Could Payroll Software be Right for your Small Business?

Get help understanding if payroll software is a good choice for your small business
Payroll Software by Nick Youngson CC BY-SA 3.0

Understanding payroll software for small business can be challenging, but it’s not impossible. Yes, there are many options for employers to choose from but there are some simple questions to ask yourself to make the process easier. In this article, we discuss the pros, cons, and help small business owners decide whether this payroll method is right for them.

Don’t know about the different ways to do payroll? No problem! Check out our comprehensive payroll overview and our article on the benefits of small business payroll providers. If you already know about those topics, then keep reading, and we’ll get into payroll software.

What is Payroll Software?

Payroll software is system that operates on a computer, laptop, or tablet to help employers pay employees. In the best cases, as a business owner, you can save a lot of time compared to doing payroll yourself.

The biggest payroll providers in the world all offer a form of payroll software in place of using their service. I point this out because it raises an important question for business owners, if the software alone was sufficient, why would they still provide their full-fledge service? The answer is that payroll software is not as complete a service as hiring a professional payroll provider.

What are the Benefits of Payroll Software for Small Business?

The main benefits to business owners are organization and time-savings. Ideally, the time-clock at your business where employees punch in and out links with the software, minimizing manual labor required. Naturally, whatever program you choose, it won’t be magic; you’ll still have to input all your employee information. You’ll still have to hand out W4s, collect employees’ SSN, and the like.

Primarily, the software adds up the hours and calculates the proper deductions based on federal and state withholding laws. Federal withholding remains the same across the nation, state withholding will be specific to your state (obviously). The other feature, the software/provider mails or directly deposits checks to employees at the end of the pay period.

Employers also have the opportunity to save a bit of money over hiring a big name provider. Think of it as a middle ground between doing payroll manually and hiring a payroll provider. You will save some money, but you’ll also have less support at the times where you might need it most. As with most things in business, it’s give and take.

Some software will generate quarterly and annual withholding forms that businesses must submit to the state and IRS. Other programs will not provide such features. This is a good point to lead into the downsides of payroll software

What are the Downsides of Payroll Software for Small Business?

Payroll software can give employers the feeling that all their payroll responsibilities are handled while leaving them exposed to mistakes, and even violations of the law. There is more to doing payroll than simply issuing checks and withholding taxes, further forms and summaries must be submitted.

Even filtering through all the available options can become a job in itself. Type “payroll software” into google and there are 225 million results. Who has that kind of time? Obviously, that’s meant to illustrate a point, there are too many options. Further, to know what a good deal looks like, you need to know what services you need, which is a task in and of itself.

Software Isn’t as Flexible as Professional Providers

Even the best payroll software in the world can’t predict life, and life is full of irregularities. Employees take leave, people forget to clock in or out, and employers make changes to pay structures. Laws change, and you need to make sure that your software is setup to update along with changing regulations.

As happened recently in New Jersey, many employers must now provide retirement savings accounts for employees. If your software doesn’t have regular human updates, there’s a chance that trying to save could cost you in the long run.

The reality of business is that everything is in flux, and while payroll software can handle normal operations, it’s not as flexible or responsive as a professional provider. Better, more expensive software will notice irregularities or changes, and point them out. At other times, the employer or manager running payroll will miss a mistake and the software will simply accept the data input as correct. It’s just a computer program, it doesn’t know any better!

Another issue I just noted was the lack of flexibility. Setting up your payroll once will be a chore, but for businesses that are shooting for growth, payroll software can hinder efforts. As businesses grow, it’s often the case that they find themselves under different regulations as their number of employees increase, their field of operations expands, and payroll software isn’t always the best to handle those situations.

How Much Does It Cost?

The cost of payroll software ranges pretty wildly from nothing to over a hundred dollars per month. Consider this question like asking how much a house or a car costs. Well, that depends on so many factors specific to your needs, making it very hard to answer. Like anything, you get what you pay for.

Free payroll software can be great for startups and micro-businesses that have employees in the single digits. That said, the ceiling of features with free software hangs pretty low. There is an almost-100% chance that these free programs have upsells to unlock features that most businesses will want if they want to expand or really get the time-savings that software is supposed to offer.

The cost of established brands vary from $30-150 per month and anywhere from $4-12 per employee.

Wrapping Up

There are absolutely excellent payroll software programs that some businesses could benefit from. It’s just not a wise decision for a business owner to throw their entire faith into software without regularly checking to see that it’s keeping effective records, generating the proper documents, and most importantly, paying people what they’re owed!

Becoming overly reliant on software can result in employers that don’t really understand what’s going on with their payroll. This can result in traffic jams that eventually have to be sorted out. In the worst cases, it can result in violations of the law and all the consequences that come with that situation.

Finally, we advise doing your due diligence and exploring all your possibilities. Reach out to us if you have any questions!