Payroll processing is very complicated and can be done in several different ways today. Businesses have online and offline options when it comes to processing payroll. An increasing number of third-party services are also available. Choosing the right type of payroll system is not always simple. It can help to understand the different payroll systems and services that are being used today.
In-House Software Systems
In-house software systems were the way that most businesses performed payroll in the past. This type of payroll system involves locally installed software on in-house computers. The software is self-contained and does not rely on online servers to function. The software might be integrated with other enterprise applications to make doing payroll easier. The advantage of these in-house systems is that the business is independent of other services. The drawbacks are that a full payroll staff is needed, updates can take a long time and everyone needs a high level of expertise working with the system.
Cloud Based Service
An increasingly popular type of payroll system uses cloud based services for processing. Payroll information is done from within the business using a set of tools delivered across the Internet. The online payroll services keep the software updated and running. They might also help with some aspects of processing. These services can be accessed from anywhere and sometimes from many types of mobile devices. The services have low overhead and require less expertise than local in-house installations. Another advantage is that a cloud based payroll service could speed up the process because many tasks can be automated.
Full Third-Party Processors
A third-party processor is an independent company that handles all or some of the payroll functions for a business without having an on-site presence. This basically means outsourcing the payroll processing to another company. The third-party company could handle all elements of payroll such as extracting employee hours, making adjustments for taxes and regulating benefits. These payroll services could also perform some human resource tasks. They often take care of actual payments through checks to employees or direct deposits. The advantage of third-party processors is that the business does not need to worry about payroll at all. Nearly everything is handled by the processor in the background.
There are many hybrid payroll models available today. This is partly because some companies cannot migrate full to a cloud based or third-party processing service. Hybrids setups use payroll services for key things like electronic transfers and maintaining compliance. Other tasks like benefits management and time tracking are done locally within the business. These processing services are still more efficient than maintaining a local in-house software system in most cases.