How Payroll Systems Work: A Small Business Guide

OCT 05, 2020

Payroll systems manage all aspects of the payroll process from actually paying employees to timekeeping and filing taxes. Here's how they help small businesses.


Beyond products or services, the true marker of a growing business is how it is run.


Success will depend upon efficiency, focus, organization and time management. And while it may be an afterthought to those who’ve never owned a small business, many employers can attest to payroll being one area that can make or break a developing company.


A recent Paychex poll revealed that more than a fifth of business owners were concerned about the time management related to payroll, and 16 percent were concerned about managing taxes. An efficient payroll system could be the difference between a thriving business and one bogged down by time constraints, costly errors, and management stretched too thin. 


Let’s dive into the importance of developing or outsourcing a payroll solution, and where to focus your attention when deciding the type of system that works best for your organization.

The Rundown: How a Payroll System Works


As a small-business owner, it is your responsibility to make sure your employees are paid for their work. An effective system ensures that those payments are timely and accurate, but there are many more factors than filling out the same paycheck every pay period.


A business owner must determine the structure that works best for his or her system. Will pay periods be every two weeks, or strictly on the 1st and 15th of each month? Are employees full-time or paid hourly?


Manually creating and running a payroll system means tracking the hours that your employees work and knowing their pay rates. It also means calculating the correct amount of tax deductions from each payment.


It may be possible for a small business to do all of this manually when there aren’t many employees to account for. However, all of that time and work will be multiplied by the growing number of employees added as your business blooms.


Outsourcing payroll can save time, stress, and money.


Benefits Beyond Payroll


As mentioned above, payroll involves several essential tasks beyond the payment of employees.


An outsourced payroll system can not only take care of the timekeeping and tax calculations, but would also be useful in filing those taxes, keeping clean accounting records, and generating reports.


Human resources are another popular use for payroll systems. They can simplify the onboarding process for new employees, easily determining whether they need to complete a W-2 or 1099 form based on the terms of their employment. They can help with explaining and providing group benefits or retirement plans. Some systems may also provide an easier way to stay in compliance with up-to-date bulletins about labor laws.


Not only do these systems lessen the load for employers, but also provide clarity for employees to understand the ins and outs of their own compensation and benefits. That transparency can clear up many questions and often avoid frustrations between employees and management. 


Luckily there are payroll systems, whether automated software or by service, that can take all of these responsibilities off the shoulders of a business owner and free up valuable time by simplifying the process.

Software or Service?


There are many payroll options at the disposal of small businesses these days.


The most common are software platforms, which can provide an automated payroll system with ease. Finding the best payroll software comes down to which specific tasks need to be more efficient, and which software best fits those needs.


There are also services that may be the better option for certain employers who desire more personal interaction and guidance through some of the most intricate aspects of owning a small business. 


It is important to know the cost structure of any outsourced payroll system. Many of the software platforms operate on a blend of a base cost and per-employee pricing.

What is the Right System for My Business?


It all comes down to needs, cost, and convenience.


For those who value ease over interaction and only want to keep things simple, a software plan that covers the fundamentals of payroll could suffice. An employer who struggles to balance human resources responsibilities along with payroll duties could choose a more substantial software package. A small business owner who wants a defined point-of-contact for any questions may feel more comfortable with a service rather than software.


As with any aspect of business, this determination comes down to what your business needs and what it can afford. Which payroll system will best help your business run efficiently without breaking the bank to outsource the work?


If a boutique payroll service seems to be the best fit for your payroll needs, contact your nearest Payroll Vault to get a quote.



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