of software to choose from before you compare payroll services: online and desktop software. What you choose depends on the type of business you have, your lifestyle, and your personal preference.

Online software: Online software, or cloud payroll software, means you can access payroll anytime and anywhere. All you need is internet access to run payroll, which is beneficial if you are constantly on the go. With online software, you can access your payroll records from more than one device. Log in to a computer at your business or your mobile device at home.

Your payroll information is protected if your computer crashes, since it is stored in the cloud. With online software, you pay a continual subscription price. You might pay per payroll period or monthly.

Desktop software: For desktop software, you will download the software program onto your computer. You can only run payroll on the computer that has the software. You do not need internet access to run payroll with this option.  

With desktop software, you will most likely pay an initial flat rate. And you might also need to pay future fees for software upgrades. If your computer crashes, you could lose your data.

2. Cost

So, how much is a payroll service anyway?

As a small business owner, you probably aren’t willing to dole out cash at the drop of a hat. You want services that are affordable and get the job done. When deciding on a payroll system, the cost of payroll services for small business is a priority.

Be wary of hidden fees that might be overlooked during your initial payroll services cost comparison. You might select a provider and later find that there are extra fees you did not know about because of your provider’s payroll services pricing model. Make sure you read the fine print and fully understand what features are included in the price.

Cost usually increases when you need more features. For example, if you want a payroll system to file and remit federal, state, and local payroll taxes, you might need to purchase full-service payroll. Cost typically increases as you hire more employees as well.  

Ask questions about the cost so you aren’t surprised when you receive the bill. Make sure you know what is included in your payroll software. If you plan to hire more employees in the future, ask about the approximate cost per additional worker.

3. Features

Though cost is important when choosing a payroll system, you also want it to perform the tasks you need. Since businesses are all different, the best payroll system for your company should integrate with your business’s unique needs.

Here are some features you should consider when choosing a payroll system.

Payment type: Do you pay your employees via direct deposit, paychecks, or payroll cards? You want your payroll system to accommodate how you pay your employees.

For example, if you pay your employees via direct deposit, you probably want a payroll system that offers free direct deposit, since direct deposit on its own comes at a cost. If you give your employees paychecks, make sure your software supports it. Some software lets you print paychecks when you run payroll.

Pay period: How often do you pay your employees? Every week, two weeks, or each month? Choose a payroll system that lets you pay employees when you want.

If you pay your employees every week, you might not want a payroll system that costs you each time you run payroll. You would end up paying more money to run payroll if you have short pay periods. Instead, you would want a payroll system that lets you pay a flat amount, regardless of pay period.  

Taxes: Depositing and filing taxes takes time and can be confusing. If you want to run payroll without needing to worry about handling payroll taxes, choose a full service plan that deposits and files taxes for you.

If your payroll software deposits taxes for you, you do not need to stress about mistakes or late payments. Your payroll software has you covered.

Supplemental wages: If your employees earn bonuses, commissions, or tips, you need a payroll provider that accommodates supplemental wages.

Let’s say you own a restaurant. Your employees receive tips and report their earnings to you. Supplemental wages are recorded and taxed differently than normal wages. Some payroll providers handle recording and remitting taxes on supplemental wages for you.

Time and attendance: Time and attendance lets you easily track the hours your employees work. Have your employees enter their hours online, or enter them yourself. Attendance management might be an extra feature that integrates with payroll.

Your employees enter their hours, and you run payroll based on their time and attendance tracking. You save time by letting your employees enter their own hours. That way, all you need to do is verify their hours are correct and run the payroll.

4. Support

When you use a payroll system, you have control over your payroll. However, you aren’t alone if you have questions. A payroll system that offers strong support could help you feel more comfortable with running your own payroll.      

Fortunately, many payroll systems offer customer support in some form. And some companies even help you set up your payroll system. If support is important to you, compare levels of support when choosing a payroll system.

Some payroll systems offer online support, support over the phone, or both. Depending on your personal preference, you might factor the kind of support you will receive into your payroll system comparison.

5. Difficulty level

As a small business owner, you’re an expert in your business. But you probably are not an expert in payroll.

Getting a payroll system that makes sense and is easy for you is important when choosing a payroll system. Some payroll systems can get tricky and require background knowledge in order to run them.

Make sure you are confident you can easily learn how to use the payroll system before you buy it. Purchasing a payroll system with a small learning curve saves you time and money. You don’t want to buy something that you spend a lot of time learning, sits without use, or causes you to spend money on resources to learn how to use it. If possible, try out the payroll system before you buy it.

6. Free trial

Some payroll systems come with a free trial so you can get the hang of running your own payroll. A free trial helps you know exactly what you are purchasing.

Check to see if the payroll system you are considering offers a free trial. It lets you learn the system with a hands-on approach and temporarily run your payroll at no cost to you.

7. Security

What happens if someone gains access to all your employees’ Social Security numbers and other personal information? That sounds like a nightmare for both employers and employees.

Security is an important aspect of choosing a payroll system. Make sure you know how the provider secures employee information. And the payroll system should be bonded and insured and have high-security encryption, like banks. That way, you can trust that the information is safe.

8. Contract

Business owners enter into contracts all the time. You need a contract for leases, loans, partnership agreements, confidentiality agreements … you name it, there’s a contract. Payroll systems do not have to be one of those things.

Before choosing a payroll system, see if it will strap you into a year-long contract. If you do enter into a contract with your payroll provider, first make sure the software meets all your needs. You might have to pay a fee to drop out early. The contract forces you to stick with that payroll system, which can be a pain if you later discover hidden fees or you need to purchase extra features.

You might prefer a payroll system without a contract. That way, you don’t have to feel strapped down. You can get out at any time with no fees if you do not have a payroll software contract. There are pros and cons to each option, so consider your business’s particular needs.

Takeaways for Your Payroll System

Select the best value for your money. If you need payroll to have certain features, make sure those are included in the service. Your business can also benefit from factors like helpful support, a free trial, no contract, and security.

Choosing a payroll system does not have to be difficult. But it does involve comparing payroll providers. Deciding on the payroll system that is right for your business depends on your lifestyle, budget, and level of payroll-related knowledge.

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