Running payroll can be a tedious, time-consuming task if you’re still doing it by hand. Fortunately, payroll software can speed up the process to let HR teams and small business owners focus on the people aspects of human resources. Instead of entering payroll data manually, many business owners use cloud-based software that automates every aspect of payroll, from paying employees via direct deposit to remitting payroll taxes to the IRS. Find out how payroll software works, what key features to look for, and whether payroll software is right for you in our guide below. 1 Paycor Employees per Company Size Micro (0-49), Small (50-249), Medium (250-999), Large (1,000-4,999), Enterprise (5,000+) Micro (0-49 Employees), Small (50-249 Employees), Medium (250-999 Employees) Micro, Small, Medium Features API, Check Printing, Document Management / Sharing, and more 2 Deel Employees per Company Size Micro (0-49), Small (50-249), Medium (250-999), Large (1,000-4,999), Enterprise (5,000+) Any Company Size Any Company Size Features 24/7 Customer Support, API, Document Management / Sharing, and more 3 Rippling Employees per Company Size Micro (0-49), Small (50-249), Medium (250-999), Large (1,000-4,999), Enterprise (5,000+) Any Company Size Any Company Size Features API, Check Printing, Document Management / Sharing, and more What is payroll software? Payroll software helps you manage, run, and automate payroll. It automatically calculates paycheck amounts for your salaried and hourly employees, including gross pay, deductions (like healthcare premiums and payroll taxes), and net pay. Payroll software solutions can be cloud-based or desktop-based, though the former are more common for small and midsize businesses. It can be standalone software that integrates with your business software systems like accounting or HR programs. Alternatively, they can be part of a wider human capital management system or an all-in-one payroll and HR software platform that lets you manage every aspect of the employee life cycle from one platform. Self-service payroll software Self-service payroll software calculates paycheck amounts and deductions. While it typically pays your employees via direct deposit or other methods, it does not remit payroll taxes to the IRS or other tax agencies on your behalf. Instead, it calculates how much to deduct, draws up pre-filled tax forms, and reminds you about quarterly tax-filing deadlines, leaving the final submission up to you. Full-service payroll software Full-service payroll software includes comprehensive tax administration. It calculates payroll taxes based on the employee information you input, and the software will then automatically deduct tax payments from your employees’ paychecks and remit those taxes to the appropriate tax bureau on a quarterly basis. More payroll coverage What are the key features of payroll software? Key features of payroll software include payroll processing, payroll tax administration, time tracking, direct deposit, employee self-service (often through a mobile payroll app), payroll compliance tools, and reporting. However, the exact features can vary by provider. The following features are fairly typical of most payroll software systems, though it’s worth noting that the more features your payroll software has, the more expensive it’s likely to be. Time and attendance tracking If you have hourly employees, you need a reliable way to track their work hours and correctly compensate them for their time and labor each pay period. Most payroll software either syncs with third-party time and attendance software or includes a built-in time tracker. This makes paying hourly employees straightforward, helping you save time and reduce errors. Payroll tax administration Full-service payroll software calculates, deducts, and remits each of your employee’s income, Social Security, and Medicare taxes to the appropriate tax agency. Most payroll software handles federal and state tax administration, while some also manage local payroll tax for an additional fee. As an employer, you are required to match your employees’ Social Security and Medicare tax contributions (collectively called FICA taxes). You must also pay a federal unemployment tax (or FUTA tax) based on your number of employees. At the very least, your payroll software should generate financial reports showing your tax liabilities based on employee- contributions. However, the best payroll software automatically deducts employer FICA and FUTA tax payments from your company’s bank account to remit to the federal government along with your employees’ payroll taxes. Additionally, the best full-service payroll software companies, such as our top overall payroll pick, Gusto, will generate and file end-of-year tax forms for you and your employees, including Form W-2 and Form 1099. However, some providers charge a fee for end-of-year tax form preparation. Most payroll software tools also charge you an extra fee if you want to print and mail hard copies of tax forms to your employees and contractors. Direct deposit Most payroll software, including self-service software, calculates employee paychecks and then automatically pays your employees via direct deposit. Some payroll software offers direct deposit only, but paper checks, prepaid debit cards, app-based payments (for instance, Venmo or Square’s Cash App), and other on-demand pay options are all common alternatives to direct deposit. Employee benefits administration Some employee benefits are deducted directly from employees’ paychecks, including employee contributions to employer-sponsored healthcare plans. If you offer benefits like health insurance and retirement plans, find payroll software that deducts benefits contributions from your employees’ paychecks and automatically distributes those funds to the appropriate parties. Employee self-service portals Most payroll software should include an employee-facing platform where your employees can view pay stubs and tax information. The most fleshed-out employee self-service portals include features that let your employees upload tax documents, choose benefits, request time off, and clock in or out. Payroll reports Payroll reports provide you with an overview of key payroll-related financial data, such as payroll tax contributions and workers’ compensation premiums. At a minimum, your payroll software should generate these reports. The best payroll software either integrates with popular accounting software options or includes a general ledger report to help you seamlessly sync payroll data with your financial systems. Compliance audits Strict rules and regulations govern workplace employment and employee pay. Penalties for issues like miscategorizing employees as contractors or failing to pay the employer portion of FICA taxes can be severe. You can catch these clerical errors and make crucial payroll updates by performing regular