The American Payroll Association (APA) estimates that automation reduces payroll processing costs by as much as 80 percent, much of that from reducing errors in invoices and paychecks. A 2009 study commissioned for APA by the Hackett Group found that 90 percent of organizations now have paperless payroll distribution because of the advent of direct deposit and payment cards. In addition, the study found that 58 percent of employees nationwide were taking advantage of self-service features to enter personal data into automated payroll systems.
One of the reasons businesses have been moving to automate payroll is compliance with stricter financial regulations, such as the Sarbanes-Oxley Act of 2003. Such regulation is critical to the future of payroll; however, it can make life a lot more difficult for companies. If a payroll professional allows paychecks to be calculated incorrectly, affecting the company's financial statements and confusing stakeholders, it may mean the company will have to pay penalties. Automated processes, however, are more likely to be consistently performed.
When should a small business automate payroll? 'As soon as you have enough hourly employees in the company that you can't easily just look and see them and see how much they're working,' advises Curt Finch, CEO of Journyx, a provider of Web-based time, expense, and project tracking solutions.
The following guide will review the benefits of payroll automation and some of the options for automated payroll solutions or services.
Dig Deeper: Scaling Your Business with Technology
Payroll is a boon to employees but the bane of many a small business owner's existence. On a weekly or bi-weekly basis, business owners or their accountants must pour over spreadsheets, making calculations, filling out government forms, and cut checks for various taxes and payments and then often deposit those payments into various accounts. If that weren't tedious and stressful enough, there are potential legal ramifications that they must worry about if payroll is delayed or if the calculations are wrong.
So it's no surprise that many businesses opt to use computer software to gather and aggregate payroll data, and many also look to outside companies to actually process payroll information. A number of software and service providers now offer businesses Web-based cloud computing options, as well.
'The benefits of payroll automation are that you know you're paying people accurately, you know that you're in compliance with the law in paying overtime correctly, and that you can also include in these systems the ability to track issues, such as how often people are late,' Finch says. 'This way, you can fire someone or give them a warning letter and they can't say you did that because of some other factor. Here is a system that is color blind.'
Another benefit is that you know you are paying your taxes correctly. There are more than 10,000 tax jurisdictions in the U.S., and that's not even addressing the fact that many tax laws are in constant flux. Businesses can automate their tax filing as part of payroll automation to meet tight deadlines and avoid penalties for non-compliance so that employee tax filing is no longer overwhelming.
Payroll automation offers businesses a variety of other benefits, too. It can cut down on the process of data gathering, information processing, and disbursement and reporting. Automation can cut down on printing costs, such as pay slips, which with a number of solutions can be checked by employees online. It's easier to add new employees and make salary adjustments or record when an employee quits or is terminated. If tax rates change, your tax tables can also be automatically updated in a computer-based system.
Dig Deeper: Office Automation
To many small business owners, payroll is a headache. To make it go away, and still pay employees and tax collectors on an accurate and timely basis, there are a number of ways to automate the process. These methods include deploying payroll software in-house, moving to a Web-based system that lets employees enter much of their own data, or outsourcing the function to a third-party.
A staple among small businesses, Intuit's QuickBooks offers a payroll module to add to your existing accounting software. Priced between $16 and $22 per month, Enhanced Payroll can help you pay employees, calculate taxes, and fill out necessary forms. Peachtree, a small-business accounting package sold by Sage Software, offers an in-house payroll module that can help you automate payroll, in addition to automating tax payments, e-filing, and direct deposit.
Online Payroll Services
A growing number of companies now provide Web-based payroll solutions so that employees and your accountant can work together to generate accurate paychecks and tax payments. Some also provide full-service options so that small businesses can outsource their payroll and payroll tax processing.
'Time is money,' says Finch. 'The big advantage of a payroll automation system is this: what are you doing if your payroll is not automated? You're getting this all on paper or e-mailing around Excel spreadsheets. That's time consuming and there is a much higher chance of errors in the calculations. And if you pay people incorrectly, you can face enormous penalties.'