What is payroll software?

Payroll software is an on-premises or cloud-based solution that manages, maintains, and automates payments to employees. Robust, integrated, and properly configured payroll software can help organizations of all sizes maintain compliance with tax laws and other financial regulations, and reduce costs. This frees human resources (HR) teams from routine tasks so that they can spend more time on planning, budgeting, and other business-forward initiatives.

How does payroll software work?

Payroll software integrates with other core business systems to ensure that employees receive accurate, on-time compensation in the appropriate manner (such as direct deposit, check, or payment card). Employees can typically access the software to edit their personal information, payment preferences, and other details.

For employers, payroll systems need to be reliable, easy to configure, and flexible enough to manage and automate payments to workers of all types (including salaried and hourly employees, temporary and gig workers, and others), at different locations around the world. Payroll systems should simplify tasks, making it easier for staff to manage complex rules, payroll flows, and checklists, and maintain compliance with tax laws and other financial regulations.

Why do organizations use payroll software?

Millions of organizations worldwide rely on payroll software to streamline and manage employee compensation and ensure

  • Timeliness and accuracy. Especially with mergers and acquisitions, new hires, and shifting regulations, payments to employee can be complicated and time consuming. With payroll software, organizations can be sure that employees are paid the right amount and on time, every time, helping to build employee trust and confidence.
  • Transparency. For most organizations, personnel costs are the single highest expense. Payroll software integrates with other lines of business, such as finance and accounting, providing transparency that helps organizations stay on budget, create timely reports, and plan for the future.
  • Flexibility to adapt and scale. When business changes, payroll software makes it easy to adapt. For example, when an office opens in a new region with different taxes and regulations, the software automatically incorporates the new rules, so data does not need to be entered for each employee.
  • More time for high-level tasks. Compared to manual and outdated alternatives, payroll software can save organizations hours each month—time that can instead be devoted to other critical business initiatives.

How does payroll software help businesses?

The benefits of implementing an efficient, compliant, and configurable payroll software solution go beyond the tactical tasks of paying employees. It also helps organizations

  • Improve morale. Avoid instances in which employees are paid the wrong amount, are not paid for overtime or other work, are paid late, or are not paid in their preferred way.
  • Tighten security. Payroll systems help ensure that the right people have access only to the appropriate information for their role. Especially with many employees and gig workers working from home, it is critical for organizations to have software in place that prevents double payments, confirms that every payment is correct, and automatically calculates the appropriate benefits and tax payments for each employee.
  • Deepen business insights. When payroll systems are integrated with other core business systems, organizations gain deep insights that can help them develop more accurate budgets and forecasts. In minutes, organizations can, for instance, identify the real-time personnel costs for each department and the revenue achieved for that cost over different periods of time.
  • Improve reporting. Automated payroll software provides real-time insights that can easily be translated into charts and graphs that executives can use to make critical business decisions.

How does payroll software help employees?

Payroll software is not only good for business. It’s also good for employees. It helps ensure that employees are paid the right amount, at the right time, via the payment method they prefer—all with a minimum of time and hassle.

Employees can also take advantage of user-friendly interfaces to view their payment history and easily adjust their personal information and payment preferences. If they have questions, they can get answers quickly, minimizing work disruptions.

What are the benefits of cloud-based payroll software?

Payroll software can be based on-premises or in the cloud. One of the key benefits of cloud-based payroll systems is that information can be accessed from anywhere, via a desktop computer or mobile device.

The best payroll systems provide a simple, consistent experience across platforms. When an employee looks at the dashboard on their phone, for example, it looks the same as it does on their desktop, with intuitive interactions that reduce the need for help desk calls.

Automation is another far-reaching benefit of cloud-based payroll systems, which often have artificial intelligence (AI) built in to anticipate needs and reduce errors. Common processes such as onboarding new employees can be automated so that every new hire for a given position is onboarded properly, following the same checklists and processes and ensuring that nothing is missed.

Payroll needs and requirements are constantly changing, so it helps to have a cloud-based solution that’s continually updated to comply with local, regional, and federal laws, taxes, and regulations. When new legislation is passed, your staff does not have to input changes manually; instead, the system automatically incorporates the changes to ensure continuing compliance.

Cloud-based payroll systems typically come with preconfigured options, but they also make it easy to configure and customize workflows and checklists as business needs change. On-premises solutions can quickly become disorganized and riddled with errors as new roles, pay structures, and other complexities are added. Cloud-based systems, though, scale easily, maintaining simplicity no matter how many deadlines, approvals, task owners, and dependencies are involved in a given payroll process.

How does payroll software help with taxes, compliance, and regulations?

Payroll software eliminates many of the headaches associated with taxes, compliance, and other regulations. It ensures accurate and timely payments and tax deductions by locality, automatically adjusting to differing rules and regulations as employees move and offices open or close. During mergers and acquisitions, employee information can be transferred easily and complexities such as one-off payments can be generated automatically.

The integration and automation of payroll systems are critical to simplifying tax preparation and audits. Organizations often outsource tax preparation, making it essential to have integrated payroll software that provides a single, updated view of both in-house and outsourced information. This allows employees, auditors, and payroll administrators to easily review and monitor any possible discrepancies. Automation also enhances the accuracy of the data used in audits, which simplifies compliance with tax laws and other regulations.

Cloud-based payroll systems provide a high level of security, another critical factor for compliance. While manual processes may contain errors, such as an employee who remains on payroll after the employee leaves the organization, the automation of payroll systems helps prevent and identify errors. Rules-based and role-based validation can further enhance security by limiting access to sensitive information.

What features should organizations look for in payroll software?

Payroll can be complex, both for organizations and employees. It’s therefore essential that payroll software be easy to use, with a simple, consistent, and secure interface accessible by employees and payroll staff from a variety of devices.

Payroll administrators should be able to configure the system without coding or calling for help from IT professionals. The software should have best practices and recommended formulas built in, guiding nontechnical staff through a few simple steps to configure the system according to the specific needs of the business.

It’s important to look for payroll software that features embedded business intelligence and reporting features that simplify talent and workplace management, budgeting, and other strategic processes. With increasing complexity related to mergers and acquisitions, as well as the number of remote employees, gig workers, and one-off projects, it’s critical that payroll systems provide deep visibility and support for business intelligence.

Perhaps most important of all, organizations need to select a payroll system that secures sensitive data from accidental and purposeful attacks that may come from inside or outside the organization. Payroll administrators and employees should have access to the data they need—no more and no less. Rules-based and role-based validation is essential to protect the organization and employees.

What questions should be asked when choosing a payroll software solution?

When you’re ready to invest in a payroll system, be certain to evaluate providers by asking

  • Does the system support every region where you have employees? Look for providers that either offer direct support everywhere you need or have partnerships to support those regions. You want to make sure you won’t have to run payroll manually in some regions—now or in the future.
  • Does the software integrate with your other core business systems? The software you choose should integrate natively with your time and labor, compensation, financial management, absence management, and other business systems.
  • Is the software easy to configure? You won’t want to change your payroll provider often, so make sure you have flexibility to scale and adapt over time as your business needs change. Make sure the software can be configured easily, without the need for coding or IT involvement.
  • Are you experienced with organizations like mine? Look for providers that have extensive experience in your industry and with organizations that are of a similar size to your own.
  • Is the software truly easy to use? Make sure there are prebuilt processes that employees will find intuitive, so they can change their bank, add dependents, and make other changes in seconds. Assess the built-in features, including the guidance for new employees, to make sure they won’t need to ask HR for assistance.

What’s the future of payroll software

In the years ahead, expect to see payroll systems become more adaptable to the growing diversity of work roles and payment structures. Nine-to-five salaried employees are increasingly going to be joined by a variety of wage earners and gig workers, many of whom will work remotely.

Having flexible payroll systems will be imperative to providing compensation in a variety of ways, including by project, contract length, and various pay periods (weekly, semimonthly, monthly). AI and business intelligence will be used to enhance automation and streamline workflows.

Security will be a continuing challenge for organizations of all sizes. Rules-based validation and roles-based data access will be essential, especially as more people work remotely.