How Does Payroll Software Work?

If you are thinking about adopting small business payroll software, you’re probably asking yourself, “how does payroll software work?” Here are five things you need to know:

• Payroll apps can save you time and money.
• The right tools will improve payroll cost visibility.
• The best applications integrate with your other tools to unify data.
• Simplifying payroll can boost employee satisfaction. 
• Payroll software also helps prevent errors and improve tax compliance. 

Are you thinking about investing in new payroll software? Like any savvy business owner, you want to do your homework before investing in a new piece of technology.The good news is that payroll apps are a lot easier to use than you might expect. Learn some practical payroll tips designed to make your life a whole lot easier.

• What is payroll software?
• Purposes of payroll software
• How does payroll software work?
• Why is payroll software important?

What is payroll software?

Payroll software is a cloud-based tool for tracking employee hours and automating wage payments to employees. There is a wide range of payroll solutions, from relatively simple options that track hours worked to more advanced tools that automate multiple workflows.

While you don’t want an overly complicated tool, you should prioritize solutions that give you the most bang for your buck. Look for apps with helpful features like a time clock and scheduling tools. 

What types of businesses use it?

There’s a common misconception that payroll software is just for big organizations. That’s not true. All sorts of businesses can benefit from a payroll app. A few examples include:

• Mom-and-pop shops
• Service businesses
• Local and regional brands
• Large corporations
• Franchises

If you’ve got employees to pay, the right software can help. Additionally, top options offer per-user pricing. That means your costs will align with the size of your business. 

What information about my business and employees does it require?

You may be a little apprehensive about putting your employees’ personal information in the cloud. That’s understandable. After all, you care about your team and their well-being. 

With that in mind, it’s important to know what sort of information payroll software needs to function. At a minimum, you’ll need to provide:

• Employee names
• Social Security Numbers
• Mailing addresses
• Contact information (email address or phone number)

Since payroll apps require so much sensitive data, it’s vital that you partner with a security-conscious brand.

Purposes of payroll software

You may be wondering about the specific tasks you can accomplish with payroll software. With a payrolling solution, you can:

Automate payroll tasks

The biggest value of wage management software is automation. Top tools have features like a time clock and scheduling capabilities. They are able to recreate schedules, track hours, and save you significant time each week. The more you automate, the higher your return on your new tech investment. 

Get reliable data about labor costs, expenses, and more

Are you managing your labor costs using paper logs? If so, you know how hard it is to keep up with expenses. You’ve got to sift through dozens of pages in the hope of finding the right information. 

A great payroll app makes this nightmare a distant memory. In seconds, you can access real-time data and see right where your company stands in terms of financial obligations. 

Centralize documentation and forms

Upgrading your wage management tools also grants you access to digital documents and forms. Everything you need will be in one place. You can use these forms for onboarding, adjusting employee withholdings, and updating benefits. 

Have detailed payroll summary reports

If you’ve got aspirations of growing your business, you need to keep a close eye on payroll costs. Leading software includes reporting tools that help you track cost trends over time and identify savings opportunities. 

How does payroll software work?

While each wage management application is unique, the basic process for getting your employees paid is the same. Payroll software reliably accomplishes the following: 

1. Analyzes forms and employee data

First, payroll software needs accurate employee data. It also requires financial information, like tax withholding preferences and bank account details. 

2. Tracks hours and attendance

Next, the app tracks how many hours an employee works. It also logs any absences and applies the necessary paid leave hours. 

3. Calculates payroll

Once the platform tracks employee hours, it crunches the numbers. Here is where gross payroll is determined and deductions are applied. Some possible deductions include taxes, health insurance premiums, and retirement plan contributions. 

4. Performs tax withholdings 

During step four, the application updates tax tables and regulations to ensure that the correct amount is withheld from each person’s paycheck. This step is crucial for compliance with IRS guidelines and local tax laws. 

5. Distributes pay upon final approval

Before executing payroll, the app typically requires your final approval. Once you give the green light, the app will process payments using each person’s preferred method. 

6. Stores records and generates reports

Payroll software automatically generates and stores records of each payroll cycle. This data includes detailed pay stubs for each of your team members. It will also generate a summary report outlining the total amount paid out in wages. 

7. Assists with tax filing and payments

Finally, your platform will assist with tax filing. Top options generate quarterly and annual filing documents, such as Form W-2 and Form 941. Some software includes electronic filing capabilities. 

Why is payroll software important? 

Adding payrolling tools to your business model can unlock all sorts of great benefits for you and your staff. With the right app, you can:

Save time

The most obvious perk associated with payroll software is time savings. What used to take you hours can be done in minutes. All you’ll have to do is set up your new app, get everyone enrolled, and let the software do the rest. Imagine what you can achieve with all that extra time. 

Improve operational efficiency

Managing payroll is not the most productive thing you could be doing for your business. Bringing in a new employee just to oversee payroll is also wasteful. Using technology to automate time tracking and payrolling represents the most efficient solution. 

For just a few dollars per employee, you can implement payroll software and become much more efficient. 

Get data-driven insights from reporting

If you want your business to thrive, you can’t rely on guesswork. You need timely, relevant data. Top payrolling solutions let you generate custom reports. You can obtain granular insights or look at the big picture. More importantly, these tools help you identify and remove sources of waste. 

Increase employee satisfaction

According to a 2023 report, 72% of U.S. workers would face financial hardships if their paychecks were delayed by just seven days. Therefore, you need to make sure your team gets paid on time and in the correct amount.

Using automation tools helps prevent errors and delays. You can also ensure that the correct amount is withheld from each team member’s check. This prevents your team from owing huge sums in taxes. 

Make payroll easier with integrations from When I Work

Stop keeping up with wages and work hours manually. Use When I Work to build the employee schedule and track time with ease. Then, set up an integration to your chosen payroll provider so your timesheets can be imported automatically, reducing errors and saving you time. Sign up for a free trial of When I Work today.