Pros and Cons of a SaaS Payroll System

ByFreda D. Cuevas

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Software as a Service (SaaS) payroll enables business owners to run payroll without a desktop application. Weigh the pros and cons with this guide.

There’s a subscription for nearly any product or service you’d like. Among the most unique I’ve found is for a monthly bacon delivery.

Most business software solutions have gone the way of monthly subscriptions, a business model called Software as a Service (SaaS). While it’s not as exciting as seeing a box of bacon on your doorstep, SaaS offers several benefits for business owners on the go.

Overview: What is SaaS payroll?

SaaS payroll products are subscription-driven applications for running payroll. Rather than paying a one-time fee for payroll software, SaaS payroll solutions bill you monthly or yearly.

SaaS payroll solutions generally don’t require any software downloads, opting instead for a web-based interface. By moving your data to the cloud, you can run payroll from any computer, tablet, or smartphone.

Before SaaS rose to popularity, you’d drive to Circuit City, buy a copy of the latest payroll processing software, and download it to your computer. Your software wouldn’t get any significant updates unless you purchased one. SaaS products receive regular updates at no additional cost.

Most payroll software — and most business software in general — on the market follow the SaaS business model.

3 benefits of SaaS payroll

SaaS payroll solutions are the norm, and here’s why.

1. Payroll from anywhere

SaaS payroll solutions untether you from your office computer. Since they store your payroll data in the cloud, you can run payroll from any Internet-enabled device by logging into your payroll account.

Traditional payroll solutions store data locally on one computer, making it impossible to process payroll using another device. A blue screen of death or a snowstorm could keep you from getting payroll done on time.

2. Automatic updates

SaaS payroll products introduce features and updates at no additional cost to you. Where traditional payroll software would have you pay to upgrade your payroll software every few years, SaaS solutions automatically push new features to your account.

Video game studios bring in some serious cash by retaining the traditional model of having you pay for a static software version. Even though Madden NFL 2020 looks nearly identical to Madden NFL 2021, you have to pay an extra $60 to get updated player rosters and maybe a few new touchdown celebrations.

It’s the same with payroll software. You have to pony up for upgrades on desktop software, but they come standard with SaaS solutions.

Gusto is The Ascent’s “Best Features” SaaS payroll solution. Click here for the full review!

3. Low startup fees

In the good old days, you’d pay one fee for payroll software that lasted for years. Since companies got just one bite at the apple, the fee was relatively high. SaaS products hit you each month or year with a relatively low fee.

Assuming you wind up paying a similar fee for payroll services over time, it’s better to pay small monthly bills than a high one-time fee. You avoid major cash flow problems by spreading out interest-free payments.

Payroll Mate is The Ascent’s “Best Value” SaaS payroll solution. Click here for the full review!

3 limitations of SaaS payroll

Before switching to a SaaS payroll product, consider the drawbacks.

1. Internet reliance

SaaS payroll products require an internet connection. If your Wi-Fi is down, or you’re away from home and can’t access a secure connection, you can’t even tee up your payroll run.

Desktop software requires an internet connection to e-file payroll tax forms and communicate with your bank, but you can access personnel files and set up each payroll run offline.

2. Security

Business owners might fear the worst when entrusting sensitive information to a third-party software provider. Desktop applications tend to store business records on a local computer, providing a greater sense of security than a cloud-based solution, where your documents are stored on third-party servers.

However, software companies are keenly aware of any security concerns and have provisions for safeguarding business data. In fact, you might end up with more secure data storage with a cloud-based solution than desktop software.

3. Forced updates

Have you ever woken up and noticed that your iPhone completed a software update overnight? Did your phone seem slower or lose battery power faster afterward? If yes, you’re aware of the frustration brought on by forced updates.

With SaaS payroll solutions, you have no choice but to adapt to interface changes and other updates. Without knowing it’s about to happen, menus and functionality can change overnight. Sometimes they’re great, and other times they’re a nuisance.

Features commonly included in SaaS payroll systems

The best payroll software on the market follows the SaaS business model. Aside from the most basic features — calculating payroll deductions and cutting checks — here’s what you can expect.

Payroll tax filings

Businesses are responsible for withholding and remitting payroll taxes after every payroll run. Quarterly, your business files Form 941 with the Internal Revenue Service to summarize withholdings. Each January, you file Forms W-2 for each employee and a summary Form W-3 to recount employee earnings.

SaaS payroll software can automatically e-file required tax forms.

Paid time off (PTO) accruals

Unless you have an unlimited paid time off (PTO) policy, you need to track how much time off your employees have earned and taken. SaaS payroll products can include PTO accruals on employee pay stubs.

Employee self-service (ESS) portals

Common in SaaS payroll products is an employee-facing website. Employees can log in to view their pay stubs, tax forms, and retirement accounts. More advanced employee self-service (ESS) portals can support other pay-related features, such as expense report submission and time clocks.

QuickBooks Online Payroll features an ESS. Click here for the full review!

See you in the cloud

SaaS payroll solutions changed how payroll works for many small businesses. Thanks to cloud computing, business owners can run payroll from any internet-enabled device.


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