How To Choose The Best Payroll Service For Your Needs

At its best, payroll software can dramatically improve the payroll process, minimizing errors, streamlining data entry, and reducing stress for everyone involved. But at the opposite end of the spectrum, the wrong payroll service will likely cause more headaches than it cures. Whether you’re upgrading from a manual bookkeeping process or on the lookout for a new payroll software that better meets your company’s needs, you’re in the right place. We’ll help you investigate what your current solution is missing, outline the most important features to look for, and then walk you through the process of choosing a payroll service that will provide the best fit (and experience) for you and your team as your organization grows.

Why Choose a New Payroll Service?

Switching from one established process to a new one is a chore that’s easy to postpone, especially when the function is as critical as payroll. The fear of introducing complications combined with the sheer overhead involved in making the switch is enough to make any payroll admin feel tempted to leave well enough alone. Unfortunately, by the time “well enough” becomes “enough is enough,” the inefficiencies, inaccuracies, or even IRS penalties that can arise from errors will have disrupted more than your culture, employer brand, and employee satisfaction initiatives. A broken payroll process traps admins in a laborious, time-wasting cycle that stunts individual and organizational growth.

Setting yourself free with a new, efficient process means reallocating time toward meaningful, strategic work. That’s why we’re here to help you bite the bullet, rip off the band-aid, pull the ripcord—choose your favorite metaphor—and help you identify what’s going wrong so you can find a solution that doesn’t repeat the mistakes of the past.

What Are Your Payroll Solution Options?

There are four main options when it comes to payroll administration:
 

• Purchasing a third-party payroll software
• Hiring a professional employer organization (PEO)
• Developing a homegrown solution
• Using a local or national accounting firm

Third-Party Payroll Software
This is software developed by a third-party human resources technology company and designed to be used in-house by payroll admins to store, organize, and automate payroll, tax filings, etc. Advanced payroll software should easily integrate with an HRIS, accounting software, and other existing company processes.

Professional Employer Organization
Full-service PEOs essentially act like an outsourced HR department, and can often handle everything from benefits administration to talent acquisition in addition to payroll. While PEOs remove much of the overhead involved in HR, the downsides of a PEO can be a lack of cohesive culture and the loss of security and control over your people data and processes.  

Accounting Firm
Standard accounting services include bookkeeping, financial planning, and filing taxes, but some accounting firms differentiate themselves by adding payroll to their suite of services. An accounting firm doesn’t handle HR responsibilities as a PEO would, but it still saves you time and worry by combining all the organization’s financial tasks into one solution. Like a PEO, however, outsourcing payroll to an accounting firm comes with some loss of control and visibility.

Homegrown Solution
Some organizations allocate resources to develop an internally managed, custom-built payroll software system. While a homegrown solution saves on third-party software costs and allows the organization full control of features and functionality, it puts the burden of payroll accuracy, compliance, tax filing, and software maintenance on the organization, which may reduce the ROI in time, money, and risk mitigation.

What’s the Most Cost-Effective Option?

The front-end investment of a homegrown solution is hard to accurately predict, but here’s a statistic for you: one in six IT projects overrun cost predictions by 200 percent. A perfect scenario sees homegrown software being cost-effective in the long-run, but ROI is always at risk with software you’re responsible for maintaining and keeping up to date. Your outsourcing options, including local and national accounting firms, are generally on the costlier end of the spectrum, with full-service PEOs coming in as the most expensive payroll solution. When an organization can develop their own HR team and initiatives in-house, a third-party payroll software is typically the most cost-effective option.

Which Payroll Solution Should You Choose?

In her employer guidebook Hire Your First Employee, business consultant Rhonda Abrams recommends using a payroll service instead of paper and spreadsheets from day one of your first hire, pointing out that “the penalties for screwing up are so much more expensive than the cost for payroll.”

Investing in a payroll service is an investment in risk mitigation and time-savings, but which type of payroll solution should you choose? Weigh the pros and cons of each payroll option carefully and consider these questions:
 

• Do you want to manage your own payroll or would you rather outsource the whole process?
• Do you have the bandwidth to manage payroll?
• How important is culture development to your long-term goals?
• How hands-on do you want to be with directing employee experience?
• Which payroll option would best support your mission and values?
• How much are you spending on payroll now in time and money?
• Are you willing to pay more for a better experience or are you looking to cut costs overall?
• What size is your HR team and how experienced are they?
• How much control do you want to have over the software?
• How custom-tailored does your payroll solution need to be?

 
At a minimum, payroll software should be a dependable resource for handling these the basic functions of accuracy, timeliness and tax form. There are many more factors and features that can make your life even easier, depending on your particular circumstances. You should consider factors like; Geographic reach, compliance, functionality, reporting, customer support and variety of service options as you explore your payroll options.

If you can collect and categorize your procedural pet peeves, your must-have features, and your long-term needs, you can better identify the software that will give you the capacity for growth without overserving you.

Finally, when you’ve found your golden solution, you’ll finalize a contract setting clear mutual expectations, notify your current provider of the upcoming switch, and then arrange the transfer of necessary clerical info (i.e., local and state tax ID numbers, EIN, payroll schedule, etc.). Plan on running payroll simultaneously with the old system at least once to make sure your results are matching up, and schedule the switch for the beginning of the year or at the end of a quarter to set yourself up for the smoothest transition.

The pain of starting over with a new provider may feel like it’s enough to justify prolonging the pain of a clunky payroll process. But right now, all you have to do is start looking. Whether your top condition is stellar customer support or an integration with your current HRIS, the right provider can quickly get you up and running again with your new payroll service, happier and more efficient than ever.

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