HR Mavericks

Eddy’s HR Mavericks Encyclopedia

Payroll System

How does your company pay its employees? This process is called a payroll system, and there are several different types. Continue reading to learn what features every payroll system should have, how to choose a payroll system and more.

What Is a Payroll System?

A payroll system helps a company manage the process of paying employees correctly, calculating taxes and deductions, keeping track of worked hours and maintaining records. There are various types of payroll systems. They can let you run payroll through a manual or automated process and use a predetermined schedule such as weekly, semi-monthly, etc. Looking for an easier way to run payroll? Run payroll in minutes using Eddy

What Are the Different Types of Payroll Systems?

There are several types of payroll systems. A few include softwares that are cloud-based, third-party outsourced payroll providers, or in-house processing. Although manually entering and calculating payroll taxes and filing tax forms yourself is possible, it might be worth it for your business to consider investing in a system that can help you streamline these processes. In terms of software that can assist in automating manual actions, there are various guides online that can help you and your company make an educated decision should you choose to pursue one.

Cloud-Based Software

One of the largest benefits of a cloud-based payroll system is the ability to operate and manage the software remotely. This can be extremely advantageous for companies whose payroll departments work from home. As new updates are released, the software can be updated automatically.


An outsourced payroll system is performed by a payroll service provider. They are a third-party “that can help an employer administer payroll and employment tax obligations.” This can be an excellent option if your company prefers an outside organization with expertise to manage your payroll. This could also allow your internal employees more time to accomplish other work-related tasks. If your company decides to outsource your payroll to a third party, this does not mean you are relieved of all employment tax liability or obligations. You could work with a certified public accountant (CPA) and or bookkeeper who can provide this expertise to mitigate errors and maintain tax records.


An in-house payroll system is managed and processed by an internal employee. The advantage of using an in-house employee or department to handle payroll is that your financial data is not shared with an outside third party (which can increase risk). An onsite department or employee can use software to manage the payroll process.

What Every Payroll System Needs

A few features that are very useful to have in a payroll system include reporting, tax filing and time management. The following goes into detail explaining these features.


The ability to report on several aspects is important because it can help you audit, maintain the integrity of and cross-check financial data. Reporting can allow you to easily group employees based on hours worked, leave balances, overtime, deductions and pay rates.

Tax Filing

Automated tax tables are extremely helpful because they reduce uncertainty and confusion when it comes to tax filing, generating W-2s and deductions. Having a payroll system to help your company remain state compliant (especially if your organization operates in multiple states) can save a lot of time in the long run.

Time Management

Compared with tracking hours on paper or using spreadsheets, tracking time within a payroll system can save time and cut down on effort. If you have hourly employees, this is a feature you should definitely consider. It can help you avoid repetitive manual processes and increase efficiency.

How to Choose a Payroll System to Meet Your Company’s Needs

There are several steps your company can take to choose a payroll system that meets your needs. A few include defining the needs of your business, scheduling system demonstrations and evaluating finalists.

Step 1: Define Needs

The size and needs of your organization will largely determine the type of payroll system you select. Some systems operate very well for small to midsize companies while others are designed for larger ones. There are many great payroll systems with several features that can be beneficial. However, paying for additional features might not always be what’s best. While evaluating your options, you might consider grouping payroll systems into two categories: wants and needs. This can help to focus on what is most important and which system can truly improve your process.

Step 2: Demonstrations

Most companies offer demonstrations of their payroll systems. While participating in demonstrations with the companies that are a good fit, take the time to explore the components, features, strengths and potential weaknesses of the systems. Ask questions and go through the entire process you expect to use the system for.

Step 3: Evaluation and Selection

Any company you consider working with should be able to provide you with a list of clients for reference checks. Prepare a list of questions for them and take the time to reach out. Keep in mind that you may need to clarify reference responses to make sure that you’re obtaining all the information you need to make an informed decision. Make sure you understand how updates to the system function, along with ongoing maintenance.

Tips to Prepare for an Implementation of a Payroll System

There are several tips to become familiar with in preparation for a payroll system implementation. These include relying on your key players, creating a schedule and ensuring that everyone involved in the payroll process is trained properly.

Tip 1: Rely on Key Players

Who will be involved with implementing the new payroll system, and will they be able to devote sufficient time to the project? This is important to consider. Although you may have just the right team members to perform the implementation, if their schedule doesn’t allow any time to carry out the project, you’re more likely to miss your deadline.

Tip 2: Create a Schedule

It’s important to list everything that you and your company hope to accomplish throughout the implementation. Depending on the size of your company and the payroll system you are implementing, this change could take several months or even years. Create milestones you hope to reach by a certain time to ensure you are meeting deadlines and preparing for potential delays.

Tip 3: Training

It’s important to make sure that everyone involved in the payroll process is adequately trained before going live. This will reduce errors and ensure that everything is accomplished in a timely manner. This also means that new procedures for the payroll system should be properly communicated to your workforce.
James Barrett

James Barrett

James has worked in the HR field going on 5+ years and has held various positions of leadership. His areas of expertise are in benefits, recruiting, onboarding, HR analytics, engagement, employee relations, and workforce development. He has earned a masters degree in HR, along with a nationally recognized SHRM-SCP certification.
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Frequently asked questions
Other Related Terms
1099-NEC Form
Base Pay
Biweekly Pay
Biweekly Payroll
Commission Plan
Compensable Time
Compensation Metrics
Daily Payroll
Direct Deposit Authorization Form
Disposable Earnings
Employee Time Clock
FLSA Exempt
Gross Pay
Gross Up
Hourly Wage
Imputed Income
Medicare Tax
Merit Pay
Minimum Wage
Monthly Payroll
Net Pay
Next-Day Direct Deposit
On-Call Compensation
Overpaying Employees
Pay Date
Pay Period
Pay Rate
Payroll Accrual
Payroll Analytics
Payroll Deductions
Payroll Frequency
Payroll Liabilities
Payroll Mistakes
Payroll Reporting
Physical Paychecks
Salary Basis Test
Salary Range Spread
Semi Monthly Payroll
State and Local Taxes
Step-Rate Compensation Structure
Tax Identification Number (TIN)
The Duties Test
Training Pay
Underpaying Employees
Wage Theft
Wage/Salary Compression
Weekly Payroll
Work Opportunity Tax Credit (WOTC)
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