What Is Payroll Management Process? 5 Reasons to Use Payroll Software

Incorrect payments are one of the biggest pain points in a manual payroll system, as they can lead to low morale among employees. Aside from these, a manual process leads to incorrect classification of the employee for tax purposes, missing deadlines for tax remittance and filing, maintaining outdated or duplicate records, privacy breaches, and unavailability of payroll data in case of a disaster. The COVID-19 pandemic has only magnified the need to pay employees correctly, as they depend on wages amidst economically challenging times. With the right payroll software, you can address these issues head-on.

In this article, we’ll discuss the reasons why you should use a payroll system, what are its key features, and examples of such software. This way, you can familiarize yourself with what you can get out of the software and explore your options in the market.

what is payroll management

In the U.S., workers find it difficult to pay their financial obligations if their paycheck is delayed for a week. In a Getting Paid in America survey, 34.19% said that it’s “very difficult” for them to do so, while 34.51% said it’s “somewhat difficult” to make such payments given a one-week delay.

Chart context menu
View in full screen
Print chart

Download PNG image
Download JPEG image
Download CSV
Download XLS
View data table

Difficulty in Paying Financial Obligations Based on a One-Week Delay in Paychecks

Difficulty in Paying Financial Obligations Based on a One-Week Delay in Paychecks
Very difficult to pay financial obligations: 34.19

Very difficult to pay financial obligations

Difficulty in Paying Financial Obligations Based on a One-Week Delay in Paychecks
Somewhat difficult to pay financial obligations: 34.51

Somewhat difficult to pay financial obligations

Difficulty in Paying Financial Obligations Based on a One-Week Delay in Paychecks
Not very difficult to pay financial obligations: 17.07

Not very difficult to pay financial obligations

Difficulty in Paying Financial Obligations Based on a One-Week Delay in Paychecks
Not at all difficult to to pay financial obligations: 12.94

Not at all difficult to to pay financial obligations

Difficulty in Paying Financial Obligations Based on a One-Week Delay in Paychecks
Don't know: 1.29

Don't know


Source: Getting Paid in America, 2020

Designed by

Moreover, 54% of workers in the U.S. are affected by payroll problems. Establishing your payroll period is one of the fundamentals of managing your payroll system. This organizes the process and fosters consistency for your employees. It impacts your business by affecting the morale of your employees. Late payrolls make employees question the business’ financial integrity. If they feel their job is not stable and secure, they may underperform which decreases the workforce productivity and quality of your organization. Appropriately and consistently accomplishing payroll also minimizes state and federal taxes. On the other hand, doing it inaccurately can result in hefty fines.

No matter the size of the organization, managing the payroll system is crucial. Those with fewer employees can use a one-write system. New business owners who are not knowledgeable in the process may find the procedure challenging because of the various federal and state laws requirements that must be complied with. Hence, some businesses outsource their payroll services to ensure compliance with all applicable laws. Those who prefer to do it on their own, however, purchase an automated payroll system because it is cost-efficient and time-saving. For more information on what is the best payroll software for small business, check out our detailed guide to top solutions.

5 Reasons to Use a Payroll System

After discussing what is payroll management process, it’s important to look at solutions that help streamline it. Aside from outsourcing, a business can implement a payroll software to accomplish their payroll processes. This is to ensure compliance with legal and tax requirements and to simplify the method of paying employees. For more information on popular solutions check out our guide to top 20 payroll software for payroll service providers and accountants. The following are reasons to consider having a payroll software for your business:

  1. It is time-saving. One in every three businesses spends 80 hours on managing federal taxes including employment taxes. This is equivalent to two weeks’ worth of full-time work. Calculating the payroll may seem as straightforward as adding up a number of hours worked with the employee’s rate. However, taking into account factors such as vacation leaves, overtime, and benefits makes it complicated. Moreover, the federal taxes with its own requirements have to be applied in every payroll. While you still have to input specific variables, a payroll software automates and optimizes the entire process that saves a significant amount of time compared to manually doing all the calculations. Repeating payroll tasks are also saved in the system so you won’t have to create a new format again and again manually.
  2. It maintains payroll information. Federal, state, and local laws must be implemented when paying employees along with their compensation and deductions. This information must be kept for each employee for accuracy in computation. Many payroll packages have customizable payroll modules that maintain these data. It eliminates the need for consulting various data sources because all information is compiled in one place. They also offer features that optimize pay periods, the method of payment (such as direct deposit and manual checks, among others), benefit deductions, and the work requirements for employees. This allows owners and managers to create a system that optimizes auditing and guarantees the employees understand the company’s policies.
  3. It is cost-effective. Most payroll systems are cloud-based solutions hence you will only have to subscribe to the service in order to use it. Additionally, its upgrades are provided automatically in most cases. There is no need for investing in hardware such as servers and physical software packages. Without outsourcing or hiring more employees to handle the payroll management, it can save you money in the long run.
  4. It is secure. The security standards of a payroll software are solid. Employee data is kept confidential which can be implemented by ensuring tight controls. This means specific access codes and administrative rights are only provided to the appropriate users to gain entry in the system. Meanwhile, employees can also log in and track their hours, leave allowances, payroll deductions, fringe balances, and other benefits in their payroll profile. This boosts their morale and reduces the work of payroll administrators.
  5. It optimizes the process. Repeating payroll tasks lead to boredom and can result in human errors. Computers mitigate this issue and guarantee payment information is accurate. Moreover, these data are archived in the online database. If your computer breaks down you won’t risk losing all your data because you can still access it on other platforms as long as you have your login details. Business owners and managers get a graph financial data to help them with forecasting payroll expenses. This includes calculating potential salary increase and determining how it can impact your company’s financial status to make necessary adjustments.

If you’d like to learn more about how much do payroll companies charge check out our other guide on that topic.

Key Features of a Payroll Software

Here are some of the key features of a payroll software:

  • Automatic payrolls
  • Invoices and quotes
  • Tax forms
  • Reporting tools
  • Vendor and contractor payments
  • Integrations
  • Basic tax filing
  • Compliance
  • Employee access
  • Bank connections

Examples of Payroll Systems

If you are ready to try out some payroll software solutions after learning what is payroll management process, you may start looking at these leading products in the niche:

1. Xero

Xero dashboard

Xero is a popular global financial technology company known for its solutions for small to medium enterprises. They offer an end-to-end accounting software that features a robust payroll management tool. With it, you can manage federal and local taxes, accommodate direct deposit payments and more. In addition, the solution comes with a slew of other finance management tools such as invoicing, financial reporting, and more.

2. Quickbooks Payroll



Quickbooks Payroll is a well-known accounting solution that facilitates everything from sales tracking and inventory management to invoicing and payment processing. What is more, they offer payroll management options. With this at your disposal, you can pay W-2 employees and even file payroll taxes directly from the platform. Moreover, as it can be integrated with quite a number of other business systems, data import/export is simpler and extending the platform’s functionalities is easy.

3. Gusto

Gusto dashboard

Gusto is an online solution that provides HR services catered to small businesses. It can support teams, manage benefits, run payroll, and more – all in one platform. The system also provides a hassle-free navigation experience for users by allowing them to easily retrieve valuable information such as W-2s and contact data. Furthermore, Gusto ensures compliance, can integrate with a wide array of third-party apps, and streamlines HR processes in general.



Try out Gusto with their free trial

4. OnPay

OnPay dashboard

OnPay is one of the most cost-efficient and affordable solutions in this category because it allows you to handle an unlimited number of payroll runs for 1099 contract workers and W-2 employees per month. The system also eases the way you manage payroll taxes since it can automatically calculate your federal and state payroll taxes. The vendor is so confident in its product that they’ll take responsibility if it causes any errors in your tax filing.



Try out OnPay with their free trial

5. Sage 50cloud Payroll

Sage 50cloud dashboard

Sage 50cloud Payroll is for SMBs in the UK and offers more than just payroll-related services. It also features tools for automating various day-to-day tasks, providing insights, engaging with the workforces, and more. It’s also a part of, and can seamlessly integrate with, the widely-known Sage ecosystem solutions such as Sage Payments and Sage 5cloud Accounts. It’s also accessible through mobile devices like smartphones and tablets.

6. Paycor

Paycor dashboard

More than just a payroll system, Paycor is an integrated HCM (Human Capital Management) solution. It offers tools for timekeeping, onboarding, tax compliance, recruiting, and more. The system provides a modern solution for practically all aspects of people management – right from recruitment process to nurturing your employees. This provides your company a single source of your workforce data which removes the need for switching between multiple applications.

7. Patriot Software

Patriot dashboard

Patriot Software is another budget-friendly payroll system thanks to the two packages it offers: Basic and Full Service. The first one is ideal for small businesses and provides a simple 3-step process of running payroll. Tax-related processes, however, such as tax liabilities reports must be handled by themselves. The Full Service Payroll, on the other hand, will take care of all the payroll filings including local, state, and federal taxes.

Closing the Gaps in Your Payroll Process

Using an automated payroll solution can be beneficial to your business in more ways than one. First, it helps you save time from the grunt work of calculating taxes. Second, you can keep payroll information while ensuring compliance with relevant laws. Third, cloud-based solutions help you realize cost savings by avoiding the need to maintain servers. Fourth, it has measures in place to safeguard the confidentiality of employee data. Lastly, you can optimize your payroll process and avoid human errors.

The payroll management software market offers you different options with varying feature sets, from those targeted towards small business to those that come integrated with your human capital management system. If you need more options, check out the top 20 payroll solutions that can help with your payroll challenges during the pandemic and beyond.

Daniel Epstein

By Daniel Epstein

Daniel Epstein is a senior financial research analyst at FinancesOnline and the architect behind our Fintech and ERP content division. His main areas of expertise are blockchain technologies, cryptocurrencies, and the use of biometrics in fintech solutions. His work has been frequently quoted by such publications as Forbes, USA Today, Entrepreneur, and LA Times. With more than 1,800 solutions scrutinized in the last 5 years spent on our team he always prioritized offering readers an unbiased perspective on modern financial technologies.

Leave a comment!

Add your comment below.

Be nice. Keep it clean. Stay on topic. No spam.


Why is FinancesOnline free? Why is FinancesOnline free?

FinancesOnline is available for free for all business professionals interested in an efficient way to find top-notch SaaS solutions. We are able to keep our service free of charge thanks to cooperation with some of the vendors, who are willing to pay us for traffic and sales opportunities provided by our website. Please note, that FinancesOnline lists all vendors, we’re not limited only to the ones that pay us, and all software providers have an equal opportunity to get featured in our rankings and comparisons, win awards, gather user reviews, all in our effort to give you reliable advice that will enable you to make well-informed purchase decisions.