Essential Features to Look for in Payroll Software for Small Business Owners

A full-featured payroll solution that helps you manage salary payouts for your hourly, salaried and contract workers. It can handle state and federal payroll taxes, e-file W-2s and 1099s and offers self-service tools for employees to update their personal information.

A top choice for small businesses, Gusto can offer direct deposit to ensure everyone gets their paycheck on time. It also has HR and staff management features like applicant tracking, onboarding checklists and document storage.

Ease of Use

There are a lot of different payroll solutions on the market. Larger companies might need deeper functionality for managing human resources across multiple locations or tools for complex reporting as part of their payroll system. Still, small businesses typically need an online payroll solution that automates calculating employee wages and deductions and preparing and sending paychecks electronically.

Most payroll software for small business comes with direct deposit options, a time clock that lets employees clock in and out, and tools to add overtime, tips, bonuses, and other compensation items. Users can also easily customize payroll reports to view information broken down by pay date.

The best payroll software systems can also integrate with other business management tools to eliminate the need for duplicate data entry. This can dramatically cut down the time your accountant or bookkeeper spends processing payroll, saving you fees.

Some online payroll solutions also have tools to help you manage new hires, including offering letters, e-signing, automated onboarding, and document storage. These features are often available as add-ons or in top tiers of the services; for instance, offer them in one package for flat pricing, including payroll tax filing and paying W-2s. The platform also provides a suite of scheduling, time tracking, hiring, and messaging tools.

Time Tracking

As any small business owner knows, it’s more complex than just writing down staff hours and converting them into wages. You have to consider breaks, overtime and other factors — not to mention stay on top of federal, state and local laws about employee payments and taxes. Using a time-tracking feature within payroll software can help you ensure that you’re accurately monitoring how much work your team is putting in.

Ideally, the software will automatically monitor each member of your workforce’s hours as they clock in and out or record their location using GPS. You can then use this data to run reports, benchmark projects against estimates and create accurate schedules for your teams. The best online payroll systems will also provide a centralized system for recording project-related time. Some even include tools to manage recurring tasks like client meetings or webinars so that you can ensure your teams are working on the right things.

Free payroll software can be a good option for smaller businesses on a tight budget but still needing an accurate and dependable solution. However, some free tools may charge extra for services like time clocks and accounting integrations, while others offer fewer features than more comprehensive platforms. For example, free software from Homebase includes a time-tracking feature but requires a paid subscription for scheduling and hiring features.


A good payroll software system should also come with various reports that give insights into your company’s operations. These can help you optimize your business budget and improve labor efficiency. In addition, they can highlight compliance risks and flag discrepancies in time entries and payments. This can help prevent penalties and keep your company’s reputation intact.

Regarding tax filing, you will want a payroll service that can automatically file federal and state taxes. This will save you from paying hefty fines for late submissions or mistakes. It can also speed up the process and keep your company compliant with tax regulations.

Many payroll services offer additional HR and workforce management features, such as document storage, job description templates, employee self-service portals, and vacation and sick leave tracking. Some of them even allow you to track overtime pay and salary revisions. Additionally, they can sync with other business applications for seamless integrations.

Tax Filing

Tax filings are an inevitable part of payroll processing and require careful attention. You could face fines and penalties if you miss a deadline or miscalculate deductions. Some online payroll tools provide automated tax filing and payments. You or a customer support rep will enter your company’s and employees’ banking information, then the software calculates and files payroll taxes. Some even deposit and file your state, local, and federal taxes. Some offer specialized features for restaurants, farms, and nonprofits.

Rippling is another affordable option for small business owners that offers many of the same features as the more expensive options, including automatic tax filing and depositing. It also provides a customizable dashboard for employees, and its employee portal includes access to their pay stubs, PTO balances, and personal records. Its streamlined, intuitive interface and customer support are what set it apart. It’s also available in 66 languages, which is impressive. Upgrade to a full-service payroll provider if you want more extensive HR features.