How Payroll Software Works | Netchex
Payroll & Tax
Mar 29, 2021

How Does Payroll Software Work?

How Does Payroll Software Work?


Technology is amazing, right? It is unbelievable what can be accomplished with the proper application of the right knowledge into our everyday processes. We don’t always understand it, but when it works, it works.

Technology, like computer software, can transform complex jobs into simple, automated tasks.

When efficient and effective technology is brought into the workplace, companies can:

  • Improve processes,
  • Increase efficiency, and 
  • Eliminate errors

All the while, doing so saves time and money in the process.

One workforce technology has revolutionized much of the administrative and back-office functions of a business. As it continues to adapt and expand, payroll software has become an essential technology for many companies both large and small.

What is payroll software?

Payroll software is the foundation of any operating business. Used to manage, organize, and automate employee payment, it tracks all the criteria needed to make payments and maintains the necessary payment data.

A solid understanding of how payroll software works allows company leaders to better understand how their company is run. It also provides better insight into the financial health of an organization.    

The payroll process is a significant, time-consuming part of every business. It requires a true investment and cannot be overlooked. Payroll software is that investment

Payroll software encourages consistency, ensures accuracy, and gives business owners peace of mind that their company and employees are taken care of financially. 

Who runs payroll? 

Payroll is a unique business function. While it touches multiple parts of the business, payroll is mostly a function of both the Finance and HR departments.

  • As a Finance function:
    • Payroll is one of your company’s largest overhead costs. It offers unique, detailed financial insight into your company. An accurate payroll is the first step in determining whether or not a business is turning a profit and how it can grow.
  • On the HR side of things:
    • Payroll relies on employee data that is tracked and ideally connected with one another. These might include:
      • Timecards,
      • Time-off requests, and 
      • Employee benefits information

Thanks to integrated HR technology, payroll is most often folded into HR and performed by an HR professional or Payroll Specialist. When combined with Time & Attendance, Benefits Administration, Performance Management, and other HR functions, Payroll serves as the backbone of your company. 

How does payroll software work?

So, how does payroll software fit in? Software ensures an accurate payroll by accounting for all the necessary requirements and automating the processes surrounding it all. 

  • For hourly employees, time and attendance tracking automatically calculates the correct amount your employees need to be paid. This is based on the number of hours worked each pay period. 
  • For salaried employees, payroll software tracks employees’ pay, paid time off, and employee benefits. After which, the sum is paid out accurately.

How does payroll software help with payroll taxes?

The greatest advantage of using payroll software is the automation of the tax process.

Businesses are required to withhold a certain percentage of each paycheck for tax purposes. These withholdings most commonly include:

  • Social Security
  • Medicare
  • Federal and state unemployment
  • Income tax

These laws and regulations often change quite a bit, so keeping up-to-date to remain compliant is a challenge in and of itself. Thankfully, payroll software can handle that for you, too. 

Poor management and inaccuracy of these withholdings can result in tax audits and severe financial penalties. By having taxes automatically deducted from employee paychecks, your company can save time and avoid stress. 

Is payroll software really necessary?

The short and long answer is YES

The payroll process is a huge undertaking that is prone to potentially costly errors. With a manual process, tracking employee hours, accounting for deductions, and issuing payment to workers takes a lot of time, dedication, and independent education. 

Running payroll demands a significant investment—both in time and financially. Ultimately, choosing payroll software is worth the time and money needed to ensure your employees are paid on time and your business is in compliance.

Without having to worry about paying payroll taxes or misreporting employees’ wages, payroll software affords you more time to focus on running your business.

How to determine which payroll software works best for you

As with any significant investment in your business, shopping for payroll software begins with determining your needs and budget. 

Identify strengths and weaknesses of your existing process

We outlined in detail the issues with using a manual process. But, even if you are already using a payroll system, it may not be the right fit for your company’s needs.

Establish desired features 

Each payroll system is different. Make sure to find one that works for your business. This can include features like varied payment options, wage garnishments, workers’ comp, and in-depth reporting.

HR integrations

Integration is crucial for any business software, and payroll is no different. While some solutions offer API data feeds, true single-source integration is better. Look for a powerful solution that can work seamlessly to fill all of your HR needs.

Effective implementation

Company-wide buy-in is key to the success of any technology system. With HR taking the lead, management—and all employees to some extent— should participate in training to ensure a successful company-wide rollout. 

For more information on how Netchex’ payroll solution works, please reach out to us at 

Discover how Netchex’s payroll solution can make running your business easier and worry-free:

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