Small Business Guides
Can payroll software actually save you money?
7 min read
Some payroll software costs extra, though if you’re lucky it will come free with your existing accounting package. The real question is, can it help your business save money in the long run? Here's how to find out.
Payroll is vital for your business
If you have employees, you need to pay them and collect taxes. This is called payroll – the managing of payments to your employees and the resulting taxes.
Some US small businesses choose to do payroll manually, keeping payment notes in a spreadsheet or other document. Others might outsource payroll to an accountant or bookkeeper, or even to a dedicated payroll company that offers full service processing.
These are valid choices, but there's another option. You can use payroll accounting software to handle your payroll operations in-house, we call this self-service payroll. In this guide we'll investigate how that might work, to help you decide if it could save your business money.
What to consider for payroll
Payroll isn't as simple as it sounds. You have to pay your employees regularly, of course, but there's a lot more to it than that. Small business operations might include:
- Payments to your staff
Dates and amounts must always be recorded. Make sure you can pay via direct deposit or print a paycheck for your employees.
- Tax calculations
Calculation of state and federal payroll taxes to ensure the right amount is being deducted.
- Tax filings
Creation and reporting of state and federal payroll tax forms including end-of-year like W-2 forms.
- Tax payments
Payment of payroll taxes to state and federal agencies.
- Earnings types
There's a difference between salaries, hourly rates, bonuses and commissions.
- Benefits and deductions
These must be accounted for in order to be properly taxed and reported.
- Time off tracking
Track time off taken by your staff, including any carry-over to the following year.
- Expenses payments
What they were for, how and when they were reimbursed.
- Significant dates
Including dates of employment for new starters and dates of termination for those who leave.
This is a lot to think about, which is why every US small business needs to carefully consider how it manages payroll.
Payroll processing challenges
If you're running a business in the US then you'll need to know about compliance. This means keeping your business in line with legislation, regulations and ensuring you meet the obligations from federal and state agencies. It includes taxation, reporting, employment laws and payroll. Staying compliant with IRS regulations is confusing and challenging. Compliance takes time, and time is money – your money. This is particularly true for small businesses, where owners often have to juggle several different hats, such as director, bookkeeper, HR manager and sales lead. If you work out how many hours you spend keeping on top of federal and state specific compliance, the answer might surprise you.
Payroll processing is a time-consuming task, and you may be using a significant number of hours on the task. The complexity of keeping an accurate record of the hours worked, calculating pay and making sure that overtime is properly paid is not as easy as it may seem. Adding in variables like healthcare benefits, time off and retirement savings plans can require even small employers to spend hours on payroll each week.
So it stands to reason that anything that saves you time can also save you money. Quality software can certainly save you time. But can it save you enough time to offset the cost of buying it? We'll look at that question next.
What is payroll software worth to your business?
While some accounting systems comes with payroll built in, other payroll software will cost you extra to buy. The important question is whether that's a price worth paying for your business. In other words, will payroll accounting software save you more money than it costs? Here are four questions to ask yourself.
- What will the software cost you?
Research the market. Find out how much the various types of software cost, bearing in mind some will require regular updates or monthly subscription fees. Some software lets you have unlimited extra users free of charge, which could save you a lot of money.
- How much does payroll work cost you now?
This is the other part of the equation. One way to estimate this is to add up the total amount of time spent by you and other people in your business doing payroll work. Look through the list of payroll tasks earlier in this guide and add up the time you spend on them. Assign an hourly rate to this work. Multiply the two together and calculate the yearly cost of payroll-related tasks for your business.
- Will the software help your business stay compliant?
When you have payroll and accounting as one solution, it reduces the risk of errors that are common with manual data entry. With automated and connected software you’ll have peace of mind knowing that you’re compliant. Ensure that the software can support meeting your federal and state payroll tax reporting and payments.
- Why can’t I manage payroll on a spreadsheet?
It’s common for businesses to use Excel for payroll, but spreadsheets are often riddled with errors. For people who know how to work spreadsheets to their full potential, these programs can perform highly complex calculations. But many small businesses forget that it’s a complex application and don’t restrict it to those with expertise.
As a result, many businesses use spreadsheets to help with payroll and find it more difficult than they expected. With regulatory compliance factored in, your business will be susceptible to financial penalties if you don’t move from Excel to proper accounting and payroll software.
You may also hurt the businesses reputation among employees if you continue to use a spreadsheet. Employees may be able to take legal action against the company if payroll errors shortchange them.
Four key benefits of online payroll software
There are numerous options available. Some products are designed to run on a single office PC, but these days the newer options are capable of running online, using the cloud. There are significant advantages to this, such as:
- Anytime anywhere access
If your computer crashes, all your data could be lost. There's no such issue with cloud-based online payroll software. Just log in from another machine and carry on.
- Multiple access
Invite your bookkeeper or accountant into your payroll software to help manage it remotely from wherever they are.
- Data security
If an office laptop is lost or stolen, all your vital payroll information might be lost. Or worse – financial details could be hacked, potentially leaving you or your staff out of pocket. Cloud-based tools use strong encryption to keep your data secure and online, reducing the chance of data loss.
- Work from anywhere
Need to pay someone remotely when you are out of the office, or while away on a business trip? No problem – just log in remotely at any time and access what you need.
So online payroll software can do everything that conventional products can do, but with the added advantages of the cloud it offers much more. It frees you from your computer, your desk and even your office.
Choosing payroll accounting software
Just as with any other type of purchase, it's important to shop around to get the right payroll accounting software to suit your business. Some of the features that could be valuable to you might include:
- Automatic tax calculations
You won't want to worry about manually working out the tax owed for each employee. Make sure the payroll software can do all this for you and that updates are automatically handled to ensure they stay accurate.
- Automatic tax filings
Ensure your payroll software creates and can electronically file your state and federal payroll tax forms, including all end-of-year forms such as the W-2.
- Automatic tax payments
You online payroll software needs to support electronic payments of state and federal payroll taxes. This allows you to meet your obligations from anywhere with a click of a button.
- Payroll that updates your accounting
When payroll and accounting software work as one, you’ll decrease the amount of time spent on data entry. You’ll increase productivity and reduce mistakes when you use payroll software that's integrated with your accounting software.
- Anytime, anywhere access
Cloud-based software can be accessed from anywhere, using a laptop, smartphone or tablet. This helps you run your business from anywhere, at any time.
- Flexible payment schedules
You want your payroll software to meet the needs of your business if it changes. Your payroll software should allow you to choose how often employees get paid: weekly, bi-weekly, twice a month, or monthly.
- Unscheduled pay run flexibility
Sometimes things happen that need out-of-schedule flexibility. Payroll software should allow for unscheduled pay runs to pay staff in those situations.
- Happy employees
A happy employee is an engaged employee. Ensure you can quickly email their paystub showing exactly where their money is going so they instantly know their pay information.
- Inbuilt time management
Ensure the payroll software can easily track time and attendance. This reduces labor costs, minimizing compliance risks, and increase employee productivity. Payroll software should seamlessly pull hours into your payroll for automated calculation and reporting.
- Multiple levels of access
You might want to allow managers or employees to input their hours into the system (with checks), but keep all other details secure for your eyes only. Good online accounting software will let you do this.
- Request and approval for time off
Wouldn't it be great if your staff could apply for time off using the payroll software, and you could approve it with a couple of mouse clicks? The best payroll software will let you do this, saving time and paperwork.
- Connect payroll to other business processes
Payroll accounting software is just one piece of the back office systems to be a successful small business. Your payroll software should be able to be connected to other systems in this connected world.
- Scalable architecture
You probably want your small business to become a large business in time. So there's no point buying payroll software that won't grow with you. Make sure to choose a package that can easily be scaled up to suit your growing requirements.
It's important that the payroll software you buy is easy to use and reliable. Check software review sites and talk to other US small business owners to find out what they recommend.
So, can payroll software save you money?
The answer is yes – but only if you choose wisely. The right payroll software will more than pay for itself in the long run, by reducing the amount of work you have to do manually and ensure you meet all your federal and state payroll obligations.
So if you do your research and get the right software (preferably cloud-based), then you'll be able to spend less time processing payroll.
That will leave you free to do what you do best – running your business and making it grow.