Not to be confused with a payroll system, payroll software refers to the use of a computer program that provides automation tools to process employee payments with a greater degree of efficiency and reliability. 

Payroll software is designed to eliminate time-consuming data entry for payroll personnel, reducing instances of human error and improving the efficiency of accounting for companies.

What is Payroll Software?

Generally speaking, payroll software is designed to help employers automate their payroll and introduce intelligent features that bring more efficiency to HR processes across the board. Some of the key characteristics of payroll software include: 

  • Calculating tax withholdings
  • Managing salary deductions
  • Tracking hours worked
  • Printing paystubs
  • Processing digital payments and deposits
  • Offering employee self-service 
  • Protecting confidential financial data

Payroll software is a key tool for enabling businesses to comply with complex federal and state tax obligations while ensuring the accurate and timely payment of salaries to employees.

How Payroll Software Works

There are many different considerations that payroll teams have to take into account when managing employee pay. Factors like wages, tax, compliance, regulations, time, and attendance can all enter the mix when calculating salary, as well as the type of employment for each worker. 

Payroll software streamlines these complex calculations by automating the payment process, paving the way for more accurate and timely compensation for the work completed by employees. Key factors that payroll software handles include:

Data Entry

Automation technology needs data to work effectively. Using information relating to time, attendance, salary, bonuses, annual leave, sick leave, and any applicable deductions allows payroll software to calculate each employee’s pay without the risk of human error causing discrepancies.

Calculations

Payroll software also considers all the many different variables that apply to employees, such as tax withholdings, retirement contributions, and health benefits, to confirm the net pay for team members and the accuracy of paystubs. 

Compliance

The software can also automatically update its calculations to take changing compliance laws into account. Tax laws and regulations are liable to change from time to time, and payroll software can update core processes to match those changes. 

Reporting

Crucially, payroll software also provides reporting features to hand key insights to employers for enhanced insights into payroll. This helps businesses to measure trends, ensure payroll equity, and make data-driven decisions regarding operations. 

Payroll Software Advantages

Many businesses and HR teams rely on payroll software to handle key processes, and some of the technology’s best advantages include: 

  • Salary Accuracy: Automated calculations ensure fewer errors and more confidence in accurate compensation
  • Time Saving: Data suggests that companies spend an average of five days on payroll. Automation tools can pave the way for real-time calculations. 
  • Compliance: The ability to instantly update processes to match changing federal and state tax laws can overcome preventable accounting errors. 
  • Streamlined Reporting: Built-in reporting features offer powerful insights into pay practices for better payment equity among employees.
  • Security: Most payroll software comes with privacy features that protect against the release of sensitive financial data. 
  • Benefits Management: Company benefits surrounding health and pensions can be managed all in a single platform.
  • User Experience: Good examples of payroll software will simplify key processes all within a single interface, paving the way for an easier experience for HR teams.

FAQs

Although payroll software and payroll systems have similar goals for users, payroll software refers to the use of dedicated software or a cloud-based platform to manage employee pay. Whereas, a payroll system is a more generic term that covers just about any way a business tracks payroll and could refer to an internally created and manually updated spreadsheet. 

It’s difficult to put a price on payroll software because packages vary based on the features that employers need and the size of the organization. However, most pricing models operate on a monthly or annual subscription basis, with some providers using per-person rates to ensure that businesses only pay for what they use.

While it can be hard to guarantee the safety of any software that operates online, payroll software typically comes with strong security features and provides encryption tools along with regular security updates. 

Most businesses will be capable of implementing strict controls over who can access confidential information, but it’s always best to look at user reviews to ensure that providers have a positive reputation.