How & Why to Automate Payroll In 2023

If you’ve ever processed payroll manually, you know it can take forever! And it’s no surprise that this time drain can be especially tough for small businesses as many are often run by few people wearing many hats. 

So, if you’re in that boat, it’s easy to feel that admin creates a time vacuum, sucking up all the hours and energy you’d love to redirect in other areas. And that’s why it’s a great idea to automate payroll. 

In this article, we’ll dig deep to learn why you should automate payroll, how payroll automation works, and how you can benefit from automated payroll. 

What Is Manual Payroll Processing?

Before we dive into the nitty gritty of payroll automation, let’s start by taking a look at the difference between manual payroll processing and payroll automation. Like so many other aspects of our lives, manual payroll processing is one of those things that people had to do unassisted until technology came along. 

Sure, technically, we could painstakingly sweep the floors, grow our own food and prepare it by hand, and walk to the store every time we needed groceries— but thank goodness vacuums, microwaves, cars, and Uber Eats made life more convenient! These are all examples of how technology revolutionized daily activities that used to be manual, inconvenient, and time-consuming. And the same is true for manual payroll processing. 

Because, when we talk about manual payroll processing, we mean that every single aspect of payroll is done, unassisted, by you. It starts with manually calculating each employee’s gross pay, taxes, and deductions. To do that, you’ll have to keep track of everyone’s salaries or hourly rates along with any bonuses or time off, or holiday pay they’ve earned. And once you’ve slogged through all of that, it’s time to create and issue paychecks. 

When you think about all of those steps, it’s easy to see that manual payroll processing requires a lot of manual data entry and calculations. And it’s no surprise that all that data entry can be time-consuming and prone to errors. It also forces you to be personally responsible for maintaining accurate and detailed records of employee pay, deductions, and taxes.

And while employers are, of course, required by law to keep detailed, accurate records anyway, it’s a lot harder when all those details are solely left up to you, without the assistance of a software program that can flag errors you may miss. That’s why many employers find it helpful to automate payroll. 

What Is Payroll Automation? 

There’s no doubt about it — manual payroll processing is tough! So, how does automated payroll differ in comparison? And how can it make your life simpler? 

Simply put, payroll automation is the process of using technology to streamline and simplify payroll processing tasks. Manual payroll processing requires a member of your team to comb through lots of details and tedious tasks, such as calculating employee pay, deductions, taxes, and benefits. 

But automating payroll allows you to leave your payroll to software programs which can help you avoid repetitive and time-consuming manual tasks like data entry, payroll calculations, and recordkeeping.

There are lots of different ways to automate payroll. For example, you can use payroll software or cloud-based payroll services, which can automatically process payroll and generate employee paychecks and tax forms. The software can also manage other aspects of payroll, such as tracking employee hours, calculating overtime, and managing benefits and deductions. 

How to Automate Payroll 

It’s easy to see how automating payroll can make your life easier and streamline your business. But how can you start enjoying the benefits of automated payroll software? What do you need to know before you can implement automated payroll in your workplace? 

In this section, we’ll take a close look at each step of the process — from identifying your payroll needs to finding the right automated payroll software for you. 

Identify Payroll Needs

Have you ever been in a situation where you really wanted something to work out? Whether it’s a first date, an apartment you’re applying for, or a new project you want to try, it’s so easy to envision a scenario where everything goes just right. Because you can imagine it going so well, it can be really disappointing if the situation doesn’t go your way. 

But sometimes, for one reason or another, things just don’t work out. When that happens, it can be sad and confusing, but sometimes it simply means that something isn’t the perfect fit for you. And even though it may be disappointing in the moment, it’s always better to wait and find something that will be exactly what you need. 

That’s a lot like the process of trying out different automated payroll platforms. There are plenty of payroll platforms out there but every option won’t be right for you. In fact, if you choose the wrong one, it may actually make your payroll process worse! So, before you dive in and get lost in the overwhelming plethora of options out there, take a step back and ask yourself about your payroll needs. 

Every business is different. From the type of industry you work in to the number of employees you have, every business has different needs that will be reflected in your payroll processing. You can begin to narrow down your payroll needs by considering a few key things. 

Number of employees

How many people does your business employ? The number of employees you have will play a significant role in determining your payroll needs. The same is true for the nature of your workers’ employment. 

Are they full-time? Part-time? Freelance? Each of these roles can have slightly different payroll needs which will affect the type of automated payroll processing software you need. 

Payroll frequency

How often do you pay your employees? Some businesses pay their employees weekly, bi-weekly, monthly, or upon completion of specific projects. Your payroll processing needs will differ depending on your payroll frequency, so it’s a good idea to factor this into your payroll software selection process.

Types of compensation

Just as the number of employees and their type of employment will affect your payroll processing needs, the type of compensation you offer your employees is an important factor too. 

Often, a company will employ workers who receive varying types of compensation, so one size can’t fit all. For example, some employees are paid at an hourly rate while others are salaried workers and others work on commission. 

Each type of compensation requires different calculations and reporting. The need to accurately calculate, report, and process these paychecks will influence the type of automated payroll processing software you need. 

Tax obligations

Every business is regulated by a variety of tax obligations, all of which may vary according to your location and industry. As a general rule, however, most businesses are required to comply with federal, state, and local taxes, along with any applicable payroll taxes. 

Knowing which tax obligations are relevant to you is crucial for choosing automated payroll processing software. So, before you decide on a software platform, ensure that your payroll processing system can handle these tax obligations.

Employee benefits

Determine the employee benefits you offer, such as health insurance, retirement plans, and paid time off. Each benefit requires different calculations as these benefits will affect your company’s policies and payroll. 

Make sure your automated payroll software can handle these calculations and seamlessly factor them into payroll without adding extra work for you. 

Compliance requirements

In addition to complying with federal, state, and local tax obligations, along with processing employee benefits, your business also has to meet the compliance requirements for your industry and location. 

These can vary from one industry to another but they typically involve minimum wage laws, overtime regulations, and labor laws. So, make sure you choose a payroll processing system that can comply with these requirements.

Technology requirements

Last but not least, your business’ tech needs will also determine the type of automated payroll processing software your business needs. This can vary depending on your industry and the type of company you run. 

For example, some businesses are more inherently high-tech than others and will need automated payroll processing software that can keep up with their needs. By contrast, some businesses are a little more low-maintenance in the tech department and, therefore, may not need overly complex automated payroll processing solutions. 

So, don’t forget to factor your technology requirements into your choice of payroll software. Consider how much you need features like online access for employees to view pay stubs, direct deposit options, and mobile payroll apps that employees can access on the go.

Select Payroll Software 

Once you’ve identified your company’s payroll needs, you’re ready for the next step: choosing your payroll software. There are a wide range of software platforms that can help you automate payroll and we’ll explore those in greater detail a little later on. 

But for now, let’s imagine that you’ve chosen an awesome software platform that perfectly meets your needs. So, once you’ve found your payroll software, how do you get it started? What will automated payroll look like in your company? 

Enter Data

When you set up your automated payroll software, the first thing you’ll need to do is enter data. Payroll processing software can be a tremendous asset and save you a lot of work in the long run, but you will need to do some initial data entry to get it set up. 

So, during this step, you’ll need to input some details like the number of employees you have, their rates of pay, and how often they get paid. Once you provide the software with all the information it needs to get going, your automated payroll process can begin running smoothly.