What to look for in the best payroll software for small business

Payroll software encompasses all the tools businesses can use to streamline and automate the process of paying their workers. This can include other tasks that are related to payroll, like tracking hours worked, calculating wages, withholding taxes, and delivering paychecks.

For small businesses, it’s especially important to be able to efficiently manage payroll to stay compliant, save time, and reduce costs. Investing in the right payroll software can make all of this more manageable, giving small business owners back the time and resources to focus on growing their business rather than getting bogged down in administrative work.

What does payroll software do?

At its most basic, payroll software should digitize the process of paying employees. The best payroll software goes further, helping businesses streamline and automate payroll and many related processes. Here’s a breakdown:

Payroll processing

The main thing payroll software should do is streamline the complex process of compensating workers accurately and compliantly. One of its primary functions is its ability to handle various employee types and compensation structures:

Running payroll is the main event. Businesses need a payroll provider that can pay employees accurately and on time, every time. But most payroll software goes beyond just this, offering other features to make payroll—and related tasks—easier and faster. Below, we’ll explore some other common payroll features you’re likely to encounter when exploring this type of software.

Tax compliance, filing, and documents

Another crucial feature of payroll software is its ability to handle tax compliance, filing, and documentation. Managing payroll taxes can be complex and time-consuming, but payroll software simplifies this process significantly, often through automation.

Payroll tax calculations

Payroll software automatically calculates payroll taxes for each employee, ensuring that federal, state, and local taxes are accurately deducted from their paychecks. This minimizes the chance of errors and makes sure the correct amounts are withheld for:

• Federal taxes including income tax, Social Security, and Medicare.
• State tax, which is specific to the state where the employee works, with rates and regulations that vary by state.
• Local taxes, which are applicable in certain cities or counties, depending on local tax laws.

Tax filing and payments

Payroll tax software can also help businesses file taxes by preparing and submitting required tax forms  and payments to the IRS and other relevant agencies. This includes handling:

• Quarterly tax payments: Payroll software often automatically submits quarterly payroll tax reports along with tax payments to make sure business taxes are paid on time to avoid penalties and noncompliance.
• Year-end tax filing: Payroll software can also generate and file W-2 forms for employees and 1099s for contractors, as well as other necessary year-end documents.

Direct deposits

Direct deposits give businesses a convenient way to transfer paychecks directly to their employees’ bank accounts. This eliminates the need for paper checks, making the payment process faster and more secure—and it helps businesses save time and reduce the administrative cost associated with printing and distributing paper checks. Employees also benefit from having their funds available sooner.

Accounting and recordkeeping

Making sure payroll data is accurately tracked and documented is important (it’s even required by the Fair Labor Standards Act, in some cases). Payroll software can automate the generation and storage of detailed paystubs for each employee, which include information about earnings, deductions, and net pay. This not only reduces administrative work for your HR team, but increases transparency and creates a more thorough record of your employee data.

Time tracking and time off

Payroll software simplifies the management of employee hours by integrating time tracking and time off features. It accurately records work hours, streamlines the approval process for time off requests, and makes sure that all employee hours are correctly calculated for payroll.

Minimum wage tracking

Finally, payroll software can help businesses—especially those that are small but growing—comply with minimum wage laws by automatically updating and applying the correct pay rates for different regions. This is especially helpful should you ever hire remote workers in different states, counties, or cities, where minimum wage rates can differ.

Why payroll software matters for small businesses

There are several reasons why payroll software can be especially beneficial for small businesses. 

First, whether you have a team of one handling payroll or have an accountant to help out, spending excessive time on repetitive, menial tasks is not efficient. Payroll solutions can help automate some of these tasks, freeing up your team to focus on core business needs that drive growth and success.

Second, payroll software can help lower costs—a must for many small businesses running on tight budgets. Payroll solutions are efficient, reducing your need for added headcount or expensive outsourcing—and saving your business money in the process.

Finally, the key to effective payroll software is automation. Good payroll software automates everything from pay calculations to tax compliance, reducing the risk of errors. This makes payroll a seamless process so you can focus on what matters: running your business.

What should you look for in the best payroll software for small business?

When selecting a payroll system for your small business, you have a lot of choices. That’s why it’s important to know what to look for to make sure you choose the right payroll option for you. Understanding what’s most important in payroll software can help you make an informed decision and select the payroll system that best meets your business needs.

Ease of use

An intuitive payroll system that is easy to navigate right out of the box can save you a significant amount of time and reduce the learning curve. The best payroll options are designed with user-friendly interfaces that require minimal training, allowing you to set up and manage payroll quickly and efficiently.

A straightforward payroll system not only simplifies the payroll process for you but also enhances the experience for your employees. For example, employee self-service features can allow employees to access their pay stubs, update their personal information, and manage their benefits independently, reducing the administrative burden on your HR team.

Additionally, look for software with robust customer support. Having access to responsive and knowledgeable support means any issues or questions are resolved promptly, minimizing disruptions to your payroll operations.

Strength of integrations

Effective payroll software should seamlessly integrate with your other essential tools, such as accounting software, HR software, and benefits administration platforms.

One of the most important integrations for many small businesses is with accounting software like QuickBooks Online or Xero. This software integration ensures that payroll data flows smoothly into your bookkeeping system, reducing manual data entry and minimizing the risk of errors. This streamlined process not only saves time but also helps ensure that your financial records are always up-to-date and accurate.

The ability to integrate with different tools and add-ons enhances the flexibility and scalability of your payroll software. It allows you to customize the system to meet your specific business needs.

Scalability

For startups and small businesses planning to expand, make sure that your payroll software is future-proof, capable of handling increased complexity as your business scales. Consider different permissions for different functions; for example, does a user need admin privileges to access certain functionalities? Can you assign different roles to different users in order to give them permissions to access features and functions? How granular are those permissions?

A scalable payroll system should also be able to operate seamlessly across different states and countries. This is essential for businesses that plan to hire employees or contractors in different locations. By supporting multi-state and international payroll, the software helps ensure that you can manage a geographically diverse workforce without compliance hiccups.

Compliance is particularly important when dealing with payroll across different jurisdictions. Each state and country has its own regulations regarding taxes, employment and labor laws, and reporting requirements. Scalable payroll software is designed to stay up-to-date, automatically adjusting calculations and processes to help ensure your business stays compliant. This reduces the risk of legal issues and penalties, giving you peace of mind as your business grows.

Transparent pricing

Many payroll solutions charge per pay run—or worse: charge hidden fees for off-cycle runs. Some even charge for basic functions like tax filing. 

Look for a payroll solution that’s transparent about pricing and includes the features you need without surprise upcharges.

Automation

Finally, look for robust automation features. Automated payroll systems can turn things like direct deposits, workers’ compensation, contractor payments, PTO tracking, and more into streamlined, hands-off workflows.

By using payroll software to automate these processes, you take manual work off your team’s plate, making them more efficient and giving them back time and resources for more strategic work. You also reduce the risk of costly human errors. That’s the biggest benefit of payroll software for small businesses.

Get the best payroll software for small businesses: Rippling

If you want payroll so powerful it runs itself, you want Rippling.

Rippling's Payroll has everything we’ve discussed in this article so far, plus even more—it’s built on top of a single source of truth for employee data. That means your employee data isn’t tied to one specific app—it’s the same across payroll, time and attendance, onboarding, performance management, and any other apps you use within our unified platform.

What does that mean for you and your team? For starters, you have a single source of truth for up-to-the-minute employee information.

It also means that your team doesn’t have to reenter information across systems when an employee gets promoted or moves to a different city to work remotely. From changing security permissions to updating PTO policies, Rippling triggers automatic updates to employee information in a single flow.

This is especially beneficial for small businesses. It allows you to do more with less—less money, less headcount, and less time. And all with a 100% error-free guarantee.

Frequently asked questions about payroll software for small businesses

Still have questions about payroll software? Learn more in the FAQ below.

Does payroll software provide HR support?

Some payroll software packages include HR tools and resources to assist with employee management, compliance, and other HR-related tasks. Many payroll software solutions can also manage employee benefits, from health insurance to retirement plans, workers’ comp and other perks. And many solutions can streamline the onboarding process for new hires by automating tasks like collecting tax forms and setting up direct deposit.

Are there any additional costs beyond the monthly fee for payroll software?

Different software solutions use different pricing structures—often either a monthly fee or a percentage of each payroll run. It's important to choose payroll software with transparent pricing. Some providers may charge extra for features like tax filing, garnishments, or off-cycle payroll runs. Look for solutions that offer the features you need without hidden charges.

Can employees self-serve with payroll software?

It depends on the solution you choose. Some payroll software is very user friendly, offering features like employee portals and mobile apps so employees can access their own documents (like paystubs and W-2s) and manage their own information—taking administrative tasks off your HR team’s plate.

Do all payroll solutions offer data and analytics?

It depends. Many payroll solutions offer payroll reports that can give you at least some information about employee earnings, deductions, taxes, and more. But not all platforms offer detailed, real-time, unified analytics like Rippling.

This blog is based on information available to Rippling as of June 20th, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.