Differences Between Payroll Services and Payroll Softwares + Pros & Cons

It is always essential for businesses to compensate their employees and this is why payroll must be managed. A payroll software can help automate relevant aspects of payroll processing, simplify employee data management, and ensure all laws are followed. On the other hand, payroll services are a hands-off approach where experts ensure smooth functioning of the payroll process. You can choose from any of them based on what your requirements are. In this blog, you will know more about payroll management approaches along with their benefits and drawbacks.

What is a Payroll Software and What Features Does it Have?

A payroll software is a unique solution that offers various payroll features that allows your in-house team to manage the process themselves. It can easily automate multiple payroll functions for your team and also help them calculate taxes, ensure legal compliance and track employee work hours.

When you have top payroll software available with your team, you don’t need dedicated payroll processing staff. Though in some cases, businesses with a large volume of employees need a separate staff to manage these processes.

Some of the top features of the payroll software are as follows:

• Tracking of employee work hours
• Data entry and documentation services
• Payroll automations
• Calculations and payment of salary
• Tax filing and deductions
• Managing payroll for every employee
• Direct money deposits to employee bank accounts
• Efficient welcoming and exiting of employees
• Administration of employee benefits

In today’s era, there is a huge competition among the software industry to offer their customers with software that has all the latest features. For instance, the payroll software of today can fuse with a company’s existing time/attendance tools, employee databases, and more.

What are Payroll Services and What Can They Offer?

Payroll services are considered as third-parties that can manage every payroll function for their clients. They handle a lot of stuff including payroll processing, employee benefits, wage types, legal compliance, and much more. As per a survey of 2021, more than 60% respondents outsourced some or the entirety of their payroll operations. This number is only going to increase in the coming years.

Payroll services offer the following to their clients:

• Comprehensive documentation
• Tax calculations and filing
• Assessments, insights, and reports
• Payroll processing
• Payroll expertise as per the industry
• Wages/Benefit management
• Customized tax and legal support
• Employee data management

Hiring payroll services is a recommended approach if you want to focus on other important business aspects. Payroll services can be more expensive than having a payroll software but they provide more support to your business. You allow your payroll to be managed by professionals who have been in the industry for a long time. Large or diverse businesses normally prefer payroll services rather than the software.

What are the Pros and Cons of a Payroll Software?

Before you get payroll software to manage the various payroll operations in your company, you must be aware of its benefits and drawbacks. Some of the benefits of using a modern payroll software for your company are as follows:

It is an Affordable Product

A payroll software is more affordable compared to hiring payroll services. Though this software is usually recommended for companies with an average or small workforce, even experts in payroll services have this software with them. There are many payroll tools that charge a monthly fee for every authorised user, it has flexible pricing that can let you change the number of users.

There is Both Desktop and Mobile Access

The latest cloud payroll software has automatic user interfaces and has both a separate desktop and mobile applications. You can use this software to get payroll reports, update records, or process payroll from anywhere.

There is Proper Data Security and Privacy

Not everyone in your company will be allowed to have access to the software where all the essential data is stored. The admin usually manages the software while users can only manage their personal information. Modern softwares follows the best cybersecurity practices to ensure complete data security.

There are Customization Options

Another big benefit of having this software is that you can customize as per your payroll processes, business needs, and more. For instance, this software offers you the option to process wages for different customer types.

Despite all these benefits, there are some drawbacks of this software. The top problems associated with this product are as follows:

You Must Learn to Use this Software

It is not easy to use payroll software as there are several things that you must learn. But there is still a learning curve but it may take time to do so. It may not be easy to transition from outsourced services to in-house payroll software, but it can be done.

There is a Lack of Professional Support

Though a payroll software is considered great for mid to average payroll functions, it doesn’t offer customized support. In the case of tax compliance or advanced payroll, you must hire an expert payroll professional.

There are Recurring Fees

There are many cloud-based payroll softwares that charge a monthly or annual fee for every approved user in your company. If there are a large number of users in the business, the cost will add up.

What are Some Pros and Cons of Hiring Payroll Services?

Hiring payroll services for your business can have some benefits and drawbacks. Some of the advantages you get by hiring professional payroll services are as follows:

They Provide Reliable and Professional Services

Full-time payroll services are professionals in their field with years of experience in handling payroll. They will always deliver you with high-quality work in time and you don’t have to build any in-house payroll team.

There Are No Extra Overhead Costs or Management Issues

If you want to manage an in-house team, there will be overhead costs and management issues. As payroll is considered an administrative function in your company, you gain no profit from it. This means any resources you spend on establishing an in-house team will distract you from main work. This is why it is recommended to outsource your payroll to a reliable service.

But despite all these benefits, even payroll services have their own drawbacks. Some of those are as follows:

Concerns of Data Security and Privacy

When you engage with a payroll services company, they require your employee data and other business information. They require them to file taxes, process payment, and provide advice on the various functions related to this process. But you must know that privacy agreements are signed between companies that forbid the sharing of data.

There is a higher initial investment

Before you hire a payroll service provider for your company, you must know that they cost more than using an in-house team. There are many top providers who charge a recurring fee or sign fixed contracts for every pay period. If you have a large company with thousands of employees, you will spend a significant amount of money by hiring them.

What Type of Businesses Should Buy Payroll Software?

Whether you should use payroll software or not depends solely on your company size, goals, budget, privacy concerns, and more. Some of the few business types that should use a payroll software are as follows:

Companies That Have In-house HR

Businesses that have a professional in-house HR team should consider buying the payroll software. Using this software can help make your payroll services more efficient.

Small Companies or Startups

Startups or companies with a small workforce should consider using this software due to their simple needs. Such a software is also affordable for such businesses who are looking to grow over the years.

Companies That Have Remote Teams

This modern software is the best option for companies that hire remote workers, freelancers, or part-timers. You can pay employees as per the agreed terms using this payroll product.

What Type of Businesses Should Hire Payroll Services?

Payroll services are usually suited for companies that have tons of employees. Many service-based businesses will also benefit from hiring this unique service. The business types that should opt for this service are:

Large Multinational Companies

A full-time and dedicated payroll service can be beneficial for multinational companies that have thousands of employees around the world. As every country has its own rules, it can be hard for an in-house team to search through every one of them.

Service-Based Companies

Businesses that are service-based such as consultants, marketing agencies, and more depend on client service and chargeable hours. They usually outsource administrative work like payroll to specific companies.

Businesses with Different Pay Structures

Companies that employ many people under different contracts like full-time, part-time or incentive-based should hire this service. An in-house team will find it difficult to manage payroll in such an environment.

Wrapping Up

Processing payroll is an essential part of any business and will affect the overall productivity and be the reason behind employee motivation. Before you opt for payroll outsourcing or buy the software, know that both are great options depending on your needs. However, each option has both their pros and cons. You can evaluate your business goals, budget, workforce size, and more to decide on what option you prefer. You should always choose the option that is favourable for your company in the long run.