Payroll

Different Types of Payroll Systems

Payroll is one of the most critical operations for any organization. While it does not add directly to the revenue of a business, streamlined payroll management can enhance the overall efficiency of an organization and make the employees feel happy and satisfied.  When it comes to facilitating payrolls, a business can choose from a wide range of options: from automated software that simplifies and automates payroll to full-service payroll services catering to your requirements.

While all systems have the same objective to smoothly manage payrolls, they can differ in terms of features, applications, costs, and more. Therefore, an organization needs to identify the pros and cons of each system and select the one that aligns perfectly with their business requirements. 

This guide helps you understand the differences between various types of payroll systems, along with their applications and drawbacks to help you find the ideal solution for your business. 

In-house payroll system

An in-house payroll system means the company handles all of its payroll requirements in-house, i.e., on its own.  Through the use of employee scheduling software, business owners and managers can have better control over time management, productivity, and team member schedules

These systems can be an ideal pick for small businesses having fewer than 10 employees. If you have straightforward requirements with only a few changes in work weekly hours, an in-house payroll system can help you manage the payroll process quickly and easily without any hurdles. 

However, the person responsible for managing payroll needs to stay updated with the latest changes in staff or tax laws to ensure accurate, error-free salary deposit, tax withholding, and filing. Using an in-house payroll system also enables you to lower security risks. 

Pros:

  • More control: Processing payroll in-house allows you to have more control of the entire payroll process. A typical payroll procedure includes sensitive employee data. Managing payroll in-house ensures all the employee information is kept private. 
  • Lower cost: Apart from some initial costs of installation and hiring a payroll specialist, an in-house payroll system will save your company money in the long run. 
  • More accurate: When processing the payroll in-house, you have access to more accurate data from HR and attendance systems, which ensure superior accuracy. 
  • More flexible: 11th-hour changes to payroll are common. An in-house payroll system allows you to have flexibility over any last-minute payroll changes, thereby making sure payments are processed on-time. 

Cons:

  • Infrastructure required: In-house systems require the initial infrastructure and installation costs, including the expenses for servers, computers, backup drives, etc. 
  • Finding the right system is difficult: Every company’s needs and requirements are different, and it might take a lot of time to find a solution that aligns with your specific needs. 
  • Maintenance required: You will need a professional person or team to manage an in-house payroll system. 

Bookkeepers and CPAs

Organizations can also outsource their payroll requirements to a certified public accountant (CPA) or bookkeeper. Bookkeepers and CPAs are dedicated professionals who work with the financial data of a business. They keep a record of when a company receives, pays, or owes money, along with facilitating payrolls and other payments. 

If you hire a bookkeeper or CPA, make sure they have the expertise in all the services your organization needs. Besides, also ensure they offer the flexibility to accommodate last-moment changes with maximum accuracy. 

Even if you outsource your payroll processing, you are liable for the accurate deposit of salaries and taxes. If any issues arise, you will be the one responsible and not the bookkeeper or CPA. So, make sure to do your research before delegating your payroll requirements to professional providers. 

Pros: 

  • Prevent errors: Professional bookkeepers and CPAs are experienced and skilled in managing financial data with accuracy, and they are less likely to make mistakes. 
  • Tight schedule: Having a professional manage your finances ensures there are no more late deposits or delayed salaries. 
  • Free up time: By hiring a bookkeeper, you free up your team from a time-intensive task. This time can be used in more productive activities that contribute to the growth of your organization. 
  • Hire according to needs: You can find a CPA or bookkeeper as per your business requirements: full-time, part-time, contract-based, etc. 

Cons:

  • They are expensive: Professional bookkeepers can be costly, which can significantly increase your overhead costs. 
  • No guarantee against mistakes: Professional managers are less likely to make mistakes, but still, there is no guarantee that they will be 100% accurate.
  • You can lose touch: Since you are outsourcing your requirements to another person, it’s easy to lose communication with them. 

Payroll Service

A payroll service provider can be considered as a team of expert bookkeepers and CPAs. They provide administrative services like direct deposits and paycheck deductions to help you stay compliant and free from any payroll obligations. 

Outsourcing payroll tasks to a full-service payroll provider can come with a hefty price tag, but in return, you get to enjoy the benefits of accurate, on-time filing, and no penalties. Payroll services are generally an ideal pick for large enterprises with more than 500 employees. 

Pros:

  • Save time: Large businesses with a copious amount of payroll data may end up spending days or even weeks managing their payrolls. Outsourcing these tasks helps them save time and resources. 
  • Accuracy: A renowned, experience payroll service can step-up the quality of your payroll and help you get rid of any inaccuracies, delays, or penalties. 

Cons

  • Expensive: Outsourced payroll services can be costly and are ideal only for large businesses with big budgets. 
  • Selecting a provider is difficult: To ensure the maximum ROI, a company needs to find the right payroll service. Finding the best provider can be a tedious process. 

Payroll Software

Cloud-based or online payroll software solutions are available in the form of Software as a Service. They provide you 24/7 remote access to your payroll system and allow you to manage and monitor payroll details anytime and from anywhere. You can track employee attendance and work hours to enter and update payroll from a computer, laptop, or mobile phone. 

In addition to basic payroll services, most payroll software systems offer payroll tax filing and payment features as well. Some applications also provide email updates and integration with other third-party software. 

Pros: 

  • Cost-effective: Payroll software solutions are less expensive, making them an ideal option for small businesses. 
  • Automation: Certain tasks, including year-end reporting, payroll processing, etc. are automated. 
  • Accuracy: Since the process is automated, there is no human involvement, which alleviates the risks of mistakes or errors. 
  • Scalable: Cloud-based solutions allow you to scale your payroll system as per your changing business requirements. 

Cons:

  • Security risks: All of your employee data is stored in third-party servers, which increases the risk of data theft or loss. 
  • Downtimes: Cloud-based solutions can experience sudden downtimes, which can halt your payroll process. 
  • Expertise: You still need an expert to manage your cloud-based payroll software. 

Conclusion

Payroll is an essential aspect of business operations for all organizations. Inaccurate, delayed payrolls can not only turn-off your employees but can also result in compliance issues and penalties. Therefore, it is critical to understand your organization’s requirements and invest in a payroll system that best suits your needs. 

So, which payroll system do you think would best suit your business requirements?

If you are still not sure about which system is ideal for your business, get in touch with Software Suggest for further help.

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Christophe Rude

Christophe Rude

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