The Difference Between a Payroll Service and Payroll Software

payroll service versus payroll softwareWhile small business owners have many options when considering how to pay employees, the complexity of payroll these days really makes old-fashioned ledgers and tax tables a poor solution.

However, a small business can outsource payroll to a payroll service, or choose payroll software and handle the task on their own. The employer can entrust their payroll provider to handle the payroll tax filing tasks or handle these tasks themselves. 

A payroll service is a hands-off approach to payroll. The payroll service handles the processing and delivery of paychecks to the company. The employer schedules with the payroll service to report the time worked, and the paychecks are delivered a day later. While a payroll service eliminates many of the payroll tasks, the employer must send the payroll data in an organized fashion and carefully review the paychecks when they are delivered in order to catch errors or missing paychecks. Another drawback: the cost for a payroll service may be prohibitive for small business owners.

At the other end of the spectrum, employers can choose payroll software. Unlike a payroll service, the employer enters the time details on their own, and the software calculates the paychecks. Employers can then print the checks or send them via direct deposit. With payroll software, employers are in control and can process payroll on the fly. Payroll software can be an affordable option, particularly for small business owners, and may offer the convenience of online access. When evaluating payroll software providers, employers should carefully evaluate the annual costs, as well as the cancellation terms and support fees. Payroll software can also vary in terms of complexity; some are so complicated that they require special training, while others are designed for non-experts.

Whether they decide on a payroll service or payroll software, employers should carefully weigh the pros and cons of each option before committing to a payroll method. 

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