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Payroll is expensive, no matter how you slice it. Not only do you have to compensate your employees and contractors for their work, but the logistics and associated expenses can also take a serious bite out of your bank account. You might see manual payroll as a cost-saving move because it spares you the monthly payroll subscription. But managing your payroll using a combination of calendars, emails, paper forms, spreadsheets, and tax tables can actually end up costing you more. Here's how automating the process with payroll software can yield a significant return on investment (ROI).
This article was made possible in part by OnPay. It was written and edited independently without partner oversight.
Reclaim Your Time: Automate Repetitive Admin
Payroll involves countless moving parts and is thus one of the most complex elements of your company’s accounting operations. If you're a payroll manager, you know how endless the list of excruciatingly time-consuming tasks can feel. You must:
Maintain detailed worker records
Collect information on hours worked
Calculate gross pay for employees, which can involve multiple pay types (such as salary or hourly, overtime, bonuses, and commissions) and types of PTO (such as sick pay, vacation pay, or other types)
Calculate net pay, subtracting deductions like income taxes (federal, state, and local) and benefit contributions, garnishments, and other required government payments
Prepare paper checks and direct deposits
Enter payroll data in accounting records
Communicate with benefits providers and government agencies
Stay current on HR compliance
Calculate and submit payroll taxes and filings
Prepare periodic reports and year-end 1099s and W2s
Payroll software can eliminate these repetitive tasks. Once you enter information in these apps, it appears on every relevant page, even in HR-related sections. You can get through a payroll run much more quickly when you don't have to dig for details in multiple places. Reducing these labor costs can free up the administrator’s time for things that require deeper thought and help move the company forward.
Empower Employees With Self-Service Portals
Numerous studies have examined how long it takes to return to work after a distraction. Researchers at the University of California, Irvine, found that it can take as long as 23 minutes to "get back into a concentrated state after an interruption.”
Payroll managers who employ manual systems are likely to face myriad questions from employees and contractors. If you have even half a dozen people working for you, those conversations add up to a ton of interruptions. You might have to dig for each answer, for example, which could take some time if data lives in multiple places. And then, you have to try to refocus your attention.
Payroll software centralizes all your payroll information, so the payroll manager can find answers quickly. Moreover, workers are less likely to even ask questions when they can access their payroll data, such as historical pay stubs, updated time off balances, and withholding information, from dedicated mobile and web apps.
Catch Costly Payroll Mistakes Before You Hit Send
Every time a mistake pops up in your payroll system, someone has to investigate and correct it. This can be anything from an erroneous hourly rate to missing overtime to an inaccurate tax calculation. The last example is a critical error, especially if you have already submitted your tax payment and filing for the relevant period. But a small mistake in one employee’s pay amount can wreak havoc, too, since it affects your payroll taxes and reports. Finding and fixing any errors manually is simply a major pain.
Payroll applications have error-trapping capabilities. When they detect a problem as you’re preparing a payroll run, they stop you and explain how to correct it. And if you’ve done all your payroll setup thoroughly and accurately, it’s highly unlikely that the software will make a mistake on payroll taxes, since it’s just a matter of calculating.
Unlock Instant Labor Cost Reports Without the Math
With manual payroll systems, you're lucky if you manage to complete your payroll runs accurately and on time, as well as submit payroll taxes and filings according to schedule. Running reports that can help you analyze your labor costs is a luxury you probably don’t have time to pursue. Payroll software comes with pre-designed reports that provide insight into this element of your budget. Some apps even offer sophisticated custom reports that let you target specific data. Either type of report is simple to spin up in minutes.
Avoid IRS Penalties With Automated Tax Filings
The value of having a payroll site to calculate and submit your payroll tax is immense. The IRS and other tax agencies take taxes and associated forms very seriously; they must be accurate and arrive on time. You are responsible for knowing when your filings are due. The IRS spells this out on its website and also notifies new businesses of their obligations. Companies in states that require an income tax will need to contact their state’s revenue department and register as part of the payroll software setup.
Calculating and submitting your payroll taxes is as challenging as running a payroll. If you’re using a manual system, the process is time-consuming and error-prone. You have to keep track of different tax types, rates, wage limits, deadlines, deposit schedules, and forms. You must tally and submit all the calculations you make to withhold correct amounts for obligations, such as federal income tax, Social Security and Medicare, and federal unemployment tax (FUTA) on paychecks. If your company grows or takes on employees in other states, this critical task becomes even more complex.
Payroll software does the heavy lifting by handling all the calculations. It can even submit your payroll taxes automatically, give you advance notice of when taxes are due, and provide guidance. Most, if not all, payroll software companies will pay any penalties you incur if their services make a mistake. The value proposition here is obvious. You save money by saving time, and you minimize the risk of penalties and interest for errors.
Grow Your Team Without Doubling Your Workload
What happens if you’re doing payroll manually, and the size of your workforce doubles? You guessed it, your payroll workload also doubles. You might even have to bring on a new employee to handle the expanded responsibilities.
Payroll software might spare you the significant expense of hiring another worker. Automating payroll allows you to manage greater complexity without increasing your administrative workload at nearly the same rate.
Seamless Software Integrations Save Time and Tech
Your payroll data doesn’t exist in a vacuum. At the very least, you need to make it a part of your larger bookkeeping system. In a manual system, that requires a lot of duplicate data entry, which increases the chances of transposition errors.
The best payroll applications automatically integrate with small business accounting software. You can even connect some to scheduling, point-of-sale (POS), and time-tracking apps. The benefit of integrations goes beyond improving your company’s ROI. They enable automation in areas that would be difficult or impossible with a manual system.
The Real ROI: Spend Time Growing, Not Calculating
A lot of the above reasons involve saving money by saving time. That’s certainly a quantifiable measurement you can use to calculate your company's ROI in adopting an automated payroll service. But it’s what that extra time affords that's difficult to measure (and arguable more important). If your company's leaders get to spend more time working on things that require skill and analysis, the business has a better chance of thriving.
Instead of asking whether you can afford payroll software, you should instead think deeply about how much time and money your manual system is already costing you. Then, research what might be a good fit for your business, starting with our in-depth coverage.
About Our Expert
I write about money. I’ve been reviewing tax software and services as a freelancer for PCMag since 1993. Along the way, I took on reviews of other types of business and personal finance technology. Prior to that, I had spent a few years writing about productivity and entertainment applications for 8-bit personal computers (my first one was a Commodore VIC-20) as a member of the editorial staff at Compute!Â
After working at Lawson Associates, now Lawson Software, I switched my focus to accounting but learned that personal computer applications were more progressive and interesting to cover than mainframe solutions. So I served as editor of a monthly newsletter that provided support for accountants who were just starting to use PCs. I still ghostwrite monthly how-to columns for accounting professionals. From there, I went on to write articles and reviews for numerous business and financial publications, including Barron’s and Kiplinger’s Personal Finance Magazine.
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