These 5 Payroll Software Features Will Make or Break Your Purchase

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Payroll software systems have a ton of features, but these are the ones that will impact your business the most.

header image showing a man gesturing at a computer screen with software features on it

If you employ people, those people need to be paid for their work. It’s kind of a big deal.

By that logic alone, payroll software is often one of the first technology purchases new businesses make to streamline this important process. But with this change comes potential peril: Lacking experience and knowledge, small-business owners can mistakenly buy a system that’s not a great fit.

Which is why you should pay special attention to the payroll software features listed here during your search. These features may not be the primary drivers of your payroll software purchase, but they’re the ones that arguably differentiate products the most and that will have the biggest impact on your business.

Let’s dive in.

1. Direct deposit

Did you know?

72% of U.S. workers are paid by direct deposit, compared to only 21% by check, 4% by cash, and 3% by payroll card. (Source: QuickBooks Payroll)

Why direct deposit is important

Direct deposit ensures that money from your company bank account goes directly (see what I did there?) to your employees’ bank accounts.

It’s the most common and preferred method of payroll payment for a reason. For one, direct deposit is safer—there’s no risk of losing a check in the mail or opening yourself up to costly check-tampering fraud (which can result in losses upwards of $150,000).

It’s also cheaper and makes the funds available to people sooner—something your employees will surely appreciate. Lastly, direct deposit ensures you have a digital record of every transaction for bookkeeping purposes.

A list of direct deposit payroll transactions done in Wave by Payroll.

A list of direct deposit transactions in Payroll by Wave (Source)

What to look for when comparing direct deposit features

While direct deposit is generally cheaper than other payment options, it isn’t free. Banks can charge setup fees that range from $50 to 149, and a transaction fee of $1 to 2 is also common. Vendors know this and many are happy to cover these costs, but ask to make sure.

2. Tax filing

Did you know?

One in three small businesses spend more than 40 hours every year calculating and filing their federal taxes. (Source: National Small Business Association)

Why tax filing is important

Tax filing functionality in payroll software will allow you to calculate the local, state, and federal taxes your business owes, file your return, and generate W-2 and 1099 forms for your employees.

This is important because taxes represent a significant sunk cost for small businesses in not just time but money. Sixty-three percent spend more than $1,000 every year on federal tax administration—and that’s before counting the actual taxes they owe. Any savings you can get by bundling your payroll and tax preparation needs in one package is worth it.

And if you do your taxes yourself, know that any errors can lead to a delay on your return, or worse, garner an audit from the IRS. No one wants that, which is why it’s ideal to have a software check in place.

Printing employee W-2s in CheckMark Payroll

Generating employee W-2s in CheckMark Payroll (Source)

What to look for when comparing tax filing features

If you have a remote workforce or operate internationally, you should ask payroll software vendors about their multistate and multicountry tax filing options. These can vary drastically from product to product.

You can also pay to have tax experts at your payroll provider file your taxes for you. This option is usually referred to as “full-service payroll.”

3. Compliance management

Did you know?

54% of HR and payroll professionals say that it costs their organization $40,000 to $100,000 to prepare for each labor-related regulatory change. (Source: Kronos)

Why compliance management is important

It’s not just you: Employment laws are getting more and more complicated. The Tax Cuts and Jobs Act of 2017 has already ushered in a number of changes, and if a new overtime rule ever passes, that will wreak even more havoc on payroll runs.

Rather than fret over all this alone, let your payroll software help you. Compliance management features can automatically update your software when any local, state, or federal employment law changes are enacted to help ensure your time entries, payroll data, and tax returns are in line with the laws in your area.

Visualizations showing payroll compliance updates in Workday Payroll.

Payroll compliance updates in Workday Payroll (Source)

What to look for when comparing compliance management features

The feature we call “compliance management” can actually run the gamut from a digital handbook that users have to refer to manually to embedded compliance training courses, depending on the vendor. Yes, it’s confusing.

But the best compliance management features tend to run in the background—updating the rules in your system to automatically flag non-compliant entries and explain how you need to fix them with every payroll run. Ask vendors if they offer this capability.

4. Employee self-service (ESS)

Did you know?

73% of U.S. workers expect employee self-service options to complete HR-related tasks themselves. (Source: Paychex)

Why ESS is important

Do you want to spend your valuable time jumping into your payroll software every time an employee has a question about their salary or wants to update their contact information? I didn’t think so.

ESS can take the significant burden of being the payroll point-person off your plate. By giving your workers their own login to your payroll software to do some of these important payroll tasks, ESS also gives them an important level of autonomy.

A mobile view of an employee pay stub in Zenefits.

Viewing a pay stub on your smartphone in Zenefits (Source)

What to look for when comparing ESS features

Mobile is a must here, so whether your vendor offers a standalone smartphone app or simply a mobile-optimized website, ensure the experience is intuitive and not super frustrating. Otherwise, your workers will just keep bugging you for all their requests.

Also, ask about how deep you can customize user permissions to ensure workers aren’t accidentally given access to sensitive payroll data.

5. Accounting and time-tracking integrations

Did you know?

Companies maintain an average of five separate records per employee and dedicate 32 hours per week on manual, duplicate data entry. (Source: Kronos)

Why accounting and time-tracking integrations are important

By integrating your payroll software with your accounting software, anytime you make a payroll run, that transaction will automatically be entered in your general ledger.

That same logic applies to time-tracking integrations. Anytime an employee logs a shift or submits their hours in your time-tracking software, that data will automatically be ported over to your payroll software to calculate wage payments.

While this is technically two features, these integrations both accomplish the same thing: eliminating the need to do tedious duplicate data entry. Not only do these integrations save you time, but they can also drastically reduce errors that occur when manually porting data over from one system to another.

Setting up an accounting software integration in Zoho Payroll.

Accounting integration setup in Zoho Payroll (Source)

What to look for when comparing accounting and time-tracking integrations

This should be obvious, but if you already have an accounting or time-tracking system in place, ask payroll vendors if they’re able to integrate seamlessly with these platforms.

If you don’t have either of these systems, talk to payroll vendors about any partnerships they have in place. You’ll likely hear a shortlist of systems come up again and again, giving you some guidance on where to begin your search.

Download our payroll software features scorecard

With so many payroll software options on the market, it can be easy to give in to the false assumption that all these products are the same. Payroll is payroll is payroll, right?

But that’s dangerous thinking. These options can be drastically different from one another, and if you’re not diligent during your search, you can end up with software that includes features you don’t need—and lacks features you do.

To help, we’ve created a free payroll software scorecard template that includes all of the features we’ve mentioned here. Download it now, then either print it out or fill it out on your computer as you demo various payroll software products.

Free payroll software scorecard template download

Interested in more content and research about payroll software? We have that too. Check out these additional resources:


Note: The applications selected in this article are examples to show a feature in context and are not intended as endorsements or recommendations. They have been obtained from sources believed to be reliable at the time of publication.

Looking for Human Resource software? Check out Capterra's list of the best Human Resource software solutions.

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About the Author

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Brian Westfall

Brian Westfall is a Senior HR and Talent Management Analyst for Capterra. His research has been cited in various publications, including TIME, Entrepreneur, Fast Company, and Undercover Recruiter.

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