The right payroll software can have a lasting positive impact on a small business. After all, paying employees correctly, consistently and on time is a fundamental step in building trust with your workers and motivating them to do their best. But with so many options available, choosing the right payroll software for your small business can be a challenging task. There’s a lot to consider, from automated payroll calculations and tax compliance to software integrations and customizable features.

This article will help small businesses with their search for payroll software by digging into what payroll software is, what small businesses should expect from it and the features to look for and questions to ask when evaluating vendors.

What Is Payroll?

Payroll refers to a company’s list of paid employees as well as the process of paying them, based either on their salary or hourly wage. Some also use this term to refer to the organization’s total spend on its workforce.

While it seems straightforward, small business payroll can be complicated. To pay employees accurately and on time, businesses must account for federal, state and local wage laws and tax responsibilities, while making sure they always have enough cash on hand to cover payroll costs. To further complicate a small business’s payroll, each employee might have a different payment formula based on their individual financial information, like withholding status, income level, location and benefit contributions.

What Is Small Business Payroll Software?

Small business payroll software is a system that automates some of the most time-consuming aspects of payroll, such as paycheck calculations, recordkeeping and payment processing. By doing so, it helps a small business efficiently pay employees, remit the payroll taxes it owes and track and record all those payments, all while complying with federal, state and local tax and labor law. Payroll software also gives small business owners and managers a greater level of control than outsourcing this job to a payroll service provider.

Leading payroll software systems integrate with other business solutions, like accounting and human resources (HR), giving multiple departments access to important information. Sometimes payroll software may be offered as part of a larger enterprise resource planning (ERP) system, which integrates core business functions including financials, HR, supply chain, sales/marketing, project management and more.

Benefits of Payroll Software for Small Businesses

Payroll software can reduce the resources required for many common small business payroll tasks. It mitigates repetitive, time-consuming and mundane payroll challenges like accurately calculating paychecks. Automated paycheck calculation means all a business needs to do is ensure that the information for each employee is correctly entered into the system, and then double check the final pay period numbers for accuracy.

Areas where payroll software delivers benefits to small businesses include:

  • Regulatory compliance. Payroll solutions can comply with shifting financial regulations; leading solutions are updated regularly to adhere to changing payroll tax regulations and wage laws change.
  • Reducing human error. Automated processes that handle complex calculations can help reduce payroll errors, especially when you have many employees with different pay structures, tax withholdings and benefits. Employees no longer need to spend time poring over spreadsheets and calculators, risking typos or misplaced decimals.
  • Business analysis. Payroll software can track attendance or integrate with time-tracking software to provide insights into employee productivity and attendance—i.e., how often employees are late, leave early or take days off. Depending on the software, you also may be able to analyze payroll costs by department or location.
  • Keep paychecks up to date. Payroll software can automatically update paycheck calculations any time an employee gets a raise, moves, earns a bonus or puts in overtime.
  • Benefits administration. Payroll software can apply benefits deductions and may be able to automatically pay contributions to benefits providers. Payroll software can be integrated with HR systems to help provide a clear, up-to-date picture of employee benefits.
  • Employee self-service. Many payroll solutions can create a self-service portal for employees, enabling staff to directly manage personal information like address changes or view benefits information without assistance from payroll managers. Portals may also allow employees to put in time-off requests, which can then be reviewed by managers for approval.

Types of Payroll Software for Small Businesses

There are two main types of payroll software for small businesses: subscription-based cloud software and on-premises software that charges a one-time fee for a perpetual license. Each model has its own benefits, and the type that’s best for your small business largely depends on its particular needs.

Cloud payroll software:

Cloud-based business solutions tend to be highly configurable and easier to integrate with other systems, so you can adapt them to suit your business needs. For example, cloud payroll software can integrate with other applications, allowing employees to track time, or review pay stubs, benefits information and submit time-off requests. Many cloud ERP software vendors have a payroll module running on the same database as their other modules like accounting, facilitating the flow of information. Cloud payroll systems can be accessed anywhere, anytime, as long as the user has an internet connection. Finally, the vendor handles all maintenance and pushes out frequent updates, and your data is protected in the event of an outage. Subscription-based pricing models make cloud-based payroll solutions more affordable for small businesses because they don’t require a large up-front cash expenditure.

On-premises payroll software:

This type of payroll software runs a local centralized computer or in your data center, so you can only run payroll on a computer that has the software installed or one that can access the server with the software. Because data is stored locally, you might not need internet access to run payroll. However, you run the risk of losing critical data if systems crash. Depending on the provider and age of the system, it can be difficult integrating on-premises payroll software may with other business solutions.

Nearly 40% of global respondents have moved to cloud payroll software, and another 21% were evaluating such a move, according to a recent survey (more than half of responding organizations (52%) had fewer than 1,000 employees).

Features of Payroll Software for Small Businesses

Payroll software typically offers the following features:

  • Automated payroll calculations
  • Automated payroll runs before every payday
  • Ability to cancel or suspend payroll runs if an error is detected
  • Multiple payment options, including direct deposit and paper paychecks
  • Automatic benefits deductions
  • Retirement and health insurance plan benefits deductions
  • Online employee self-service
  • Robust access controls
  • Flexible pay periods
  • Integration with other business software
  • Multiple earnings types including salaries, hourly wages, and variable payments like bonuses
  • Compliance with U.S. federal, state and local labor and tax laws
  • Automated calculation, remitting and tracking of payroll taxes
  • Detailed payroll reporting
  • Maintenance of payroll history for all employees
  • Employee tax form generation
  • Management of new-hire tax forms
  • Adaptability to meet a company’s needs

Separating your company’s must-haves from nice-to-haves on this long list can be a challenge, but it goes a long way in making sure you pick payroll software with the right features for your needs. Very small businesses with a few employees and simple payment structures, for example, might not need all the bells and whistles of a more feature-rich payroll system. Still, there are certain features no business should overlook, regardless of its size. Ten key features are in the table below.

Basic Necessities Compliance Reporting & Recordkeeping Flexibility & Integration
  • Automated paycheck calculations
  • Pay employees through direct deposit or printed paychecks
  • Security
  • File and pay federal, state and local taxes
  • Meets labor law requirements
  • Stays up to date with changing tax and labor laws
  • Handles payroll tax reporting
  • Keeps all necessary records to meet IRS and Department of Labor (DOL) requirements
  • Scalable and customizable
  • Integrates with other business software

Things to Consider When Choosing a Payroll Software for Your Small Business

As you determine the payroll software requirements for your business and the features that would help, consider the following criteria:

  • Business needs: It’s important to choose payroll software that matches your business’s style and needs. Before narrowing down your list, get a clear picture of your organization’s headcount, the location of employees, the proportion of seasonal or temporary workers, payroll budget, whether employees have benefits, how often they’ll be paid, the business’s expected growth, level of payroll analytics required and how much direct control you’ll need over the process.
  • Staff perspectives: Employees should feel like the payroll solution is a natural extension of their jobs. Any changes should bring demonstrable improvement. For example, N&N Moving Supplies found that a payroll solution that granted employees access from any location through a personalized dashboard for tablets made for a better employee experience.
  • Budget: How much can the business afford to spend on payroll software? What is the highest price that will still drive an acceptable ROI compared to manually processing payroll or outsourcing? N & N was able to reduce payroll processing time by 84% and balance GL accounts faster, while gaining insight into labor cost trends across all locations.
  • Security: Payroll is a sensitive matter. Businesses limit who can see payroll information like wages and benefits. Consider whether a payroll software solution’s security features match the business’ need to keep sensitive data confidential.
  • Flexibility: Will you be able to tweak payroll processes on the fly? For example, if an employee is laid off before their pay period ends, can you run an off-cycle payroll without paying an additional fee?
  • Control: What level of detail does the software allow you to see? For example, can you view payroll expenses by department? Is there an employee self-service function that allows workers to access and update their information without having to contact whomever manages payroll? Can you run payroll whenever your business needs to?
  • Compatibility: Is the software compatible with your other systems? Can it be integrated with other key business software, like your accounting system?
  • Support: Does the payroll software provider offer 24/7 customer support? Are they prepared to work with you to develop a payroll workflow that fits your business? Are they knowledgeable about everchanging payroll regulations?
  • Ease of use: How easy is the software to use? How easy is it to integrate with other business software? Payroll software should be intuitive and not have too steep of a learning curve.
  • Training: To fully leverage the capabilities of any payroll software, you need to make sure any team member using the system can understand and take full advantage of it. The payroll software vendor should offer comprehensive training resources.
  • Compliance: Does the software automatically incorporate changes in wage laws and tax regulations? Is it only on the federal level, or will the software keep pace with all local jurisdictions within the U.S.?
  • Scalability: Is the payroll software capable of supporting more employees and more complicated payroll calculations as the business grows?

5 Tips for Choosing the Right Payroll Software for Your Small Business

Businesses don’t buy core business systems like payroll software often, so selecting payroll software can be a challenge. The following tips can guide you through that process to prevent it from dragging on or leaving you feeling overwhelmed:

  1. Document requirements based on business needs. A documented set of requirements for your payroll software, prioritized in descending order from the most to least important, is a powerful tool you can use at every stage of the purchase process. It keeps your team focused on what’s important and helps identify the value that each payroll vendor brings to the table.
  2. Develop a scorecard. Whether your top priority is mobile access, employee self-service, automated tax filing or anything else, make a checklist of features you can’t do without and assign each one a score based on importance. Then, invite two or three of the business’ key stakeholders in the payroll software to participate in vendor presentations and score them.
  3. Ask lots of questions. If you know what you want, one of the best ways to be sure a payroll software solution is going to align with your business needs is by asking the provider specific questions about why their solution is right for you. Compare responses and determine which seems to match your payroll needs.
  4. See it in action. Make sure the ultimate users of the payroll software have a chance to view a live demo and, if possible, try out the system before you buy it. Seeing how the application works or using it yourself can quickly reveal which system has the features that best fit your needs and is easiest to use.
  5. Check customer reviews and reports. Research what other customers like and dislike about specific systems and compare that to your needs and preferences. Turn to your own network—talk to your counterparts at similar-sized businesses to learn from their experiences and help steer you in the right direction.

Free Checklist

  • Consider your business size and number of employees.
  • Will you have seasonal and/or part-time employees in addition to full-time employees? Paid interns? Will employees be hourly, salaried, or both? Do you offer bonuses, commissions or stock-based compensation? Know how you’ll need to structure pay groups based on pay or employment type.
  • Disregard any payroll software that doesn’t fit your needs.

  • Automated tax filing (including tax credits)
  • Multiple ways to pay employees (direct deposit, automatically printed paychecks, reloadable pay card)
  • Employee self-service capabilities
  • Integration with other business software
  • Configurability and scalability
  • Tax and wage law compliance
  • Security
  • Detailed payroll reporting and recordkeeping

  • Ensure payroll software can handle your analysis, reporting and recordkeeping needs

  • How will the payroll software stay up to date with changes to payroll calculations? Will it automatically adjust to wage increases, tax law changes, or benefits changes?
  • How will the software maintain compliance when new payroll tax laws and labor laws are passed?
  • What can the system automate? Will the payroll software automatically import crucial accounting information into accounting software or your business’s general ledger? Or will it provide a file of summarized information that you will then have to manually import?

  • Set up fees
  • Cost to run payroll
  • Tax reporting fees
  • Legal compliance fees
  • Additional cost for each employee on payroll
  • Any hidden costs

  • Do research on what users have to say
  • Note pros and cons, especially ones commonly mentioned

  • Get a live demo and determine whether the software is intuitive and easy to use

Why NetSuite is the Best Payroll Software for Small Businesses

When looking for a payroll software solution, it’s important not to overlook the potential benefits of a provider that offers a larger ERP offering. Cloud-based ERP solutions—like NetSuite—have robust functionality and are highly configurable, so they can meet the needs of just about any business. These type of solutions offer a familiar user interface and unify core business functions, from finance to human resources and everything in between, so you can choose what you need to run your business most efficiently. Key features NetSuite SuitePeople offers include:

Automation. NetSuite SuitePeople automatically calculates paychecks, issues payments to employees and updates your company’s general ledger, all without manual intervention. Your business can run payroll and immediately see the impact on overall finances. At the same time, you have complete control over the process and can make any changes and adjustments as necessary. “We can have payroll done in 10 minutes. Before it was over an hour,” Meredith Martinelli, Vice President of Administration at N&N Moving Supplies, said about her experience with NetSuite. “It’s definitely changed my weekly payroll responsibilities.”

Unlimited payrolls. Some vendors will charge extra to run an off-cycle payroll, but NetSuite won’t charge you additional fees to process payroll if an employee is laid off or leaves and needs to be paid ASAP. With SuitePeople, you can run payroll whenever you want.

Integrations. Businesses have used NetSuite’s cloud platform to improve the efficiency of financial operations and HR workflows, including payroll, time-off requests and employee performance management. For example, you could use a compatible time-tracking app to automatically feed timecard data into SuitePeople’s payroll feature, and it will automatically update your general ledger on payday. Also, as Atushi Murakami, Head of IT Strategy at DeNA, a provider of ecommerce websites, explained, “NetSuite has given us access to basic employee data and allowed us to keep track of personnel changes for approximately 2,000 employees around the world, all in real time. For example, this enabled us to automatically calculate in-house software development costs based on accurate, updated HR data.”

Troubleshooting. Since NetSuite offers a variety of modules that are all designed to work together and feed into a central database, you only have to call one vendor if there is a software issue or error—NetSuite is the accounting and payroll provider. Third-party integrations, on the other hand, can take more time and effort to resolve because you may have to call several vendors to determine the issue and the best way to resolve it.

Automatic upgrades. NetSuite releases new versions of its software several times a year and automatically moves all customers to the latest version, making new features available to everyone.

Without payroll software, whomever is in charge of running payroll manually is likely to spend hours working through spreadsheets, running calculations, filing forms with the IRS and monitoring tax payments—all in addition to paying employees. What’s more, when you’re handling payroll manually, legal ramifications related to non-compliance is a constant risk, even when it’s the result of honest miscalculations. Payroll software can handle many time-consuming, error-prone processes so payroll managers can focus their time on higher-value tasks, like managing people and drawing insights from employee compensation data.