Dealing with payroll can be one of the most time-consuming, and stressful, parts of owning a small business. In the past owners could just use a ledger and checkbook, but that’s no longer the case. Adding to the complexity of processing payroll are various regulations and tax codes that must be followed. For many, this makes payroll software or payroll services attractive options.

These days, however, the differences between these two options may be difficult to understand. There are also hybrid services on the market as well, making it even harder to find the right solution for your business. To help clarify this topic, we’re going to look at the differences and similarities between payroll software and payroll services.   

Payroll software

Payroll software is an application that helps you manage and automate aspects of your payroll process. You may pay a single price for the software download, or a monthly fee for online access. Each option on the market varies on how user friendly it is, but there is usually a significant learning curve involved. This is especially true for those that are not already very familiar with processing payroll.

While all payroll software will have their own processes, you typically have to go through a set up process. This is where you enter your company’s information and employee details. To process payroll, you will have to enter your employees’ hours into the system, and it will calculate the paychecks. Most will make tax calculations for you as well, but it is up to you to have everything set up correctly. From there you can print paychecks or deliver them through direct deposit if you have that option available.

Payroll software allows you to be in complete control of your payroll process. It is also an affordable option, which may make it seem like an attractive payroll solution. There are some downsides however, starting with the fact that to use payroll software you really need to understand how payroll functions. You must understand payroll taxes and the regulations that need to be followed otherwise you could find yourself in legal and financial trouble. This makes payroll software more suited for accounting or payroll professionals.

Payroll services

Payroll services help small businesses handle their payroll and stay compliant with all applicable laws. These services typically handle more than just processing paychecks or direct deposits. For instance, payroll services often deal with federal, state and local payroll taxes. This makes payroll services an easy  solution for companies that may not have the specific knowledge it takes to do payroll the right way.

Many times, you will have an online portal where you log in and enter employee time. Some services many be connected to your timekeeping system, reducing the need for manually entering time. You often have a few options for delivering pay, from printing regular checks to direct deposits and pay cards. So other than simply getting your account set up and entering hours, there is far less for you to do when you use a payroll service.

Payroll services can be more costly, but they do significantly make payroll and financial functions, like tax filings, far easier. And since payroll services know all the laws and regulations, they help companies stay legal and in compliance. This can be a huge relief for companies unsure about their payroll responsibilities. 

You have to evaluate your company’s needs, and your level of experience in handling payroll, to determine which path is best for you. If you are completely comfortable with the payroll workflow and understand your responsibilities, payroll software might be an affordable solution. If you would rather someone else do the heavy lifting, and help you stay compliant, a payroll service is your best options.

The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.