Keys to Selecting An In-house Payroll System

By: | Category: Employee Experience

Choosing the right payroll system for your organization is a big decision. Should you process payroll in house or should you outsource? What features and options does your company require? If you are thinking of making a change to your payroll processing, now is the time to plan and implement it, so you can be ready to start fresh in the new payroll year. In this post, we discuss 10 key factors to consider when selecting an in-house payroll software solution.

10 Key Factors To Consider

When selecting a payroll processing solution, you will want to think about the features that are important to your company and develop a Request for Proposal (RFP). This will make it easier to evaluate the products available and choose a solution that meets your needs within your budget. You will need to consider who will be on your evaluation team, your functional requirements, the vendor qualities you value most, hardware required, and how you plan to implement your new solution.

1. Evaluation Team
It is advisable to create an evaluation team to provide requirements and evaluate options. Make sure your team includes representatives from every department that is a stakeholder in the payroll process. Your team may include human resources (HR), information technology (IT), accounting, and the executive team. This helps to ensure buy-in from all departments and that you select the best product for your organization as a whole.

2. Payroll Tax Management And Reporting
When evaluating software vendors, check into their process for updating tax table information. It is preferable to receive updated tax table information automatically at regular intervals, such as once a quarter. In addition to federal, state, and local tax table updates, the software should support supplemental tax tables, pre-tax deductions, EFTPS (Electronic Federal Tax Payment System), and electronic media reporting for all jurisdictions.

3. Security
Obviously, your payroll system contains extremely sensitive data, including employee social security and bank account numbers, as well as your companyís payroll accounts. It is absolutely essential that any payroll solution you select be protected by a comprehensive,  yet easy-to-configure security system. Rules should govern who can view, modify, approve, report, or otherwise access information.

4. Payment Flexibility
Offering employees flexible payment methods empowers them to better manage their finances and affords your company the opportunity to save on payroll costs. Direct deposit and payroll cards both cost less than printing paper paychecks. And these methods reduce the risk of check fraud and eliminate the cost of replacing lost or stolen checks. The ability to support all three types of payment allows your organization to be much more flexible on payday.

5. Employee Self Service
A paycheck is an employeeís most important benefit, so it is not surprising that payroll generates many employee questions. Choosing a system that supports employee self service allows employees to access their own payroll information themselves and reduces the volume of questions coming into your payroll or HR departments.

6. Integration Capabilities
Evaluate the ability of the payroll software to integrate to your existing HR and general ledger software, as well as other related applications, such as timekeeping. Can the system or service easily exchange data with other software applications? There are many benefits of having integrated HR, payroll, and general ledger systems, including:

  • No duplicate data entryóeliminating errors and saving time.
  • Less paperwork. When payroll, HR, and accounting data are integrated, you can reduce unnecessary paperwork.
  • Integrated reporting. Consolidated reporting is valuable to management, and is greatly simplified with integrated databases and reporting tools.

7. Vendor Reliability
There is no room for error when it comes to providing employees with their paychecks. When choosing a payroll solution, select a vendor with a proven track record in offering excellent payroll products and support. Note how long the company has been in business and the number of clients that use the software. Check references from other companies using the system. To get the most applicable information, ask the vendor to provide reference information for companies similar to yours.

8. Hardware
Hardware requirements are an important consideration when selecting a new solution for processing your payroll. Will the IT department have to purchase any additional equipment in order to support an in-house software solution, or does the software run on operating systems and hardware that the company already owns? This is a key area to consider, especially when deciding whether to replace an outsourced payroll solution with an in-house payroll software solution.

9. Data Transfer And Conversion
Consider how data from your existing system will be entered into the new system. Will the data need to be manually entered or can it be imported? It is particularly convenient if the vendor offers an easily customizable link to transfer data from one system to another. This link often involves setting up translation tables that equate fields in the old system to fields in the new system. Once the data is transferred, you must verify that all information is correct. A good way to do this is to run reports from both systems and compare the results.

10. Implementation Resources
Keep in mind the amount of manpower typically required during a software implementation. Estimate the amount of time and resources you will need to ensure an accurate transition from your old payroll system to the new system. Consider your staffing requirements for any additional data entry or for analyzing reports for accuracy while performing side-by-side processing of your new and old payroll systems.

After the implementation of the new system is complete, consider running both the old and new payroll systems in parallel for a period of time to ensure the accuracy of your new system. This period is up to the discretion of the companyóit can be one payroll run, a month, or three months. Accuracy of data can be determined by running the appropriate reports. In particular, cross-referencing the numbers on payroll history, check history, earnings, deductions, and tax reports is a good way to determine if everything is set up correctly in the new system.


When selecting and deploying a new payroll processing solution, there are many factors to take into consideration. One of the most important of these is choosing a software vendor known for experience in the payroll software industry with a reputation for reliable business solutions and world-class customer support. Sage has been an industry leader in mid-market Payroll and HRMS systems for 20 years. Call us to discuss your payroll solution needs.