How to Choose Payroll Software

Payroll software can dramatically simplify how you run your business. It streamlines processes, saves you valuable time and ensures your employees get paid — but only as long as you choose the right payroll service for your organization’s unique needs.

There are dozens (if not hundreds) of payroll software tools made for businesses like yours, so it makes sense if you’re not sure how to start narrowing down your options. Keep reading to learn more about what to look for in payroll software, which features to prioritize and more.

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Consider your business’s workforce

Before you start researching payroll software options, make a detailed list of your company’s payroll software needs. Start by asking yourself the following questions about your workforce:

• Do you primarily employ contractors, W-2 workers or a combination of both? Which types of employees do you anticipate having in the future?
• How many employees do you currently have? How many do you plan to have a year down the road? Two years? Five years?
• Do your employees work in the same state, or do you pay employees and contractors across multiple states? If your business is currently located in one state only, do you plan to expand into additional states in the future?
• Do you currently pay international contractors and employees or do you plan to do so in the future?
• Do you currently offer (or plan to offer) employee benefits? Which benefits are you legally required to offer in your area, and do you plan to offer basic benefits or are you looking for more unique, competitive benefits like health and wellness perks or college savings accounts?
• Do you employ seasonal workers, or do you maintain the same workforce year-round?
• How often do you plan to pay your employees? (Make sure to check your state’s payday requirements before settling on a pay schedule.)
• Do you anticipate most of your employees being paid through direct deposit, or would you prefer to offer your workers a range of payment options (such as paper checks, on-demand pay or prepaid debit cards)?

How you answer these questions can help you decide which payroll software options are worth researching.

For instance, if you work with contractors rather than W-2 employees, look at software with contractor-only payroll plans like Square Payroll. If you employ U.S.-based employees but hire international contractors, a domestic payroll program with an international contractor add-on like Gusto could work best for you. Or, if you pay employees and contractors in multiple states, a payroll company with free multi-state payroll like OnPay could be worth looking into.

Understand which payroll features you need

Once you’ve thought carefully about your workforce’s needs, it’s time to dig into which payroll software features you can’t live without. You can find a more detailed description of the top payroll features in our comprehensive payroll guide.

Paycheck calculation

At its most basic, payroll software exists to calculate employee paychecks automatically so you don’t have to. Most payroll software can accommodate salaried and hourly employees, but double-check that both are included in the payroll service you choose before signing up.

If you have hourly employees, make sure your payroll software either integrates with time and attendance software or offers a built-in time tracking solution. Otherwise, you’ll have to enter employees’ hours worked by hand, which wastes time and increases the possibility of introduced errors.

Paycheck calculation is about more than calculating an employee’s gross pay, or the total compensation they’re entitled to based on their hours worked. Payroll software also calculates employees’ net pay, which accounts for paycheck deductions like the following:

• Wage garnishment, or court-ordered paycheck deductions for debts like spousal or child support.
• Income, Medicare and Social Security taxes, which we discuss in more detail below.
• Benefits deductions, such as employee-paid premiums for health insurance.
• Retirement contributions to 401(k) accounts or other retirement savings accounts.

The best payroll software should include payroll tax calculations with every plan, but wage garnishment is often an add-on feature that costs extra. (Services that include wage garnishment at no additional cost, such as OnPay, are relatively uncommon.) Some payroll software, like Patriot Payroll, lets you enter benefits deductions by hand but doesn’t include automatic benefits administration.

Tax service

There are two main types of payroll software: Self-service and full-service payroll. Both types of payroll calculate legally required payroll taxes, which include your employees’ federal income taxes and the employee-paid portion of FICA taxes (Medicare and Social Security tax contributions).

However, self-service payroll software leaves it up to you to deduct and hold employees’ taxes, remitting them quarterly with the correct tax forms. Full-service software directly deducts, holds and remits taxes on your behalf along with the correct forms.

Some payroll software, like SurePayroll and Patriot Payroll, let you choose between self-service and full-service plans. Other providers, like Gusto and QuickBooks Payroll, offer full-service plans only.

You’ll also want to pay careful attention to whether your software makes other required tax deductions, including these:

• State taxes, including state income tax.
• Local taxes, if any.
• FUTA taxes, or state unemployment taxes that employers pay based on the number of people they employ.

Most payroll software providers (though not all) consider the above tax deductions advanced features that either cost extra as an add-on service or are included only with higher-tier plans.

Direct deposit and other employee pay options

All payroll software, whether self-service or full-service, should offer automatic direct deposit as a default employee payment option. Some payroll companies also offer paper checks, on-demand payment options or prepaid debit cards. Again, many companies treat additional pay methods as an advanced feature that costs an extra fee.

Third-party software integration

Many providers have built-in integrations with popular business software. For instance, the most commonly used payroll software providers all sync with top accounting software like Xero and QuickBooks Online. Others, like Wave Payroll, will connect with third-party software only via an integration app like Zapier.

The most critical payroll software integrations include the following:

• Time and attendance software.
• Accounting software.
• HCM, HRIS or HRMS software.
• Expense tracking and reimbursement software.

Advanced payroll features

Other payroll features that you might want to look for based on your workforce’s needs include the following:

• Tip calculation and distribution.
• End-of-year W-2 and 1099 form filing.
• Off-cycle payroll runs for payments like one-off bonuses.
• International payroll processing.
• Employee hiring and onboarding tools.
• Compliance audits and updates.
• Employee benefits.
• HR compliance tools.
• White-glove payroll software setup.

Carefully calculate payroll costs

For most businesses, paying employees is a top expense — if not their single biggest expense. Adding the cost of payroll software on top of the cost of employee pay can stretch your payroll budget, so make sure to carefully consider what you can afford to spend on software that pays your employees.

Nearly all of the best small-business payroll software systems charge both a monthly base fee and a per-employee fee. While base fees are an important consideration, they aren’t as crucial to your budget as the per-employee fee.

As you think through your payroll software budget, make sure to consider not just how many people you pay now but how many you want to hire in the future. (Our payroll guide offers a comprehensive breakdown of how drastically payroll costs can vary depending on the number of people you employ.)

You’ll also want to consider add-on fees for services like accounting software integration, international payroll, employee benefits administration, multistate tax service and time-clock software.

Finally, many payroll software companies offer multiple plan options at different price points and with a different amount of features. If you’re hoping to grow your company, consider prioritizing software with multiple plans that you can easily scale up to as you hire more people. Just don’t forget to account for those future price increases while charting a payroll budget.

Narrow down your payroll software options

Now that you better understand which payroll features you need and how much you can afford to spend, it’s time to start sorting through software options so you can find your ideal payroll solution. Our article on the best payroll software of the year can serve as a jumping-off point for your research.

If looking at a longer review sounds overwhelming, here’s our greatest-hits list of payroll software to consider:

• Gusto ($40 per month plus $6 per person) is generally considered the top payroll software provider for small, midsize and large businesses.
• Paychex ($39 per month plus $5 per person) has more add-on fees than most of its competitors, but it also has one of the best HR libraries of any combined HR and payroll product.
• OnPay ($40 per month plus $6 per person) is one of the most fully featured payroll companies with the fewest add-on fees and hidden costs.
• SurePayroll ($19.99 per month plus $4 per person) is one of the cheapest payroll services made specifically for small-business owners.
• ADP (custom pricing only) offers a wide range of versatile payroll products that can accommodate the smallest of small businesses as well as massive global enterprises.

Take advantage of demos and free trials

While in-depth comparative reviews can help you make informed decisions about which payroll software is right for you, the best way to find your ideal payroll software is to test it for yourself. Many payroll software providers offer a free trial (or free account setup). Those that don’t will usually offer free, customized demos that walk you through every aspect of the software.

If a company requires you to sign up for a demo before giving you a quote, brace yourself ahead of time for a fairly intense sales pitch. No matter how much pressure a sales rep puts on you to sign up immediately, firmly let them know that you’re considering multiple options on your quest to find the ideal payroll software.

Payroll software companies with free trials include the following:

• OnPay (30 days).
• QuickBooks Online Payroll (30 days or 50% off for three months).
• SurePayroll (up to six months).
• ADP (up to three months).
• Patriot Payroll (30 days).
• Zoho Payroll (14 days).

While Gusto and Square Payroll don’t offer free trials, they allow customers to set up accounts for free. You won’t be charged until you decide to run payroll for the first time.

Payroll software companies with custom pricing, plans and demos include the following:

• Rippling.
• Paychex.
• Papaya Global.
• Oyster.
• ADP.

Get expert advice from an accountant or bookkeeper

If you’re a new business owner processing payroll for the first time, we strongly recommend speaking with an accountant to better understand your payroll responsibilities, including and especially your payroll tax obligations. An accountant can also point you toward the best payroll software for accountants, which could also influence your final software decision.

Reevaluate as needed

If you’ve signed up for a payroll plan, started running payroll and found that you love your new payroll software, that’s excellent news. Keep in mind, though, that it’s okay to switch providers if your payroll needs change or if your new software doesn’t help you as much as you hoped it would.

While it’s frustrating to start the search for the best payroll software all over again, it’s worth putting in the time to find the perfect payroll company. Plus, most payroll services are happy to help you switch from another provider, offering free white-glove setup and data migration.

Plus, finding and using payroll software for the first time is easily the hardest part. Now that you know what you’re looking for, you’re much better equipped to find a new provider if you find your current pick isn’t working for you.

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