Advantages and Disadvantages of Payroll Software Versus Services

by HRM Software Team

The choice between payroll software and payroll services is a difficult decision that every business owner must face at some point. There are three main methods to perform payroll for the owner of a small business: manual, DIY software or payroll services. While manual is not recommended, payroll software and payroll services each have their own advantages and disadvantages, making your payroll method a personal business decision

Payroll Software Advantages

  • Control - You are in control of all the details of payroll, report generation and display, and employee and payroll tax payments
  • Cost - typically less than you would spend on payroll services
  • Save time - compared to manual payroll, the software saves you a lot of time
  • Security - when you're in control, it's less likely that someone will hack in and steal your payroll data
  • More data - You have easy access to all payroll data at all times

Payroll Software Disadvantages

  • Time - A scheduled payroll takes time. If you make a mistake, you can spend many hours trying to fix it
  • Staff - Running payroll takes time AND manpower. Depending on the size or complexity of your business, payroll accounting can require a lot of manpower
  • Errors - The accuracy of the company payroll cannot be guaranteed, leaving you at greater risk of IRS penalties
  • Up-front investment - Some payroll software comes at a high price. When evaluating the total cost, annual fees should also be considered
  • Learning curve - DIY software can be complex and the learning curve can be steep

Payroll Service Advantages

  • Time saving - You save a lot of time compared to manual methods and payroll software
  • Time saving for personnel - Payroll accounting gives employees more time to focus on other areas of your business
  • Cost Effective - Payroll services are cost effective for many companies after you add up the software costs and the personnel costs of running the software
  • Guaranteed Accuracy - Payroll services often guarantee the accuracy of their payroll processing, reducing your liability for errors

Payroll Service Disadvantages

  • Cost - Payroll services often cost more than methods of payroll software
  • Less nimble - You don't have access to as much data as you want and when you want
  • Less control - You sign up for a service with fixed offers
  • Expectation and reality of the service are not necessarily identical
  • Data security - Even if companies invest a lot of effort in data security, it is more at risk when outsourcing
  • Initial costs - Set-up costs for services can be expensive

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