Running payroll might not be your forte, but it’s a necessary part of being an employer. To ease your responsibilities, you could try a payroll service, a type of software as a service (SaaS).
According to a 2017 survey from the National Small Business Association, 42% of small businesses rely on a payroll service to run payroll.
Payroll software streamlines business operations, but if you don't understand payroll, you won't know what to look for in a software solution.
Ask yourself these five questions relating to cost, features, learning curve, fine print, and software type before buying.
5 Questions to Ask Before Choosing a Payroll Software
Payroll software automates your payroll-related responsibilities, such as calculating employee wages, withholding taxes, and paying employees.
Software providers are different, so you need to assess your business needs before buying.
1. How much do I know about payroll?
If you aren’t a payroll expert, you need an easy-to-use software solution. Payroll software automates a complex process, and the point of automation is to free your time, not take it up.
According to a case study about one of Patriot Software’s payroll customers, payroll is “literally a 60-second process” most weeks. You shouldn’t spend hours running payroll.
Find a software where you just enter each employee’s hourly wages or salaries, approve payroll, and pay employees.
In addition, look for an interface that’s easy to understand. It shouldn’t have complex directions or features. You need a software that is usable, not one that makes you confused and frustrated.
Finally, find a provider that offers free support. That way, if you do have trouble with your payroll, you can get help.
2. Which basic features should a payroll software have?
First, let’s go over the key parts of running payroll.
Running payroll is the process of entering the hours employees worked during a pay period, calculating their gross wages, determining deductions, and giving employees their net pay.
Managing payroll taxes is the second largest administrative burden on small business owners, according to the NSBA, and for good reason.
Determining how much to withhold for taxes takes time, concentration, and careful calculations. What’s more, you need to deposit and file the taxes with the IRS.
Payroll software saves you from manually running payroll. Here are a few basic features you should keep an eye out for when shopping for payroll software:
- Taxes: Payroll software automatically withholds taxes from each employee’s paychecks. If you want the software to go a step farther and file taxes for you, opt for a full-service payroll software.
- Accuracy: Mistakes on payroll result in penalties for your business. Find a provider that guarantees accuracy.
- Multiple payment options: If you want the option of paying employees with direct deposit or paychecks, find a provider that accommodates both and offers free direct deposit. According to the National Automated Clearing House Association (NACHA), 82% of workers receive their wages via direct deposit, so try to offer this payment method.
- Time and attendance integration: Some software providers offer a time and attendance add-on to help with attendance management. This lets employees enter the hours they worked. All you need to do is approve their hours.
3. How much do I want to spend?
Deciding how much to spend on payroll is challenging since many factors go into the cost. To get started, learn what other businesses spend on payroll services.
The NSBA survey asked small business owners how much they spend per month on payroll services. Here are the results:
According to the NSBA’s data, the largest group of small businesses (36%) spends between $101 and $500 each month. Most small businesses (70%) spend $500 and under on payroll each month.
There are many factors that determine the cost of payroll software. Some providers charge based on the number of employees you run payroll for or how frequently you run payroll (e.g., biweekly vs. monthly).
Generally, the more features you want in a payroll service, the more you’ll pay. Full-service payroll, for example, is more expensive than basic payroll. Full-service payroll handles tax filings and deposits taxes on your behalf.
Get quotes from software providers (Clutch has many) and compare prices. Make sure you understand which services are included in the cost so you can make even comparisons.
4. What payroll software charges should I worry about?
Don’t buy payroll software until you check for contracts, additional fees, reviews, and free trials.
Watch Out for Long-Term Contracts
Some payroll software companies require you to sign a long-term contract. And if you decide you don’t like the service and want out of the contract, you might need to pay a fee.
If you don’t like the feeling of being stuck in a contract, consider opting for a month-to-month plan. Look for phrases like No long-term contract! or Pay as you go or Monthly subscription if you want to avoid contracts.
Look for Hidden Fees
You should also look out for additional fees. Learn how the pricing structure works for the software solutions you are considering.
For example, find out if Software A charges you each time you run payroll. If they do, you’d be paying more running weekly payroll as opposed to monthly.
Search for Reviews
Reading reviews shows you what users liked and didn’t like. In fact, 85% of consumers think online reviews are as trustworthy as personal recommendations, according to Bright Local.
While you should not put too much stock in each review, use them as a group to get a feel for the payroll software company. If every review is negative, this could be a red flag. You can find reviews on the company’s website or social media, on Clutch, or by doing an internet search.
Use Free Trials
You may be offered a trial period to test the software. Free trials show you whether you understand the software and if it meets your business’s needs.
Look for software that offers a free trial if you like to try before you buy.
You probably need to enter a credit or debit card to start the free trial. If you don’t like the software, don’t forget to cancel your account, or you might be charged.
5. Which platform will I run payroll from?
Because you can purchase online or desktop software, identify where and how you’d like to run payroll.
- Do you want to run payroll from your home computer or your cell phone?
- Will you only run payroll on your work computer?
Online (cloud) software lets you run payroll from any device with an internet connection. All you need to do is log in to the website that hosts your payroll.
Because your payroll is stored in the cloud, your information is protected even if your computer crashes. The system automatically updates to keep up with new laws and payroll tax rates.
However, all cloud software is vulnerable to security breaches. Make sure the software is insured and has high-security encryption.
Desktop software is a program downloaded onto a computer, and you must manually update the program.
Because the information is stored on the computer, you are at risk of losing payroll data if the computer crashes. However, you don’t need an internet connection to run payroll.
Assess your business needs and weigh the pros and cons of desktop vs. online software.
Choosing your payroll service
To sign up for the right payroll service, you need to know what you’re looking for. Consider these five points:
- How much you are willing to spend on payroll
- What features will streamline your business operations
- Which software is easy to use (and offers free setup and support)
- Whether there are contracts, hidden fees, negative reviews, and free trials
- Where you want to run payroll from
You’re an expert on your business, not payroll. But you need to know enough about how payroll software works so you can pick the perfect product.
About the Author
Rachel Gray is a content writer at Patriot Software, LLC. She provides accounting, payroll, and small business tips in her writing. Patriot Software offers affordable payroll and accounting software for small businesses.