Still stuck in the paper age? You are hindering business growth and scaling if you are playing paperboy every payday. Switch to paperless payroll to stop worrying about crunching numbers, managing taxes, and manually sending salaries.
My first piece of advice to every business is to digitize their operations. You can’t keep up with ever-growing business needs and competition if you are stuck with paper. Digitization allows remote collaboration, global access, and automation to help your business scale.
This is especially important for payroll as it takes human error out of the calculations and ensures employees are paid timely and accurately. Unfortunately, 25% of small businesses are still stuck with pen-and-paper finance management. Even 18% of large companies still have paper-based activities involved in the payroll process.
If you are one of those, it’s time to change that. In this post, I’ll talk about the benefits of using paperless payroll and help you easily transition to it.
What is a Paperless Payroll
Paperless or digital payroll refers to managing and automating payroll tasks electronically. This mainly involves using payroll software that usually has a central dashboard to both track and manage employee work and salaries.
The software tracks attendance, work hours, deductions, extra work, tax, and other related information to automatically calculate payroll. It can also manage your financial accounts and automatically send salaries to employees based on predefined rules. Reporting and analytics are another core feature that helps track business expenses and create strategies.
It’s worth mentioning that time and work tracking isn’t traditionally part of payroll software. However, most of the payroll software today have this feature built-in or they integrate with other HR management systems to offer work tracking.
There are two main types of payroll software: In-House Payroll Software and Online Payroll Services.
#1. In-House Payroll Software
As the name suggests, this type of payroll software is directly installed on the company’s computers. Everything is managed by the company’s HR team, including data entry, software updates, customization, security, and other important aspects.
This system is mainly used by big companies that want complete control over the data and don’t want to depend on third-party services for data storage and security. It also requires a dedicated expert payroll staff to maintain the system. ADP and Sage HRMS both offer this type of software along with many other HR-related services.
#2. Online Payroll Services
These are cloud-based payroll services that completely control the business’s data. They will automatically manage calculations, taxes, compliances, and software updates/customization. They are usually affordable and very easy to use, making them perfect for small to medium businesses.
However, it heavily depends on the service provided by the payroll provider. Your data is also not in your own control as it’s stored and managed by a third-party company. Paychex and Gusto are good examples of this type of service.
It’s worth mentioning that most In-House Payroll Software providers also offer hybrid services where employee data is managed by the company, and software updates, tax filing, and compliance are managed by the software provider. It offers both convenience and data protection.
Digital Payroll Benefits
Let me make it clear first that there is no need to compare paper and paperless payroll to see which one works best for you. Digital payroll is outright better than paper-based payroll in every way. But you still need to know what exact benefits you will be getting when you decide to make the transition and how a paper-based setup is holding your business back.
Below I am listing the most prominent benefits of incorporating a paperless payroll system:
Saves Paper-Related Costs
Buying, processing, and storing paper have inherent costs that can be avoided using paperless payroll. A payroll software directly deposits the salary in the employee’s bank account, and the data is recorded in the cloud.
It’s Time Efficient
Doing all the calculations for each employee and then mailing paychecks is a daunting task. A paperless software does all the calculations itself, and it can even automatically send the salaries on time.
Prevents Human Error
Studies suggest that 50% of employees seek a new job just after two paycheck errors. Manual data entry and calculations are prone to error, leading to financial discrepancies and even compliance issues. Lost or misplaced documents are another headache that further complicates the payroll process.
Paperless payroll automatically enters all the information and even tracks employee work to ensure you pay for the work done. This is further enforced with validation checks and error notifications. It also keeps a complete history of transactions and changes to sort out any issues quickly.
Makes Tax and Compliance Easy
The manual management of paper means you have to keep up with compliance laws and tax filing by yourself. And we all know how difficult it can be to keep up with ever-changing regulations and file taxes on time and accurately.
Most payroll systems integrate with tax filing systems and have automated compliance checks; Rippling is a good example of this. They can automatically manage and submit the required documents on time to minimize the chance of legal issues and penalties. Comprehensive reporting features also greatly help with compliance audits.
Easy Error Resolution
I am sure you can only imagine how cumbersome it will be to resolve errors and conflicts by manual cross-referencing. And this just gets worse when a document is misplaced or damaged. Payroll software usually has built-in tools that make analysis and reporting easy. You can easily search through data using the search features to resolve problems.
Boosts Employee Satisfaction
Physical paychecks can have delays in distribution and don’t provide proper details like deductions or changes in compensation. Payroll systems allow employees to have their own accounts. Employees can log in at any time to access pay information, tax forms, and historical data.
This also helps with error resolution as any issues can be directly communicated through the self-service portal and solved using transparent data.
Paperless Payroll is More Accessible
Papers are stored in specific physical locations, making it difficult for authorized people to access them easily. This makes it difficult to make timely decisions as information isn’t readily available. Cloud-based digital payroll systems have all the data in the cloud, and authorized people can access it from anywhere in the world at any time. All they need is an internet connection.
Offers Better Security
Physical documents are more vulnerable to getting stolen or lost, and the payroll process involves the storage of sensitive employee information like social security numbers, salary details, and tax-related data.
Payroll software keeps the data in encrypted vaults and usually has extensive access controls to ensure that only authorized people gain access to the required information. Multi-factor authentication is another common security feature to protect employee data.
As the data is in the cloud, it’s also safe from natural disasters. You can even apply your own cloud data protection solution for more security.
Scalability
Business scalability is one of the main benefits of moving to paperless payroll. It will let you easily increase the number of employees without a direct increase in resources required to manage their salaries. You just need to enter the employee details, and they will become part of the payroll process.
Environment friendly
Most important of all, it’s a step towards environmental care. Paper harms the environment from production to destruction. Moving to a cloud-based payroll system will have minimum impact on the environment and it will also create a positive image in front of the employees.
Paperless Payroll Challenges
Of course, transitioning to paperless payroll won’t be an easy process and cloud-based payroll management opens new challenges for your business. Below I am listing some common challenges that businesses face when using digital payroll:
- Since it requires employees to sign up and manage their accounts on the payroll service, they may resist the change. Lack of technical knowledge and privacy concerns can also be a cause.
- It has upfront costs as you need to buy the payroll service first. The need to train the employees can also have its own cost.
- You might have data security concerns as all your business data is going into third-party hands. This can be solved with In-House Payroll Software, but that’s not recommended for small businesses that are just converting.
- It requires all employees to have a bank account to be able to make direct deposits. Some may not have a bank account.
- Even though it makes your data overall more secure, it also opens your data to global cyber attacks. You need to be ready to face that challenge.
- Since you will be managing employee data in the cloud, your business will be subject to new compliance laws like new rules under GDPR or ERISA.
- Although technical problems are usually managed by the payroll service provider, they can affect your payroll processing.
- Moving existing data to the cloud will be difficult at the start.
Choosing the right payroll software is also quite challenging, you need to make sure it offers all the features your business payroll system needs. Here are some payroll software for startups that are perfect for businesses transitioning to paperless payroll.
Digital Payroll Best Practices
If you are convinced to switch to digital payroll, check out the below tips and best practices that will streamline the transition to paperless payroll:
- Be transparent with employees about the switch and talk about its benefits for both the company and employees. Provide training as required.
- Keep the transition gradual like starting with getting rid of paperwork for tracking employee work progress and encouraging employees to receive payment via the self-service portal.
- Don’t take security lightly; go above what the payroll software has to offer. As mentioned before, use cloud data protection software and also train employees about online security.
- If you are already using HR management software, then make sure your payroll software integrates with it.
- Although these payroll systems do offer manual controls, it’s better to automate the system to avoid errors.
- Don’t fully depend on the payroll software for compliance checks. Do your own search as well to ensure nothing is missed.
- Take full advantage of the built-in analytics tools. They provide great insight into employee productivity.
- Most of the popular payroll service providers have reliable support teams. Don’t be afraid to ask them for any technical help you need.
Closing Thoughts 📑🚫💸
As your business grows, you’ll have to move to digital payroll at some point. There is just so much paper-based setup can handle. Don’t wait; start moving to a digital payroll system right now to put your business on the path of scalability.
If you are having trouble with upfront costs, you can also try a free payroll service like Payroll4free. A free payroll system may not be very robust and show ads, but it will handle automatic payroll processing and compliance fine.
