Software Buying Tips

Category Compare: Payroll vs. HR Software

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In this report, we define and compare payroll software and HR software to help you decide which one aligns with your business goals.

Payroll and employee management are critical yet time-consuming human resources (HR) processes. If you are an HR professional juggling multiple responsibilities such as employee retention, payroll compliance, record keeping, and reporting, you can use payroll and HR software tools to streamline these processes. But how do you decide which software to choose?

Payroll software and HR software are often confused with one another, as both help HR teams manage employees’ compensation, time off, and benefits. But despite the overlapping features, both have distinct functionalities. Before investing, you should understand the similarities as well as differences between these two software categories, so you shortlist the tool that best fits your HR needs.

Below, we’ll talk about the similarities and differences between the two software categories to help you understand which one is better suited for your needs.

What is human resources (HR) software?

Human resources software allows HR managers to manage employees and processes such as recruitment, onboarding, engagement, compensation, and performance management. The software also allows HR professionals to collect and manage employee information, including their personal details, salary, attendance, and performance reviews.

HR tools help save time by automating time-consuming tasks, such as timekeeping and benefits administration, which further allows for better planning, management, and decision-making.

Key features of HR software

The primary features of HR software include:

  • Employee database: Stores critical employee data, including their personal and professional details, in a centralized database.
  • Employee profiles: Maintains employee records, including their contact information, job skills, experience, certifications, and career history.
  • Reporting/analytics: Offers data-driven reports, such as attendance and absence reports, recruitment reports, and performance management reports.
  • 360-degree feedback: Facilitates performance management process, wherein the employees can receive performance feedback from their managers.
  • Applicant tracking: Attracts and manages potential candidates and their applications throughout the recruiting life cycle.
  • Compensation management: Manages and tracks remuneration, including fixed salaries, bonuses, and additional company benefits distributed to each employee.
  • Onboarding: Streamlines and standardizes onboarding processes.
  • Payroll management: Maintains the entire payroll operations of the business, including the maintenance of accurate payroll records and payroll processing.
  • Self-service portal: Offers an online portal to manage human resources operations.
  • Time and attendance: Tracks employees’ work hours to improve payroll accuracy.

Examples of HR software

These five products, listed in alphabetical order, are taken from Capterra’s Shortlist report 2022 for human resource software. (See the end of this piece for the full methodology for how these products were chosen.)

What is payroll software?

Payroll software enables HR managers to manage, maintain, and automate payments to employees. The software allows them to calculate salaries, daily wages, bonuses, and deductions. It also assists businesses in tracking attendance, time off, leave, and vacation accruals to ensure payroll accuracy.

Payroll systems make it easier for HR teams to calculate the amount due to salaried, hourly, and contingent employees. It also helps in the settlement of employees’ provident funds and ensures compliance with various statutory regulations, including the wage and hour laws.

Key features of payroll software

The primary features of payroll software include:

  • Payroll management: Processes employees’ payroll components, such as gross salary, benefits, deductions, and tax deducted at source (TDS).
  • Payroll reporting: Generates detailed payroll reports, such as salaries paid to employees, employee working hours, taxes withheld, and vacation balance reports.
  • Tax compliance: Applies tax deductions and generates tax-compliant payslips.
  • Check printing: Prints paychecks to pay for salaries and wages.
  • Direct deposit: Deposits payroll amounts into employees’ bank accounts digitally.
  • Time tracking: Records working hours to ensure that employees are compensated accurately.
  • W-2 preparation: Automatically creates and distributes W-2/1099 tax forms to employees.

Examples of payroll software

These five products, listed in alphabetical order, are taken from Capterra’s Shortlist report 2022 for payroll software. (See the end of this piece for the full methodology for how these products were chosen.)

What do they have in common?

Besides payroll processing, both human resources and payroll software systems have a lot in common. For example, both these tools:

  • track and manage employees’ salaries, bonuses, leave, and benefit deductions.
  • manage and store employees’ critical information and confidential documents, such as employees’ financial data and personal information, including their home addresses, career history, and performance evaluations.

Which tool is right for your business?

The most simple answer to this is selecting a software system that best aligns with your business requirements. If you are looking for a tool that helps you manage employees and employee relations, which includes onboarding, performance, and benefits management, HR software would be a better choice. However, if you only wish to have a system that can help you automate, manage, and maintain payments to employees, investing in payroll software would be a better decision. While HR software is more suitable for people management, payroll software is more of a finance-based solution.

You can also take the size of your business into consideration before selecting between HR and payroll software solutions. For instance, if you are the owner of a small business, you can do well with a payroll management system. But, if you have a large organization with a huge workforce, you need to deploy an HR management system to handle the workforce and related tasks meticulously.

Once you’ve decided which software to use, head to our human resources software and payroll software category pages, where you can find a sortable list of products and software reviews from verified users.

If you want to narrow down your search to only the most popular and highest-rated solutions, visit Capterra Shortlist reports for the top human resources software and payroll software solutions—our reports are based on an analysis of thousands of user reviews.

How to choose the right HR or payroll system for your business

Here are a few important considerations that will help you choose the right human resources or payroll software system for your business.

  • Look for attendance and time-off management features: Time-off and attendance tracking can take a substantial amount of time. However, these can be effectively managed with the help of automated payroll or HR management solutions. Select a tool that allows you to monitor employee shift timings, maintain time sheets, and configure leave types as sick, casual, maternity, and others.
  • Assess the tax-filing feature: An efficient human resources or payroll system should be able to document and manage payroll taxes. Before you invest in any of these tools, make sure that the product you’ve shortlisted helps you simplify tax-filing processes by automatically calculating and filing state and federal taxes.
  • Compare the software price: Once you’ve shortlisted HR systems for your business, make sure to compare the prices offered by the vendors and select the one that best aligns with your budget. In general, payroll software vendors offer two types of pricing models: monthly and per-employee basis. On the other hand, HR software developers either charge a monthly price from users or one-time setup fees. Some vendors also offer a free plan, which may help you understand the functionalities of the system without paying a hefty sum for it.

Common questions to ask while selecting an HR or payroll system for your business

Selecting the right human resources or payroll solution can be a bit challenging. But, asking the right questions can always help you make the right decision. Here is a list of some of the common questions that you can ask vendors before investing in one tool.

What are the system’s reporting capabilities like?

An efficient payroll or HR management software should be able to provide you with better insight into your people’s and payroll data. Look for a software system that generates employee critical reports, such as working hours, absence management, salaries distributed, vacation accruals, and taxes-withheld reports.

Will the system protect sensitive employee data?

From a security perspective,  HR and payroll software should offer role-based restrictions to safeguard users against internal threats, encryption to protect against invasions, and GDPR compliance to ensure that your data is protected.

What are the available integration options?

Before investing in an HR or payroll tool, make sure you ask the vendor about the integration capabilities of the software. Ideally, an HR or payroll software solution should seamlessly integrate with time and attendance, recruitment, finance, applicant tracking, and accounting tools.


Methodology

To be included in the top-rated list, the products must:

  1. Be listed under Capterra’s 2022 Shortlist reports for human resource and payroll software. Learn more about the Capterra Shortlist methodology here.
  2. Meet our software market definition for human resource and payroll software:
    • Human resource:Human Resource software, also known as a Human Resources Information System (HRIS) or Human Resources Management System (HRMS), helps organizations manage employee records and information.
    • Payroll:Payroll software automates the management of employees’ salaries, wages, bonuses and deductions.

Note: Reviews and ratings data in the product cards is as of September 1, 2022. New reviews may have been added since the publication of this article, so the reviews data in this piece may not reflect current conditions.

Disclaimer: The products in the category comparison images are examples to show a feature in context and are not intended as endorsements or recommendations by Capterra. 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.

About the Author

Shephalii Kapoor

Shephalii Kapoor

Shephalii Kapoor is a writer at Capterra. She helps small businesses identify the right software for their needs by analyzing user reviews for top-rated software products. Prior to Gartner, she worked as an assistant content manager at InfoEdge India Ltd. She has also worked in company law, aviation, and real estate. She is a published author and has contributed to various magazines and websites. During her free time, she enjoys reading.

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