Payroll software can reduce the time you spend calculating paychecks and preparing taxes, but how do you choose the right provider? Business.org explains.
How to Choose Payroll Software
You’ve decided that using payroll software is the right thing for your business. Now how do you choose the right one?
Every small business is unique; the right payroll software provider for your catering company could be different than the right software for an independent roofing contractor. But no matter what type of business you run, we recommend considering the features below as you evaluate your payroll options.
How to choose payroll software
All payroll systems should include the following features:
- Employee payments. The service should calculate employee or contractor hours, determine their pay, and provide methods for payments. Most services let you pay employees by check or direct deposit, and some offer alternative methods like prepaid payroll cards.
- Payroll taxes. One of the most important—and most challenging—aspects of payroll management is preparing, filing, and paying taxes. Even the most basic payroll software solutions should allow you to calculate how much payroll tax you’ll need to pay the local, state, and federal government.
From here, you’ll need to decide which more advanced features you need—and are willing to pay for:
- Automatic tax filing. Full-service software (and outsourced payroll providers) do all payroll tax tasks for you. They calculate, prepare, and electronically file all your paperwork. You just need to verify and approve.
- Payroll tax compliance. Payroll taxes are complex and change frequently. Many providers keep you up to date on the most recent regulations to ensure your taxes are filed and paid accurately.
- Documents and forms. Certain documents, like W-2s and 1099s, must be completed, collected, and stored properly to avoid penalties. Payroll software and services can help you manage these stacks of forms (figurative or virtual).
- Employee benefits. Some payroll providers make it easy to offer PTO, health insurance, and 401(k) plans. Some plans can even take on more advanced human resource functions like employee onboarding and compliance programs.
- Workers compensation. Most businesses with employees are required to carry workers compensation insurance to protect against injury and illness claims. Your payroll provider may offer workers compensation services, including paying for policies and billing for claims.
2. Plan pricing
The costs for payroll services vary by the provider you choose and your number of employees.
Some payroll providers don’t list their prices online. That’s a big frustration for anyone trying to find and compare payroll service plans and costs—including us! But the best companies will give you complete pricing breakdowns when you request a quote. Just make sure you know what you’re paying for, and ask if you can tailor your service to just the features you need.
3. Software flexibility
A key question you should ask yourself before subscribing to a payroll-processing service is whether it will fit your current needs and your expected growth.
If you have only a couple of employees and don’t anticipate growing by much in the next couple of years, a basic web-based solution should work well for you. Adding a few more employees may increase your monthly costs a bit, but otherwise, your needs likely won’t become overly complex.
But if you have a few dozen employees or expect to grow rapidly, you may want to choose full-service software or even an outsourced provider that can handle more advanced payroll functions for you. As your business grows in size, so too will the time and resources required to manage payments, taxes, and other employee details.
Additionally, the tax, workers compensation, and health insurance regulations you’re subject to become more complex as you exceed certain thresholds, such as surpassing 50 employees.
4. Customer service
The most feature-rich software is essentially useless if you can’t rely on it to work properly or count on the company to solve issues in a timely manner.
Reputation goes a long way, and there are few things you can do to ensure you’re working with a reliable provider. First, look for recommendations from customers with businesses similar to yours and from others in the industry.
If you can speak to a representative on the phone before signing up, ask them a few questions about their company’s service. How fast can they resolve issues? Can you contact them 24/7? What happens if an error is made, and how easy is it for you to correct problems?
You should take handing over your business’s and employees’ confidential information—taxes, bank accounts, Social Security numbers—seriously, and so should the entity receiving the information.
Web-based payroll software should come with rigorous security measures—such as SSL encryption—to ensure the privacy and protection of your data.
Payroll errors can leave your business at risk of government fines and lawsuits from employees. So ensuring accuracy at every step in the payroll process should be the highest priority of any service. Some providers offer no-penalty guarantees, which means they will pay any penalties for errors their software or representatives make.
The right payroll software can take a lot off your plate. When you apply the criteria above to your unique company, you’ll have an easier time assessing your payroll software options and finding your perfect fit.
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Want to start evaluating payroll provider options? Here’s our list of the year’s best payroll software for small businesses.
At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.