Business October 4, 2018 Last updated September 30th, 2018 3,075 Reads share

4 Signs It Might Be Time to Move to a New Payroll System

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When is it time to move to a new payroll software management process? Your organization may be asking this question for a variety of reasons. Your current payroll “system” may consist of manually tracking hours worked, using a calculator to multiply hours worked by an hourly wage, and hand-writing a check to an employee. Otherwise, you may be struggling with the decision to even keep your payroll in-house at all.

There are plenty of more efficient ways to manage your payroll and stay organized. In fact, your payroll system could be as complex as managing hundreds of employees salaries along with benefits, overtime pay, and paid-time-off. When does it become time to explore a new system?

Like it or not, running payroll will cost money. Payroll software costs money, and the time it takes for an employee to enter in relevant information (hours worked, salary details, 401k contributions, etc.) is still time you are paying them, rather than time spent working on something that can generate the company revenue. It’s important to analyze your current setup to see if you are paying for the right services.

In any situation, it’s best to evaluate your current payroll situation every year and determine the best course of action moving forward. These tips can help your organization save both time and money.

1) Your Current Processes Are Antiquated

As mentioned previously, a smaller organization may be using a manual method for processing. This includes tracking employee hours (usually on a spreadsheet, but in some situations via pen and paper), calculating their pay for the pay period (multiplying hours worked by their wage), and issuing a check (handwritten). The sole benefit of this process is the cost; usually free, minus the cost of any check-stock and the time it takes to process everything. However, the main disadvantage with the system is the high room for error. Errors in payroll can mean headaches, penalties, or even potential legal fees.

Payroll software exists to help alleviate the problem of human error. Not only will it double and triple check your records, but it will also keep them neat and organized. This will save headaches when it comes to providing W2s at year-end (or T4s if you are in Canada). An automated time tracking system will ensure hours are accurately tracked, and allow for an easier calculation of their wages for the pay period.

As a company grows, payroll can become more complex. A manual payroll method may work for a small retail business with three hourly employees, but what if you offer things such as health benefits, vacation, or have employees working overtime?

2) Important Payroll Software Features

Key payroll software features include:

  • Salary and wage calculation
  • Check printing
  • Direct deposit
  • Paystubs
  • Deductions management
  • Overtime management
  • Electronic payroll tax filing
  • Time tracking

As mentioned previously, when a company grows, so will its need for additional features. A smaller company with basic payroll software needs can probably get by with a software that handles wage calculation, and then prints the checks and pay stubs. But a company that employs staff full-time will need to worry about things like overtime management and administering benefits such as accrued vacation time or paid sick leave.

Many payroll solutions will offer features that may not be necessary to process payroll in your accounting, but they will help the entire process become a well-oiled machine. Such features include deductions management (withholding proper funds from paychecks to cover taxes, benefits, garnishments, retirement contributions, etc.) and direct deposit (automatic deposit of payroll funds to employee bank accounts).

Self-service portals are becoming popular these days as more payroll software options offer online ways for employees to track their hours worked, look at paystubs online, view various tax forms, as well as enact changes without additional administrative support.

3) Support for Your Current Software Is No Longer Offered

A recent survey from the American Payroll Association and Kronos found that 29% of payroll departments use a payroll system that is 10 or more years old. The old saying “If it ain’t broke, don’t fix it” comes to mind here. However, in order to ensure help is there when you need it, you’re staying compliant, and that the software is secure, you need to ensure that your payroll software is kept up to date.

Payroll software is almost exclusively billed on a subscription-based pricing model. If you own a software solution (generally something installed on-premise), you are likely paying the ongoing subscription for support, as well as updates. As a cost-cutting measure, companies may choose to stop receiving continued support or paying for routine updates. However, this brings about a number of issues:

  • Manually importing tax information is time-consuming. A payroll system that has been routinely updated will have the most current tax-tables and will ensure your business is being compliant in tax season.
  • An outdated system will be prone to errors or security breaches. An updated system will keep your information secure by having the most up to date (and presumably bug-free) version.
  • Solving support issues on your own could be a dead-end. Getting your questions answered in a timely manner via active support will prevent an employee from being bogged down researching an answer online.

If you’re using a SaaS (cloud) payroll software, the subscription cost you are paying includes not only all of the above benefits but also the privilege to use the software itself! Stopping payment on that will leave you high and dry with no solution. Yikes!

Software companies are also routinely adding new features and enhancements to their software based on developed improvements and feedback received from its users.

4) You Need Automation

Is processing payroll manually as cost-effective as you think? While you’re saving on the cost of a system itself, you’re losing something in the process: time. The question then becomes, how valuable is your time?

The American Payroll Association estimates that automation reduces payroll processing costs by as much as 80%. The main cause? Reducing errors in invoices and paychecks. These areas can be improved upon even more by allowing a level of automation into your software.

Luckily for your business, most payroll software can handle calculating wages, bonuses, tax withholdings, and deductions all automatically. For example, when an employee clocks in and out, the time card data is automatically saved to the program. At processing time, the system can automatically determine their gross pay by calculating their hours worked with their wage rate. The system can then accurately withhold the proper amount for taxes, any contributions, etc. before issuing a check. Direct Deposit? No problem! The system will automatically deposit the funds at a predetermined time. No more trips to the bank for both the employer and employee!

Compared to a manual process (where everything needs to be properly logged into a spreadsheet, or worse, handwritten), a fully-automated payroll system will just need a staff member to double-check things look good before approving.

Russell Davidson

Russell Davidson

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