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Manual vs. Payroll Software - Cost, Time, Error & More

Contributor: David Ma, Implementation Specialist

January 13th, 2023 | 4 min. read

By Tony Calavitta

Manual vs. Software Payroll Processing - Cost, Time, Error & More

Payroll processing is the backbone of any business. So, choosing the method of payroll best suited to the needs of your company is crucial.

But, with access to a variety of payroll options, how do you make this important decision?

Our team of payroll experts at Combined understands just this. We are dedicated to answering the questions that you as a business should be asking so that you can make an informed decision on the right payroll protocol for you.

In this article, we will look at two popular payroll preferences. By the end of it, you will have a better understanding of both manual and software payroll processing through the lens of cost, time, error, convenience, and employee satisfaction.

What is the difference between manual payroll and payroll software?

Before jumping into the differences between each, it’s helpful to know what we mean by manual payroll and payroll software.

Here’s a general breakdown:

What is manual payroll?

Manual payroll is the process of conducting payroll by hand – one person is responsible for keeping track of, calculating, and issuing employee paychecks.

What is payroll software?

Payroll software is a computerized payroll system that manages employee payments from start to finish.

Manual payroll – independently managing your payroll operations

Are you the type of person who likes to do everything, and I mean everything, on your own? If so, manual payroll might be the best option for you.

Manual payroll is a completely independent task, or rather, a collection of tasks.

Before choosing this option, there are a few components of manual payroll to consider.

Cost: How much does processing payroll manually cost?

Processing payroll manually can be done at a bare minimum cost.

While you save money, processing payroll manually can cost you in time and labor, error frequency, convenience, and employee satisfaction.

Time: How long does manual payroll take?

Manual payroll processing involves separate:

  • timekeeping
  • tax calculation
  • data entry

Because payroll processing is essential to business function, it is imperative that each of these to-dos are 100% accurate.

And to guarantee perfect accuracy, manual processing often requires more than just the original calculation and entry. It involves several rounds of review to catch and correct all mistakes.

The initial steps to merge correct timekeeping records, properly adjust for tax deductions, and meticulously enter data may not seem too bad. But keep in mind that the necessary double and triple-checking process that follows will compound the time you should expect to spend.

This process reverberates the idea that “repetition makes perfect” in a scenario where perfection is the only option.

Error: What protocol protects manual payroll from mistakes?

You guessed it!

This process of double and triple-checking completed work is the only error insurance manual payroll processing offers.

While perfectly processing your own payroll is not impossible, its lack of safeguards against error should highlight the importance of reviewing each and every step involved in your procedure.

Convenience: Is manual payroll simple?

Manual payroll processing can be simple. If you are detail-oriented and knowledgeable on the ever-changing nature of tax and employment legislation, manually processing payroll is doable.

But ease of conducting manual payroll depends on many factors, a few of which include:

  • the size of a business
  • employee classification
  • employee location (in-office or remote)

These factors can affect accuracy and compliance when manually conducting payroll.

Employee satisfaction: Will your employees be pleased with the results of manually processing your payroll?

A successful payroll means answering “yes” to these 3 questions:

  • Are your employees consistently paid on time?
  • Are your employees consistently paid accurately?
  • Do your employees have access to up-to-date employment and payroll documentation?

If you are committed to doing this through every payroll cycle, your employees will likely be comfortable with your payroll preference.

Payroll software – simplifying your payroll operations with technology

Advances in technology are constant – if you think about it, the exciting electronics released just ten years ago are today’s fossils. The application of new and innovative software within the business world follows this trend.

Yes, that includes payroll software.

Payroll software offers a technology-based solution that could be the answer to your payroll problem - As you examine software as a payroll option, consider these components.

Cost: How much does processing payroll using software cost?

The cost of software processing depends on the number of employees you pay in each payroll cycle. Payroll software usually charges a monthly base fee, on average $30, as well as a per-employee fee.

While you spend money, processing payroll with software can save you time and labor, error frequency, convenience, and employee satisfaction.

Time: How long does processing payroll with software take?

Payroll software combines timekeeping, tax calculation, and data entry into one computerized function. This expedites the time-consuming manual process into a push-of-a-button.

Because payroll software is computerized, it also removes the necessity for repetitive error reviewing.

By eliminating steps, this software helps you complete payroll both quickly and effectively.

Error: What protocol protects payroll software from mistakes?

Processing payroll using computerized software does not run the risk of human error. It can also account for changing tax and employment legislation to ensure that calculated deductions comply with current laws.

These error-ousting features make sure that your payroll is processed 100% accurately, 100% of the time.

Convenience: Is payroll software simple?

Payroll software makes payroll processing quick and easy.

Payroll software, however, is not infallible.

If you’ve ever experienced a computer crash, you know that technology has its downfalls. Like a computer crash, payroll software is susceptible to technological difficulties.

Luckily, software processing companies provide access to customer support experts who can help troubleshoot and correct any issues you experience.

Employee satisfaction: Will your employees be pleased with the results of processing payroll with software?

In addition to guaranteeing punctual and accurate processing, payroll software organizes and stores up-to-date employment and tax documents.

It also offers employees immediate access to these documents should they require them, typically through an online portal. This self-serving feature provides an extra element of convenience to your employees.

Should you use payroll software:

  • Will your employees be paid on time? Yes.
  • Will your employees be paid accurately? Yes.
  • And, do your employees have access to up-to-date employment and payroll documentation? Yes.

Then, will your employees be pleased with the result of using software to complete payroll?

The answer, again, is yes.

Manual Payroll vs. Payroll Software – Which is best for you?

What do you value?

Manual payroll processing offers an inexpensive option that will cost you more time. But, implementing a manual payroll program also risks the accrual of compliance penalties. The IRS estimates that in 2022, the average employer cost for manual payroll errors was $850.

Payroll software offers a time-saving option that will be a bit more expensive. It usually includes a monthly base fee and a monthly per-employee charge. But this extra expense will ensure that you are not at risk of accumulating compliance penalties.

With factors to consider like time vs. expense, risk of error, convenience features, or employee satisfaction, the question surrounding cost remains -  When it comes to payroll, what do you value?

Next steps to choosing the right payroll processing option for your business

You came here to explore different, available payroll options, specifically manual payroll vs. payroll software.

By reading this article, you now understand the ways in which either manual payroll processing or payroll software for processing aligns with what you value and desire to achieve through your payroll program.

At Combined, our experts can help find the right payroll option for your business.

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This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.