Payroll Automation Guide: Benefits, Process & Tools

Employees are the most invaluable assets to a business. This means paying them wages and managing their payroll holds utmost significance. From big to small businesses, calculating wages, salaries, taxes, and compliance is necessary for all. However, it’s not as simple to do as it seems. It takes time and is error-prone when humans do it. That is where payroll automation enters the scene. 

Automating your payroll activities from calculation to time tracking and more reduces the workload and complexity. It simplifies things and ensures the least errors possible. Read this article to get into the details of what is payroll automation and how does it work. 

What is Automated Payroll?

Automated payroll is a procedure where you don’t have to do any payroll-related task manually. The specialized payroll software calculates gross and net pay, estimates taxes to withhold, pays employees, etc. This modern technology ensures human intervention remains at the least. 

In manual payroll, a company has to employ people to review timecards monthly. They’ll enter wage information manually into the Excel spreadsheet and calculate federal and state withholdings. Then, they configure a deposit for each employee and type the pay stub.

Automating payroll tax calculations eliminates the need for multiple employees to handle the tasks. The software calculates payroll and withholdings with automated software. The built-in time tracking, payslip creation, and direct payment to employees’ accounts simplify the financial team’s tasks. The system also prepares the company’s tax returns from the employer’s perspective. 

Benefits of Payroll Automation to Know

A great selling point of payroll automation is that it eliminates manual mind-numbing tasks. However, there are many more benefits of payroll automation you can check out below:

• Reduction in Errors

When you work manually on spreadsheets, the chances of mistakes are quite high. The information is spread across different files and systems plus human intervention paves the way for errors. One bug can mess up everything, causing excessive headaches and stress in sorting out. 

Payroll automation prevents such problems from arising. Businesses can work on one centralized database, changing and updating information easily. Some payroll software also has employee portals for employees to update their personal information themselves. 

• Happy Employees

A good payroll system satisfies the employees of the company. It does so by ensuring streamlined payroll management, including swift and timely salary deposits. The automated payroll system lets employers schedule recurring payroll to ensure no payment delays.

Additionally, employees do not have to handle the repercussions when the payroll goes error-free. For instance, you can prevent mistakes in federal tax withholding that lead to hefty tax liabilities for employees. 

• Security in Payroll Processing

You can’t have unauthorized access granted to confidential employee information. If you keep physical copies of this data, it’s a security risk. You can avoid it by digitizing payroll processing. 

Using payroll software involves encryption of employees’ confidential information. Additionally, you can grant access to only authorized individuals to edit, update, or use employee data. 

• Real-Time Payroll Reporting & Insights

Automated payroll systems can store large employee data without worries. Based on these reports, they can generate comprehensive reports instantly, saving the time and effort of a human employee.

• Better Compliance

Among other benefits of payroll automation, compliance stands at the top. Incorrect payroll calculations can lead to wrong amounts getting withheld. This turns to inaccurate statutory payroll reporting. The authorities will, in return, impose significant penalties. 

Apart from error-free compliance, automated payroll also manages filing and deposits on behalf of the company. 

• Time Saving & Efficient

Payroll calculations and processes become faster with automation. The free time for HR and payroll managers helps them focus on important tasks like onboarding, talent recruitment, etc.

• Data Transparency

Payroll management is complex, especially when handling it manually. Automating it takes away the burden and simplifies the activities. The efficiency in work also ensures smoother access and transparency. 

• Scalability Ease

Manual payroll operations cannot stay on par with a scalable business. As the employee headcount grows, you have to make several adjustments. Automated payroll makes scalability easy because the operations are designed to support your growth. 

• Future-Proof Operations

Take a step towards digital transformation for your business by automating payroll. It is a more efficient and resilient alternative, maximizing productivity and profitability. It is the only way you can handle the ever-increasing payroll demand of the business. 

How Payroll Automation Works- The Process

If you’re still handling payroll manually, shifting it requires a series of steps. These steps dictate how payroll automation works:

Step 1: Assess the Pain Points in Current Payroll Management

Switching to automated payroll requires understanding the pain points causing the shift. For this, audit your business with questions like:

• How much time is payroll taking per day?
• Is the business growth causing higher operating costs in payroll?
• Are the employees feeling burdensome because of inefficient payroll management?
• Are there delays occurring in payroll processing and tax filing?
• Do you find more errors in your payroll management?

Through the answers, you can know the pain points and conclude the objectives for payroll automation. 

Step 2: Payroll Automation Software Comparison

Knowing your needs will determine the kind of payroll software you’ll need. You’ll have to undertake a detailed payroll automation software comparison and understand which one suits your needs well.

You can look for a payroll provider by assessing their expertise and your budget. The software and the payroll provider should support your business growth. They should be able to handle payroll complexities and integrate with apps that streamline the work. Lastly, the software should be easy to use so the team can adapt to the newness smoothly. 

Step 3: Gather Data for Data Migration

Once the payroll software and provider are chosen, you should prepare the data for migration. It will involve gathering data from all sources in one place. Then, you need to clean and validate the data for accuracy and consistency. 

Finally, organize the data to migrate to the payroll software smoothly. It means formatting data to fit the requirements of the new system. Complete all the fields and create data backups.

Step 4: Migrate the Data to the New System

Now, shift the data to the new system using migration tools, importing data files, and manually adjusting wherever necessary. Ensure you cross-check the records, create checklists, and confirm the accuracy of the points. 

Step 5: Give Testing a Go

Finally, test the payroll software and make sure it’s calculating, deducting, and carrying out other payroll processes accurately. Train your employees on how to use the payroll automation system.

Automated Payroll Features to Lookout for

The best payroll automation tools have the following features:

• Time Tracking Automated

The employees working on an hourly basis can avoid lost hours or missed punchouts with the automated system. The software looks for working hours and identifies discrepancies in timesheets that have the potential to turn problematic.

• Employee Data Management & Self-Update

The software captures and stores information about the employee like pensions, bank details, name, address, salary, etc. Some of them empower employees to edit this information themselves.

• Payroll Calculations & Processing

Calculate payroll amounts, tax deductions, and withholdings according to the laws automatically through the payroll software. This way you can prepare an accurate tax filing while saving considerable time, effort, and money.

• Compliance Management

The software has built-in tools that maintain compliance with the laws of the nation. The computation is automatic and usually up-to-date with the legal rules. 

• Direct Deposits & Payments

Automating payroll runs helps you keep the payments on a consistent schedule for employees. Delays lead to employee dissatisfaction, lower morale, and less productivity. So, mitigate it by scheduling recurring payments and directly depositing amounts without worries. 

• Payroll Integrations

You can avoid duplication and streamline onboarding by integrating payroll automation with HR software and accounting systems.

• Payroll Journaling & Reporting

You can customize journals related to the payroll. It’s also possible to generate reports for payroll team members and compliance. 

Types of Payroll Automation Systems

The range of payroll automation software comprises:

• Enterprise Resource Planning (ERP)

ERP systems calculate compensations, withhold deductions, and maintain compliance. However, you need humans to manage the HR and financial functions. 

For instance, the ERP system can upload data and generate reports. However, updating employee records and managing benefits has to be manual. This setup makes ERPs a semi-automated solution, reducing workload and offering more convenience than manual functions.

• Centralized Payroll Automation System

These systems integrate time tracking, payroll, benefits, and other HR functions. They are more advanced and user-friendly compared to ERPs. A centralized payroll automation system eliminates errors and manual entry needs, has built-in support, and updates consistently.

They have long-term benefits like time savings and reduced administrative burdens. Some systems also offer access to human support for expert assistance wherever needed.

• Specialized Payroll Software

This payroll software is dedicated to payroll-related operations only. It has modern features like real-time data processing, compliance management, and automated tax calculations. The resources that become free, you can use them for strategic initiatives.

How to Choose the Best Payroll Automation Software for Small Businesses?

You might not understand how to pick the best payroll automation software for small businesses. If this is your case, we want you to assess your situation based on the following questions:

1. What is your team size and what are your scalability expectations in the future?
2. What is the complexity of your payroll and how are you going to support the teams?
3. How much time, effort, and money do you spend on current systems and what would be the resource-saving expectations?
4. Does the software you’re considering integrate with other solutions? What is the learning curve associated with this system?
5. Do the software functionalities fit your needs today and tomorrow?

When to Make the Switch to Automated Payroll?

You can start at the very beginning or end of the tax season after filing. If you wait, it might help in reducing the amount of data migration, ensuring a clean switchover. However, the manual work will depend on your software provider and what they do for you.

Other factors in timing the payroll automation for remote employees are as follows:

1. Check the coverage gaps in the renewal date of your current payroll services and new ones. 
2. Make sure you transition before new legislations take effect.
3. If your industry has quieter periods through the year, choose those for migration and prevent disruptions.

Summing Up

Businesses can ensure precise payroll calculations, adherence to tax regulations, and complete efficiency with payroll automation. You can embrace it to make everything completely error-free, streamline operations, and reach the road to success. So, one click can help you pay your workforce on time regardless of where your employee lives or pays taxes. 

FAQs

What are the benefits of payroll automation?

Payroll automation infuses efficiency into the business. It saves time, money, and effort for employees since the manual workload doesn’t exist. Businesses can comply better with the payroll rules and file taxes on time. Additionally, employees can have exceptional experiences with timely payment of compensation, accurate tax withholdings, and deductions.

What are some common features of payroll automation software?

Most payroll automation software has the following features and functionalities:

1. Time tracking
2. Payroll calculations
3. Tax compliance
4. Direct deposits
5. Employee data management

Is payroll automation suitable for all businesses?

Yes, payroll automation is the best for businesses on all scales. From large to small-scale, retail to manufacturing, wholesale to distributors, every firm can opt for payroll automation and free up resources, save money, and increase efficiency.