What does payroll software do?

A robust payroll software which is configured to meet the business’s individual needs is essential for an efficient payroll process. Without a good payroll management system in place, organizations not only risk late and inaccurate employee payments but can also become noncompliant with payroll and tax laws. But what exactly are the different functionalities of payroll software? And what are the advantages of using software for payroll processing?

Payroll software (sometimes generally referred to as payroll system) is a software application that streamlines and automates crucial payroll processes such as calculating wages, salaries, and taxes, or generating payslips and payroll reports. Programs for payroll processing hence help businesses manage their payroll and increase the overall payroll efficiency.

Through payroll software integrations businesses can increase the scope of their payroll system to include time and attendance tracking, employee benefits, payouts, and more. The main objective of using a software solution to manage payroll is to increase the accuracy of the payroll and make sure employees are paid on time.

The specific capabilities and functionalities of payroll software differ from one software provider to the next, but common payroll software features include:

• Administration of employee information (e.g. salary information and tax forms) and other data needed for payroll

• Definition of a pay period and matching payroll schedule

• Calculation of employee wages, salaries, and benefits

• Deduction of payroll taxes and other withholdings

• Payroll record keeping

• Collection of payroll data for analysis

• Payroll reporting capabilities

• Provision and distribution of payslips

• Employee payments (or at least payment information management to set up direct deposits)

• Payroll compliance capabilities to follow the latest compensation rules and tax laws

Depending on how payroll taxes are filed in a country, it might even be possible to set the payroll system up in a way that allows for automated tax filing. Integration with other tools such as time and attendance management and accounting is also frequently offered.

Despite the fact that an online payroll system automates many parts of the payroll process, the business still has some administrative work to do. Before each payroll run, for instance, the data input (i.e. hours worked, overtime, etc.) needs to be checked and validated by the payroll manager. Also, off-cycle payroll processes need to be initiated and handled manually.

There are two different types of payroll software. Payroll processing software can either be cloud-based or on-premises. Cloud-based payroll systems are provided under a software-as-a-service model, which means that the software is hosted on an external server and accessed via the cloud. Under this model, businesses usually pay a monthly fee to the service provider for the provision and maintenance of the software (e.g. regular updates) as well as for the storage space for their payroll data. 

On-premises payroll software, on the other hand, is self-hosted software that is installed and hosted on the business’s internal servers, which means that the responsibility for maintaining, updating and securing the payroll system lies with the organization itself.

Using payroll software for managing internal payroll operations comes with a series of benefits. The main ones being: 

• Time savings: Compared to manual payroll processing, payroll software is a lot more efficient and faster, since it replaces slow manual processes with technology and automation.

• Fewer errors: The less manual intervention, the better the accuracy of the payroll. As long as the data input (i.e. hours worked, tax information, etc.) is accurate, the calculated pay will be correct.

• Streamlined processes: Payroll management software is designed to streamline an organization’s payroll processes and increase the overall process efficiency from data collection to payroll calculation to employee payments.

• Payroll data transparency: A payroll software system centralizes all payroll data in one single place and makes it easily accessible. This increases the data transparency and can help improve the business’s decision-making process.

• Customization: Payroll software programs can usually be customized to fit the needs of the business. This can include additional software features as well as reporting functionalities and integration with other workforce management tools to create a universal HR and payroll software. 

• Full control: Processing payroll in-house with a payroll program means being in full control of all payroll operations from start to finish. Operational changes can easily be implemented and executed to adapt to changed circumstances. 

• Payroll compliance support: Using a software for payroll may not provide businesses with the same level of support and expertise in terms of compliance as a payroll service, but there are many software solutions that come with an integrated payroll compliance calendar that reminds the payroll operator of important deadlines.

• Employee self-service functions: If a payroll software offers employees self-service functions, this means that employees can carry out specific payroll-related activities online via the payroll system without having to go through HR or the payroll department. An example would be accessing payslips online or updating personal information via the interface.