How To Understand Online Payroll

By Jennifer Fletcher, 22 Jan 18:15

As the world goes online, you may want to go with it. Many companies outsource their payroll or purchase payroll management software.

But payroll is still a paper-based system that can be quite time consuming. Consider following in the steps of many small

(Factoid: The average U.S. family income in 1915 was $687.)

businesses and start-ups who are moving to online payroll - payroll that is processed and accessed
via computer, typically on a secure company Intranet.

Before choosing to go to an online payroll service, weigh the pros and cons. Following is a list of some of the advantages and disadvantages of processing payroll through this new method. Decide which factors are most important to you.

Pros: Why Payroll Is Heading For The Web
The most common practice now is to outsource payroll. But outsourcing online is getting even more attention. Here's why:

Reduce Costs. Save money on expensive payroll software, printing, administration staff, etc. Until a pay raise in 1814, Congressmen received a per diem salary of $6 while Congress was in session.

Have checks deposited directly into your employees' bank accounts.

Save Time. Employees who once spent a good chunk of every pay cycle on payroll functions can now be freed up to tackle other tasks.

Less paperwork. Have employees fill out timesheets online and receive approvals electronically.
Easy Access To Information. Instead of waiting for a scheduled report or an administrator's response, you and your employees can access pay stubs and other account information immediately online - no more benefit flyers piling up in your inbox or long "please press 1 now" automated phone calls. Most online payroll systems include human resources and benefits information so you can check your status or research other benefit options.

Current. Most systems are updated daily, so your payroll, human resources and tax information will be up to date.

Convenient And Multi-Purpose. With online payroll, you can also file tax information, complete direct deposit transactions, obtain special reports, and access information remotely. This saves time, eliminates much of the need for multiple third party vendors, and allows you to offer more efficient services to your employees. Some systems will process withholding information online and even file employee W-2 forms for you.

Just As Secure. One of the most common complaints about online services is the lack of security. In fact, online payroll is equally if not more secure than traditional methods.

Fast. Many services will process your payroll and have checks deposited within 24 hours.

Profitable. PriceWaterhouseCoopers' Trendsetter Barometer reports in their "Outsourcers Outpace Non-Outsourcers" article that "businesses that outsource are growing faster, larger, and more profitably than those that do not."
Minimize Mistakes. Because the books are now handled by experts who must remain up-to-date on tax and laws, the chances for error are much smaller. An in-house administrator may have to spend additional time familiarizing himself with the ever-changing regulations. If a payroll mistake is made, the payroll company is more likely to take responsibility for the error.

Cons: Why Some Think Twice About Online
Perceived Lack of Security. Online payroll providers claim that Internet accounting is actually more secure that outsourced or paper-based methods, but employees and business partners may still be uncomfortable with their personal information floating in cyberspace. While online companies guard against attacks with virus software and firewalls, some fear computer hackers will still break into the system with a virus or alter the data. Make sure your provider can back up their promises.

Expense. Some online services, especially the advanced level packages, can be very expensive. And sometimes you don't even own any software in the end to show for it. Way the cost savings against the benefit. In 1939, Gary Cooper was reported to be the nation's highest wage earner, with an income of $482,819.

Unproven Track Record. Because the Internet and online transactions in particular haven't been around very long, nobody really knows how reliable or secure our information is. Also, most online companies are relatively new, so their service reputations are unproven. Seek out established companies and check their record.

Reliance On Electronics. What if the system crashes? Get ready for the World Wide Wait. With online records, you are at the mercy of a computer rather than your own filing system. If the server is down, you can't access your payroll information or complete transactions. And since all files are stored on the Internet, it's easy to stop keeping paper records. If any permanent damage happens to the records or the server, your information could be gone forever. As above, go with established companies who have already worked out most of the kinks.

Requires Training. As with any computer-based system, you and your employees will need additional training to use each online payroll company's system. Find out what kind of training and/or tech support your provider offers when you sign on.

Limited Room For Adjustments. Once your system is set up, your business may be limited in what changes it can make and when. If payroll is handled in-house, these changes are much easier to implement and manage. But then again, you're not the one doing them - and that may be enough to forgive some inflexibility.

May Eliminate Jobs. While this is probably not the direct intention of employers or online payroll providers, moving payroll systems to the Internet could result in lost jobs for administrators.

The fact is, despite recent worries about security, online payroll services are just about as secure as traditional services. In some ways more secure because there's no paper trail of your private records to wander out of the office, and security measures have been substantially improved for the Internet. An added bonus: there's no hold muzak on the Internet.

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Tags: online payroll