How To Choose A Payroll System
3 questions every employer should consider
Posted on 08-20-2021, Read Time: Min
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One of the biggest challenges small businesses face is finding the time to handle non-core tasks that don’t make money but are nevertheless necessary to the running of the business.
Payroll is one of those major time sucks. According to a recent survey, small business owners spend 21 days a year just calculating, paying, and filing payroll taxes every year. A quarter of small businesses also spend three to five hours per month on payroll. Not surprisingly, 65% of employers would like to outsource their payroll entirely. So, if you’re looking for ways to automate or simplify payroll processes, you’re in good company.
Payroll systems provide small to large companies a platform that automates the entire payroll process. They make it easier to collect the necessary documentation from employees, withhold deductions, pay taxes, and keep accurate records.
However, choosing the right payroll system can be overwhelming with so many options available. The following questions will help you narrow down what type of payroll system you need.
What Level of Involvement Do You Want in Your Payroll?
The main differentiator among payroll systems is the type of deployment used. You can choose between on-site payroll systems, software-as-a-service (SaaS), and full payroll services. Of course, there is plenty of overlap between these deployment types but here’s a quick summary.
- On-site payroll management systems involve the purchase of a single license, and the software is hosted on your business’ local server. The initial cost is much higher, but you own the system outright and provides more customization options. However, they usually require a big investment in hardware and setup fees.
- Software-as-a-service (SaaS) payroll systems are hosted on the vendor’s server and don’t require any additional hardware or maintenance cost.
- Full payroll services are the best option for business owners that want to entirely outsource payroll. The vendor provides the software, hosting, and the staff (accountants and payroll managers) to operate it. Businesses just need to upload the relevant files and the vendor does the rest.
What Pricing Model Do You Want?
There are three main pricing models when it comes to payroll systems: subscription, single-payment license, and open source.
- The subscription model provides inexpensive access to requires a low initial investment but high recurring costs. This is the most common model for SaaS payroll systems.
- Single-payment licenses require a higher initial investment but don’t come with recurring costs.
- Open source payroll systems are typically free to use so there are no fixed setup or recurring costs. However, they usually require extensive customization, integrations, ongoing maintenance, and upgrades, which can incur major costs.
What Is My Budget?
The cost of payroll systems is usually a major factor when determining which options are viable. As mentioned, single-payment licenses are much more expensive to start with than SaaS payroll programs, but – depending on the system you buy -- the cost typically converges after five to eight years. So, let’s use the subscription model to illustrate the monthly costs you can expect to pay for a payroll system.
- 100 employees. Costs can range between $300 and $1,200 a month depending on the package and upgrades you choose. WebHR, BambooHR, and Gusto are among the most inexpensive, while Sage People and Namely are the higher-end options.
- 250 employees. Expect to pay between $600 and $3,250 a month. Companies this size can also consider enterprise payroll systems, such as Oracle Global HR.
- More than 250 employees. Larger companies can usually negotiate lower rates per employee, but the minimum monthly cost is probably going to fall between $2,500 and $3,250 a month.
Conclusion
The administrative costs associated with payroll can be a huge time and resource burden. Payroll systems can help automate, or at least simplify, your payroll workflow. There are dozens of payroll systems available, which can make it difficult to know which one offers the best deal. You can narrow down your options and determine what your business needs by answering the questions above.
Author Bio
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Andrew Latham is the Managing Editor for SuperMoney. Connect Andrew Latham |
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