More companies are ditching time-consuming manual payroll systems and costly payroll service providers in favor of their own software. Whether supplied as a standalone program or as a module within a unified accounting environment, a payroll software product should provide the automation, productivity, ease of use and other features necessary to provide consistent and reliable service.
As you shop for payroll software, you'll want to pay close attention to these top 10 features.
1. Tax calculation: Determining tax amounts for each employee is a basic payroll function. Any product you consider should be able to handle federal/state/local income, Social Security, Medicare, federal and state unemployment and state disability calculations. If your business has any additional tax calculation needs, make sure that software can be customized to support these mandates without extensive — and expensive — reprogramming.
2. Deduction support: Calculating deductions is another crucial payroll software function. Look for a product that allows deductions for health plans, union dues, deferred compensation plans and other common requirements. If your company has unique deduction needs, the software should be able to easily accommodate extra deduction functions without costly changes.
3. Delivery mode: Not so long ago, all accounting programs were installed on a company's own computers. Today, businesses also have the option of using SaaS (Software as a Service) applications, which are hosted on the on the software provider's machines and accessed by users via the Web. SaaS apps are generally easier to deploy than conventional on-site software. While a payroll application hosted on premises must be carefully tested for server compatibility, performance and usability, deploying a Web-based program typically requires just a few weeks of prep work — mostly spent configuring the software and training users. The SaaS approach also tends to take the hurt out of maintaining the software, as program updates and fixes are automatically handled by the provider.
4. Tax form support: Tax forms keep proliferating, so your software should be able to support the creation, editing and printing of the latest versions of common forms, such as W2s and 1099s, as well as a plethora of rarely used federal, state and local documents.
5. Check and check-stub printing: While this basic function should be easy enough to use, it can sometimes be maddeningly difficult to fine-tune. Any payroll software you acquire should be fully compatible with the printers and forms you plan to use with it.
6. Direct deposit: More businesses are depositing salaries and other payments directly into employee bank accounts. Even if your business doesn't currently offer this service, it may wish to do so in the future in order to save on check printing and distribution costs.
7. Reporting: You'll want a program that provides insight and visibility into key operations by generating reports on key payroll operations. The best products allow you to set your own custom report criteria, such as reports that cover a specific type of employee, falling into a particular type of tax category over a certain number of years.
8. Simplicity: This isn't a single definable feature, but an overall characteristic of the software itself. When evaluating a product, carefully examine its design and layout. Are program features, such as menus and commands, easy to use? Are screens logically designed? Does the application work with the user, providing guidance and support? Examine the program carefully before you buy it and test the software under actual operating conditions using fictional payroll files.
9. Technical Support: In many respects, a payroll product is only as good as the vendor that stands behind it. That's why it's important to question prospective vendors about the types of technical support they offer, including service cost and response time.
10. Interoperability: A payroll product must mesh well with related software, including accounting and HR programs. This usually isn't a problem if the payroll application happens to be a module within a vendor's overall business software line. In a mixed software environment, however, you'll want to determine the product's compatibility with other deployed applications by running a series of compatibility tests.
For more information on accounting software, check out the Accounting Software Resource Center. There, you'll find in-depth research such as the Market Primer: Finance & Accounting Systems and the Buyer's Guide: SMB Finance & Accounting Systems.