Benefits of Payroll Software vs Payroll Services: What is the Difference?

Benefits of Payroll Software vs Payroll Services: What is the Difference?

employee checks time on his watch

As a manager or business owner, one of the fundamental services you owe your employees is timely and accurate payroll. Your employees work hard to make their earnings, therefore ensuring their compensation is granted efficiently is management’s critical responsibility. However not all businesses are built equally, so it’s crucial to determine the correct pathway for your payroll needs.

Along with your obligation to your employees, business owners also have to fulfill responsibilities to government agencies and maintain rules and regulations in order to not be penalized.

To consider what type of wage transfer is best for your business, it’s crucial to understand the ins and outs of the various methods of payroll management, benefits and difference in payroll software.

Payroll Management

Payroll management is an umbrella term that describes all the processes that allow for paychecks to get into the hands of employees. This involves time calculation, payment, withholding taxes, and creating tax documentation.

As a business of any size, it’s important to utilize a method of payroll management in order to take care of your employee’s needs, comply with legal obligations, and avoid penalties and fines.

We’ll be discussing the two most common types of payroll management: payroll software with its benefits and outsourced payroll services.

Payroll Software

Payroll software is used by management or HR as an efficient and low-cost alternative to having an in-house payroll specialist. The on-premises or cloud-based solutions are often reliable and provide simple configurations for a business’ payroll needs. Along with distributing paychecks, the software can produce tax calculations, 401k, integrations, reports, employee self-service, and other related features. Software-based solutions automate and simplify the process of paying your employees while taking the guesswork out of tax filings and understanding compliance standards.

Benefits of Payroll Software

Payroll software can offer a plethora of benefits for businesses of all sizes with varying needs. Saving time is one of the most pressing reasons business owners and management would opt for a software solution. Allowing automated processes to use time and attendance information to create paychecks and W2 allows time to be spent on growing your business. Rather than having HR spend hours per week with calculations and paperwork, one of the main benefits of payroll software, it can free up the time they can use to help support employees. Additionally, a cloud-based payroll removes the need of hiring a payroll specialist. Payroll tasks can be delegated to anyone you see fit, given that payroll software is often very simple to grasp. Of course, hiring fewer employees results in saving more money and creating more room in your budget to expand your business. Payroll software is a cost-effective option that oftentimes requires a one-time setup fee and monthly payment depending on the size of your business and the number of employees.

Drawbacks of Payroll Software

Using payroll software for employee paychecks and tax documents is a great way to automate important functions, however, there are certain drawbacks. Regulations, local and federal laws, tax calculations, and documentation distribution are all very sensitive and important responsibilities that must be maintained in the employee and employer relationship. Not having an HR representative that is an expert in payroll can create room for error and mistakes where it counts the most, yet hiring an in-house staff member to maintain the processes can end up being more costly than outsourcing when considering their salary requirements. Secondly, another benefit of payroll software, is that it may require heavy setup and account creation that may take up more time than you are willing to spend. The software may not be totally user-friendly, making it difficult to configure. That’s why it is crucial to do your research and ensure the payroll solution you are looking for fits your individual needs.

Payroll Services

A payroll service is a third-party company that maintains responsibility for your employee’s paycheck calculations, mailing and preparation of tax documentation, and law regulation. These services take the responsibility off your hands in managing your company’s payroll by using your employee’s time and attendance data to create and distribute payroll. Payroll services guarantee that payroll experts are working in accordance with the law to provide accurate and timely documents and paychecks. Some services may offer HR services and additional help with an appointed professional for your company or organization.

Benefits of Payroll Services

Payroll services offer a multitude of benefits, oftentimes at a premium. First and foremost, payroll services take the work off your hands, taking care of nearly all aspects of the payroll process by using time and attendance data, from the service of your choosing or the one they may provide. This can avoid the confusion associated with using multiple programs and software for your payroll needs. When considering payroll software versus payroll services, one must think about accuracy. With payroll software, it may be easier to make mistakes since information is often inputted by a non-expert in payroll. On the contrary, payroll services pride themselves on accurate and correct information that follows state and federal tax laws.

Drawbacks of Payroll Services

As you could imagine, the benefits of outsourced payroll come at a price. Payroll services are typically much more costly than payroll software plans. By giving access to your information and letting the company do all calculations and distributions for you, you are giving all responsibility to a professional that may charge a premium based on your company’s size and needs for their expertise. Payroll services can get especially costly if you are a business with many employees. Small businesses with fewer employees and little downtime to calculate payroll themselves may be able to get away with outsourcing, however, if you have more employees, using the functionality of payroll software may be a better option.

What to Choose

When choosing between payroll software and payroll service, it comes down to two considerations: time and money. If you, your management team, or a designated employee have the time to allocate to learning how to navigate payroll software, input employee profiles, and maintain accuracy, then the software may be a good option. However, if you’d like to pass the task along to someone who can be trusted, then a carefully researched payroll service can do the job. If the goal is to save money, payroll software is the clear winner, while a payroll service typically requires a high monthly cost for white glove care. Overall, it is important to do your research to see which management option would suit your company’s needs best. Whether you choose an in-house software plan or outsource to a payroll service, AMGtime can provide your business with simple and efficient time and attendance solutions to make payroll easy and accurate.


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