Payroll Processing Services: In-house Software vs. the Software as a Service (SaaS) Model

Before choosing the best payroll processing services for their needs, businesses need to consider the fundamental differences between purchasing In-house payroll software and utilizing payroll outsourcing services. Which is best depends on many things, as they are fundamentally different in both the way they are set up and the number of functions the business wishes to handle themselves.

In-house payroll software is typically purchased for a large up-front fee, and then loaded onto computers on site. Installation and configuration are usually handled by the business. Any upgrades are purchased separately as they become available. Businesses will also need to back up any data in case of the need for disaster recovery.

Payroll software typically requires all checks to be printed out, signed, and stuffed into envelopes for distribution to employees.

While in-house payroll software obviously performs all functions related to payroll, businesses will need to do additional tasks to stay in compliance with tax laws. Each quarter, state and federal tax returns need to be completed and filed, and at the end of the year the Form 941's will need to be filed as well. W-2's will need to be printed and distributed to all current and any former employees who worked in that calendar year. In addition, if any employees have direct deposit of their paychecks the business must send a file to a clearing house, which then sends a file to each bank or credit unior to fund each direct deposit.

Payroll outsourcing services, using the Software as a Service (SaaS) Model, function a bit differently. Businesses pay a monthly fee instead of a large one-time charge, and package many of the above functions into their service. All the data is stored at the SaaS provider site, and typically backed up by the provider. The business client logs on to a secure website provided by the provider and enters data.

In addition to the basic payroll functions, SaaS providers calculate and file all quarterly and annual taxes, print, stuff and deliver payroll checks and W-2's, and provide transfer of the money to the clearinghouse to make direct deposits possible for individual employees.

As you can see, the SaaS model is a little more than just taking software and housing it off site. Armed with this information, you can make the decision that is best for your business's specific needs.

For more information about how to choose payroll processing services read more of our articles on payroll.