What Are The Different Types Of Payroll Systems?

The Milestone Team January 23, 2023

The two different types of payroll systems are payroll processors and payroll softwares. A payroll processor is a system where an outsourced payroll company or PEO handles payroll operations. A payroll software is the platform that helps store information and automate some of your payroll operations. 

All payroll software systems help to run and automate payroll services, but there are four main ways to differentiate how these payroll companies do this work. 

  1. Features: The feature range for payroll companies includes: direct deposit, benefits management, leave tracking, employee documentation, multi-state/country, tax registration help, and more. However, just because two companies have the same feature does not mean they are created equally. Features help to define what software is fit to demo when choosing a payroll company, not quality of software. 
  2. Software Location: Software can exist in specific desktop operating systems, Cloud/Web-based, and mobile. The software location should match your business needs and priorities. 
  3. Target Customer: Payroll companies usually specialize in particular client sizes and profiles. For example, Gusto historically helped businesses with 1-50 employees. Since then, they’ve recently broadened their target customer base. Other companies specialize in enterprise or mid-sized businesses. 
  4. Pricing: Payroll platforms typically bill in 1 of 2 different ways. First and most common is monthly billing. These are typically per employee per month models. The second option is an annual subscription model.

What Is A Payroll System? 

A payroll system is a software dedicated to helping improve and streamline payroll operations. For example, most payroll systems can handle scheduling payments and direct deposits. 

Payroll systems also act as employee information storage systems. Typically, payroll software can double as an employee database for your company, as it stores important and sensitive employee information. 

What Are The Most Popular Payroll Companies? 

ADP is the most used payroll company. ADP reports over 1 million customers globally across their service lines, with payroll software being one of their largest service lines. The other most popular payroll companies include Paylocity, Paycom, Gusto, OnPay, and Paychex. 

Rippling is consistently ranked as one of the highest reviewed companies on third party review sites. Additionally, Gusto, Patriot, and Onpay are also frequently rated as top performing companies. These are the most popular companies as far as customer reviews and third party reviews go. 

Non-software payroll companies are harder to narrow down. Many payroll companies also offer payroll processing. Even more common is a PEO. These plans have perks such as (sometimes) being less expensive, 24-hour support, and/or representatives who work with you and work for the software company. However, they do not typically provide the level of service or advice that an outsourced provider can. Outsourced payroll companies typically have one dedicated professional to your account. This makes the process efficient. It also improves the service, as the same payroll provider who is answering your questions is also troubleshooting, running your payroll, and experienced in the payroll field. 

What Is The Most Effective Payroll System? 

Our top two choices for best payroll systems are Rippling and Gusto. Rippling has the strongest employee interface and integration power. Navigating PTO, benefits, employee documentation, and pay stubs in Rippling is very easy. Gusto is great for its overall value, especially for a single-state workforce. Gusto is also great for small businesses. They simplify payroll and have great additional features and add-ons

The most effective payroll system starts with an effective payroll professional. Intuit Quickbooks reports that around 25% of employees have received a paycheck with errors. A software can only be effective if the person managing it is effective at using it. Small business owners and entrepreneurs often handle their payroll in-house. They lack the expertise of payroll nuances, optimizing payroll processes, and the time to run payroll. An outsourced payroll professional is part of the most effective system for small businesses to run their payroll on-time, correctly, and efficiently. 

How Milestone Can Help With Your Payroll Needs 

Milestone provides expertise for the entrepreneurial journey. We deliver expertise for back office functions such as payroll, so that you can focus on what matters most: growing your business. Our payroll team is experienced and dedicated to helping small business owners tackle their payroll challenges. Do you want to offload the headache of payroll? Reach out to Milestone today to get started with payroll outsourcing. 

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