June 6, 2016

5 Factors to Consider While Shopping for a Payroll Service

Shopping for payroll software can be daunting. There are hundreds of payroll service providers, and of course, they all offer different features.

When you’re conducting a payroll software comparison, you need to carefully evaluate each product and make sure it lines up with your budget and business goals. Before you commit to a vendor, consider these five factors:

1. Online vs. Desktop

Online Payroll Software

You can access online payroll software through an internet browser. The service provider stores all of your payroll data in the cloud, and you pay a subscription price for continued access. If your computer crashes, you will not lose any of your payroll data.

You can use cloud payroll software from any location, as long as you have an internet connection. This type of platform also does not confine you to a single device; many payroll solutions now offer a responsive, mobile-optimized interface, or even a native mobile app.

The software provider should automatically update the program as soon as new versions become available, which ensures all of your data is accurately synced every time you run payroll.

Desktop Payroll Software

Desktop payroll software is installed on a physical device, and data is stored on your company servers. Some businesses feel more comfortable keeping their payroll data “in-house,” but without regular backups, you do run a higher risk of data loss in the event of a hardware malfunction or natural disaster. Cloud software vendors can usually provide a higher degree of security and redundancy than most small business can accomplish with their own IT resources.

With desktop payroll software, you can only run payroll from devices for which you’ve purchased a license. Every vendor packages their licenses differently, but it’s generally more difficult to scale up or down with an on-premise, perpetual license. This is an important factor to consider if you think your team may grow or move locations.  

The type of payroll software you purchase will depend on how you plan to use it.  

If you are frequently on the go, working between multiple locations, or working at home, an online payroll service might be a better fit. If your business is in an area where the internet connection is spotty, you might consider a desktop or hybrid solution, or even a cloud-based platform with offline capabilities.  

You should also evaluate your IT resources. Do you have a dedicated systems admin and the server capacity needed to run a complex software program? Do you have time to perform your own maintenance, updates, backup, and troubleshooting?

2. Features You Can’t Live Without

Before you purchase a solution, decide what features you absolutely need. The features you need will depend on what payroll tasks you manage, how many people will share access, and your current skill set.

Payroll processing is not the same for every business. If your employees earn commissions, you will need a service that handles commission calculations. Other features on your list might include:

  • Time and attendance tracking
  • Tax deposits and filings
  • Direct deposit
  • Employee portal
  • Reporting/analytics (W-2s, W-3s, 941, etc.)
  • Bank account synchronization

If you have a dedicated payroll manager or controller, you might do more payroll tasks yourself and thus choose an affordable solution with basic functions. If you have less available time and resources, you can choose an all-inclusive payroll/accounting solution.

3.  Cost of Ownership

Payroll services can vary widely in price and cost of ownership. Typically, the more features a payroll service has, the more expensive it will be. But you may also pay for account setup, customer support, data migration, custom development, etc., depending on the vendor.

The way a payroll vendor bills your company can make a significant difference in cost. Most  vendors charge either by the paycheck or per employee. You’ll typically have the option to choose between several different pricing tiers, based on the features and services you need.

Payroll administration is a necessary operational expense, so it won’t earn your business money. That means you keep costs to a minimum when selecting a software vendor. Set a budget based on number of employees and the time you hope to save by implementing a solution. Then, look for software that fits your budget.

4. Paying Employees

There are many different ways companies pay their employees: hourly wage, salary, tips, commissions . . . not to mention the wide variety of dispersal methods — written checks, printed checks, direct deposits, pay cards. Be sure to follow your, as some states have laws regarding paperless payroll and how to pay your employees.

You’ll also need to think about state payroll laws regarding paperless payroll and pay frequency, and piecework rates. How will a given solution help you streamline the payout process and maintain compliance?

The software you choose should be compatible with how you pay your employees. If it’s not, you’re wasting your money. Keep in mind, some payroll service providers will charge you extra for certain features. For example, they might add a surcharge for every paycheck you process, or for direct deposits. If you process payroll twice a month, those surcharges will add up quickly.

5. Paying Taxes

Tax withholding is a confusing, but necessary part of payroll administration. Some companies manage payroll taxes in-house, while others choose to outsource. The decision here is a classic time vs. money dilemma: doing taxes yourself is “free,” but can require hours of tedious work.

Many payroll software providers offer a tax filing service built into their platform. This option may cost a little extra, but it can save time and reduce the stress of turning everything in on time. Basically, you authorize the provider to access your data and run calculations, and they do the rest.  

Making Your Final Decision

When you find a payroll solution you think will work for your business, run a free trial or demo to test out the features and get an idea of user experience. The winning product should offer healthy balance of functionality, price, and user experience.

To browse payroll software solutions and get a custom recommendation for your business, check out our Product Selection Tool.


This is a guest post from Kaylee Riley, a content writer for Patriot Software, Inc. At Patriot, she translates tricky payroll and accounting topics into the language of the small business owner.

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