Finance Software

9 Things You Need to Do Before Using Payroll Software

Published by in Finance Software

Changing how you run your payroll can be scary. How do you transfer your payroll information? Where did you put your tax identification numbers?

payroll software

If you are a new employer, you might not understand all the parts of payroll. Do you know the information a new employer needs? What are your tax rates?

There are so many questions to ask. But you have a business to run! Here’s a good question to start with: How can I make running payroll easier for me?

Payroll software can ease your payroll pains. Here’s how you can prepare to use payroll software.

1. Make sure the software meets your needs

Before you start using a payroll software, you have to make sure the software actually meets your needs. Determine what you need the software to do. If the software does not meet your needs, it will not be effective for your business. Payroll software could include these features:

  • Payroll tax filing and deposits
  • Form printing
  • Employee access
  • Mobile compatibility
  • Time and attendance tracking

Once you figure out your payroll needs, you can rule out software packages that will not work for you. Also, consider your wants—things you would like, but do not necessarily need. Knowing your wants might help you choose between two similar software packages.

2. Gather information about your business

When you start using a payroll software, you will need to enter your business information. You will need your business’s legal name, DBA (“doing business as” name), and address.

Make sure you register your business’s name with your county clerk’s office or state government. Each state has different requirements for registering your business name.

3. Round up employee information

When you set up payroll software, you will have to enter information about all your employees. You’ll need the following information from each employee:

  • Legal name
  • Address
  • Social Security number
  • Tax filing status
  • Wage deductions

You can find all the employee information you need on IRS Form W-4. When you hire a new employee, they should fill out a Form W-4. When an employee makes a life change (e.g., getting married or having a baby), he or she should fill out a new Form W-4.

As an employer, you should keep all Form W-4s on hand for payroll purposes. You must keep each Form W-4 for at least four years.

4. Find your tax identification numbers

To run payroll, there are several tax identification numbers that you might need.


All employers need to have an Employer Identification Number (EIN) to report federal taxes to the IRS. You also need an EIN when sending some other documents to the IRS and state agencies.

If you are currently an employer, keep your EIN handy. You will need to input your ID number into the payroll software. If you are a new employer, you can apply for an EIN online.

State and local ID numbers

Some state and local governments require employers to obtain an identification number. These ID numbers are often used to report state and local taxes.

If your state or locality require employer ID numbers, you will have to add your numbers to the payroll software. If you are currently an employer, you should already have an ID number if your state or locality requires one. If you are a new employer, contact your state and local governments to find out how to get an employer ID number.

5. Figure out tax rates and deadlines

There are several payroll taxes that you have to remit. You have to withhold income taxes from employee wages. You have to contribute toward unemployment taxes. You also have to withhold Social Security and Medicare from employee wages, as well as pay an employer contribution.

Unfortunately, each state has a different rate and set of payroll tax regulations. Before you move to payroll software, make sure you verify your tax rates. When you set up the payroll software, you will have to enter your tax rates for federal and state unemployment taxes, Social Security tax, and Medicare tax.

You also need to know when your payroll taxes are due. Not all employers have the same due dates for payroll taxes. You will need to enter your tax due dates into the software. This will help the software properly calculate how much of each tax you have due.

6. Choose a pay period

When you set up the payroll software, you will have to set a pay period. A pay period is how frequently you pay your employees. Examples of a pay period include paying your employees weekly, biweekly, semimonthly, and monthly.

If you previously employed workers, you will probably continue using the same pay period. If you change pay periods, you will want to make sure employees are properly compensated.

Some states have laws regulating how often you have to pay employees. When setting a pay period for your employees, consult your state laws.

7. Establish employee wages

You have to enter how much you pay your employees into the payroll software. For each employee, you will have to set either an hourly rate of pay or a salary. You will also have to identify each employee as either exempt or nonexempt from overtime wages.

You might be asked if your employees are given tip wages. Restaurant and hospitality workers generally receive tips. You might also be asked if your employees are paid a commission. Salespeople sometimes receive a commission. You must record all tips and commissions that employees earn. Both types of compensation are taxable.

When you are setting up employee wages within the software, you may want to consider other compensation. You will want to indicate any paid vacation or sick time in the software.

8. Collect previous payroll records

If you are a new employer running payroll for the first time, you obviously will not have previous payroll information. But if you are a seasoned employer who is switching to payroll software, you might have to enter previously run payrolls. Entering previous payroll information helps the software accurately calculate taxes and deductions from employee wages.

9. Consider your recordkeeping options

When you switch to payroll software, you might want to reconsider how you keep your payroll records. As an employer, you are required to keep some payroll records on file, such as Form W-4, Form W-2, and tax deposits.

Since you are moving to payroll software, you might also consider moving your records to a digital format. The payroll software you choose might have an option for storing your payroll records. If it does not, you might want to consider finding a way to store your payroll records on your computer or on the cloud.

Moving to payroll software

As previously mentioned, changing how you do payroll does not have to be scary. Your ultimate goal should be to find what works best for you. If you are looking for a way to save time and be in control of your payroll, using software might be for you.

Once you figure out your payroll needs and gather all the necessary information, setting up payroll software should be a breeze. You simply need to enter all the information into the software.

Some software companies make setup extra easy by providing setup services. A good software company will help you through the process and will try to relieve your payroll-induced stress.

Header by Rachel Wille

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

About the Author

Mike Kappel

Mike Kappel

Mike Kappel is the CEO of Patriot Software, Inc., a developer of online accounting and payroll software for small business owners in the USA. Being a serial entrepreneur, Mike knows small business. He has made it his mission to provide fellow entrepreneurs with the affordable tools they need to keep their time and money, for what matters most.


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