Guide to Choosing the Best Payroll Software
As a business owner, managing payroll is undoubtedly one of the essential parts of your company operations. Most business owners tend to spend significant time on managing their payroll; what a lot of them don't know is that it's best to leave it to payroll software. This article will discuss how to choose the best payroll software for your business. Ensure to read it carefully as we cover all the essentials you need to know to run payroll software successfully.
What is Payroll?
Before discussing payroll software, let’s understand what payroll is. Well, payroll is perceived differently. One definition of it is the process of calculating and distributing employee wages. Another is the amount you pay your workers on an hourly basis.
What are the Parts of Payroll?
Payroll may sound like a simple process. But in fact, it has numerous parts that you should go through.
As the first step, you should collect employee information. Here, employees will have to fill out a form. Note that on this form, there will be their names, social security numbers, addresses. You will also find information regarding the federal income tax exemptions. Without this step, you will be unable to run and distribute payroll.
Number of Hours Worked
You need to calculate the hours that your employees work, as well. So, in case of having employees that work hourly, calculating it will help you give their wages accurately. If you have employees that you pay salary, calculating the number of hours will help you to see whether they put in all the time.
Wages and Salaries
If you have generally used them until now, bear in mind that salary and wage are two different concepts. Salary is a fixed amount of money you pay your employees. Depending on the country, it can be given annually or monthly. In the US, for example, most companies pay their employees annually. Let’s say you pay one of your employees $52,000 per year. If you make payments to them every week, you will have to pay $1000 each week.
Wages, on the other hand, are given on an hourly basis. Let’s say you pay $25/hour to one of your workers. If they worked 40 hours a week, you would pay them $1000. To calculate wages, you multiply 25 with the number of hours they have worked.
You will need to track the leaves your employees take. The leaves may be different. They may be sick leaves, holiday leaves, etc. In general, it is better to have a company policy on leaves. That will help you calculate the amount you should pay employees who are on leaves.
Fringe benefits are like compensation. It may include retirement plans, health insurance, and more. Not all the benefits you offer have to be entered into payroll. Also, some of the benefits are taxable. So, beware of them.
Other Types of Pay
Depending on your business, you may make some other types of payments to your employees. For instance, in the service industry, your employees may get tips. Note that they should inform you about all the tips received. Later, you will have to include all the tips on your payroll. There are payroll taxes on tips, too.
Gross and Net Pay
How to Run Payroll for Your Business
There are three methods through which you can run the payroll of your company.
Outsource to a Payroll Accountant
When a payroll accountant does this work for you, you will save a lot of time. Note that it is also one of the frequently used methods recently. Nevertheless, it will be costly. So, you may not want to outsource it depending on the cost involved.
Run Payroll Manually
Here, you will have to learn how to run payroll manually. Needless to say, it will take significant time for you. So, it may not be the best option for you.
Utilize Payroll Software
Common Errors in Payroll
Payroll is a realm where a lot of mistakes are overlooked. That is primarily why it is advisable to use payroll software. To ensure you do not make the common payroll mistakes, we will make you familiar with some of them. So, you will know when to identify a mistake when you see it.
It is critical to check your payroll calendar frequently. Otherwise, you may miss deadlines to send necessary reports to state agencies. If that happens, you will definitely get penalized. Well, that is something you do not wish.
Data Entry Mistakes
Mistakes while entering employees’ data and other aspects of the business will cost you a lot. It can lose you thousands, even millions of dollars every year. Further, you may get penalties from the government for these kinds of errors. So, ensure you do not make such mistakes.
Categorizing Employees Incorrectly
Recently, companies have begun hiring temporary employees. That may cause misclassification of employees overall. And if you miscategorize them, you will make mistakes in taxation and other reports you send to government organizations. Ensure you avoid such errors.
Relying on software too Much
While payroll software will support you adequately, you should not rely on it too much. It does not mean that a top payroll software will let you down. But if you do not enter all the details into it, even the best payroll system can upset you. Therefore, it is advisable to input all the necessary data into the software. The rest will take care of itself.
Underestimating the Importance of Confidentiality
Calculating Overtime Pay Incorrectly
Another common mistake made by the payroll department is miscalculating the overtime pay of employees. Apart from damaging the credibility of your organization, it may lead to legal action against you. So, beware extra careful.
What is Payroll Software?
Payroll software is a system that automates the tasks of your business related to payments to be made to employees. It makes the payroll process faster while eliminating errors occurring during the payroll process. You can find payroll software as a standalone system or as a part of HR software.
Types of Payroll Software
We can categorize payroll software based on multiple factors. For instance, it can be classified in terms of the size of the business, deployment, etc. Aside from this, there is another categorization that can affect your workflows.
Committed Payroll Management
Committed payroll management will usually provide you with more than primary features. For example, there can be benefits for admin, tax planner, and more. A dedicated payroll system will quickly be incorporated with other systems such as accounting and HR. In general, the best payroll software that is sold standalone is widely used by many small businesses.
Integrated Payroll Management
The process of payroll coincides with some procedures in HR and accounting. That is why payroll software is offered as part of accounting or HR software. Here, it can be separately charged or can be provided as a standard component. The integrated payroll system implements tasks such as processing payroll, calculating income taxes, and more.
Must-have Features of Payroll Software
As mentioned above, different payroll software may have various features. But some features are must-have for all the best payroll software. Become familiar with them so that you know what to require from your payroll software company.
Employee wages are calculated automatically with the help of this feature. You will just have to set the payment schedule. Then it will compute the wages weekly, or monthly. Note that it is one of the significant features of the best payroll software. Further, this component will consolidate various sides of your employees’ wages. Grades, attendance, leaves, and others will be in consolidation. Once you get set up, it will take care of everything routinely like clockwork. You can even configure the system for specific workers or contractors.
Expenses, advances, deduction, and any other costs relevant to employees are monitored and computed with this feature. Based on approved expenses, this feature can manage reimbursements as well.
This module handles the benefits, bonuses, and other employee perks. In some software, employees can even choose and submit their claims.
Monitoring Attendance and Time
Some of the standalone payroll systems may possess time-tracking characteristics. Designed to control the attendance, it will monitor leaves, absences, and other factors. In the end, the software takes them into account when calculating wages. The best payroll service will also include a feature to track transfer cases and multiple shifts.
This feature enables workers to submit leave requests and track their leave balances. Here, managers can monitor, approve, and decline their leave requests.
Reports, Forms, and Payslips
In this module, reports such as leave summaries and salary statements are created. Workers have access to this module, too. They can check and print their payslips here. Additionally, regulatory forms and payroll forms could be downloaded here.
Income Tax and Deductions
With this feature, you will be able to get tax deductions processes. It assists you to be compliant with different types of taxes and social security obligations. Here, the software does the computations automatically. The top payroll software will supply tools for yearly tax-savings, tax projections, etc.
Payroll software is also useful to monitor and maintain employee records and relevant documents. This aspect of the payroll system contains worker profiles, offer letters, tax safety, experience letter, and more.
Why Should You Use Payroll Software?
You should have a good idea of payroll software and its features. But you may still wonder why you should utilize payroll software. If that is the case, check out the benefits that come with the best payroll service.
Benefits of Payroll Software
Work Time-efficiently and Without Errors
As you are already aware, payroll processes require a lot of time. On top of that, it is quite easy to make an error while doing it manually. You might know how a misplaced “0” can devastate your business. That is why using payroll software is highly-advisable. It will not only save time for you, but also ensure there are no errors in your calculations. For this, all you have to do is to turn the system to an automated one.
Pay Taxes Accurately
Calculating and paying taxes is a headache for most companies today. Particularly, if your workers and contractors live in various states of the US. The payroll software with built-in tax systems of diverse regions will help you a lot here. It will make all the calculations for you without any mistakes. The best payroll software providers will even make adjustments to their software when there is a change in a state tax law. These updates will not make you think of any such changes.
Access Fast to Employee Information
The payroll service will centralize the employees’ information in a single place. Here you will access their records, timesheets, leaves, and more. Another advantage of this feature is you will be able to see track other aspects of your employee. Employee evaluation can be a good example of this.
Pay Your Employees Accurately
Making a mistake while paying your employees is undesirable. It is even worse when you pay them less than it should have been. It creates distrust and will eventually lead to rumors in the company. That will, in turn, affect your company’s reputation in a negative way. There is no possibility of paying workers incorrectly with the help of payroll software. As it is automated, it will calculate all the employee receivables, such as salary and benefits correctly.
It does not matter if your payroll software is integrated into the accounting or HR system. Automated tools will customize reports based on various rules, such as fields, rows, etc. You will determine what should appear in the report. Creating such reports is not difficult at all with smart alerts.
Transparency is something that must be in all organizations. That is what will make your employees think positively about your company. When you have the best payroll software, issues concerning employees will be more transparent. For instance, they will have a clear idea of their leaves, absences, and more.
Another crucial benefit of payroll software is security. Bear in mind that when you outsource your payroll management to a third party, the security issue will be under threat. You do not want sensitive data of your business to be exposed. With top payroll software, only you will access such confidential information. So, there will be no security breaches.
How to Choose Your Payroll Software?
You now have a good understanding of payroll software, its types, features, benefits, and more. Yet, they are not enough to select the correct software for your business. Pay attention to this next paragraph to ensure you do not select the wrong payroll software.
Onsite vs. Cloud Software
Both of these versions have their positives and negatives. For instance, with on-premise software, you will have everything under your control. But it will cost a lot to pay for licensing, server, etc. Still, you will be sure of the level of security.
On the other hand, cloud software will be very easy to integrate. Flexible features, timely support, low price, and more can work for you. Unfortunately, here your data will be maintained on servers where you will not have control. So, you decide what the best payroll software for you is.
Compliant With Regulations
When you get payroll software, you need to be sure that it is compliant with different regulations, tax laws, etc. It will show itself in creating various reports, making adjustments, and deductions from wages. Besides, top payroll software will automatically upgrade itself. As a result, your payroll processes will always be compliant.
You also want a system that will assist you after several years. In other words, with changing variables, such as employees, users, and others. The software you get should be able to suit the future. Some of the best payroll software will be appropriate for you in this regard. In general, cloud software is more flexible to stay suitable for the features you need in the future.
Another aspect you should look for is key features. You need to be confident about what you need. For instance, it can be the method you pay your employees. Or you may need to get software that allows you to pay different workers in different pay periods. So, ensure to check the key features.
Total Cost of the System
You will not get rid of making payments for the software once you subscribe or make a one-time payment. Many expenses will eventually come, such as server setup, training fee, per-user fee, and more. You should understand every cost associated with the product you get. Also, check out the features that a product provides, but you will not need it. By excluding them, you can save a bunch of money.
Integration With Other Systems
As you already know, you can get payroll software as a part of accounting or HR systems or separately. If you get it separately, it does not matter whether that is the best payroll service for small businesses. You need to be sure that it at least integrates into other systems like accounting. By that time, you will have to integrate it into some more systems. So remember to check its compatibility.
Average Cost of Payroll Software
The pricing of payroll software varies greatly. It depends on multiple factors that you should consider. For instance, as a part of accounting software, you will mainly pay for the accounting system. Also, depending on the number of users, invoices, etc. the costs may differ. For you to have a clearer understanding, we will bring examples from some of the prominent providers in the industry. Xero, for instance, has three pricing models. Its basic plan starts at $25. The premium plan of Xero is priced at $60. The basic plan enables users to do five quotes, bills, and invoices. This number is unlimited with the premium plan. Gusto, which provides one of the best payroll software in the market, offers pricing based on the number of features. They start at $39 monthly.
You now know all the basics of payroll software. As is evident, this system is quite useful with its various features. You also know how to choose the most suitable one for your business. For a hassle-free search, you can check the best payroll software on Gygzy. You can filter them based on price, features, regions, and more. If you liked the article, check out more related ones on our page.