A Payroll Management System: Why It’s an Absolute Must and How It Works

While it seems perfectly natural to automate the process of payroll management, some companies still rely on legacy software or, God forbid, paper documentation only. But considering all payroll aspects to keep in mind (with taxes being in the first place), a payroll software system can really save the day and take your processes to a whole new level. In this article, we explain what is a payroll software system, what makes it great, and how it works.

A Payroll Management System: Why It’s an Absolute Must and How It Works

What is a payroll system and why is it beneficial for any company?

A payroll management system is a specific piece of software that is designed to handle the payroll management in your company, automate certain processes, and keep all information in one place. Needless to say, this system brings a lot of convenience to your workflow because it eliminates a great amount of manual work and takes full care of the processes related to payroll management. Let’s quickly glance at its biggest benefits.


The first undeniable benefit of a payroll management system is the automation of mundane manual tasks. For example, instead of manually calculating one’s wage, you simply make a few clicks and the system automatically calculates taxes, deductions, and bonuses.

Many payroll systems are equipped with time and attendance trackers which allows for easy calculation of wages. But even if this feature is not present, most systems can be integrated with the tracking system of your choice and deliver the same result. 

High accuracy

When it comes to numbers, it’s easy to make an error, especially if you manually calculate salaries for 100+ employees. But if your system is automated, it independently performs all calculations without the need for human intervention. Such an approach greatly reduces the possibility of an error, improves the speed and accuracy of calculations and reports.

Employees’ satisfaction

Every business owner knows that employees are the heart of any company and it’s their motivation and involvement that impacts the company’s development. And what’s the best way to lose their loyalty and trust? The answer is to mess with their salaries.

A payroll management system helps prevent issues of such sort and ensures everyone gets paid on the stated date and with a stated amount. It brings stability to your workflow and contributes to improving employees’ satisfaction and trust towards you as a business owner. No need to say their satisfaction serves as a strong motivational factor that, in turn, positively impacts their productivity.

Correct processing of taxes 

Tax calculation can be incredibly mundane, especially when the taxes change and when you need to calculate several taxes at once. Luckily, some payroll systems automatically update the tax amounts so your payroll calculations are always in correspondence with current tax laws. But even if your system cannot update this information independently, you can always change it yourself and let the system do the rest in terms of calculating the gross and net salary amounts.

How does a payroll management system work?

Payroll software sounds awesome so by now, you might have a question: how does it actually work? While all systems will differ by functionality and specific regional requirements towards taxes, we can list the basic steps of setting up such a system.

The setup

In order to perform all calculations correctly, the system needs information – and you’ll be responsible for filling it in. Unfortunately, this stage is probably the most cumbersome and mundane but it’s obligatory if you don’t want to face any issues later.

You will need to fill in the following information:

  • Information about the company;
  • Information about employees (bio, position, etc.);
  • Information about payrolls;
  • Any other relevant information (i.e. taxes).

Please note that it’s a very basic list of the possible required information and it will heavily depend on the country where your business operates.

The pay run

Once the system has all the needed information, it can start processing it in order to correctly calculate salaries. The main processes that happen at this stage usually include the transfer of money into employees’ accounts, the actual calculation of taxes and their deduction from salaries, calculation of paid vacations and sick leaves. As well, during this stage, the system also generates reports for employees. These reports state how much time was tracked and how the salary was calculated. 

The best part about the pay run management in a specialized system is its automation. You won’t have to perform any manual calculations and all you have to do is double-check the results and approve them.

Maintenance and support

Though the payroll management system is automated and does not need human intervention to function properly, you’ll still need to keep an eye on it and introduce needed changes. They usually include:

  • Adding or removing employees and their data;
  • Implementing changes for taxes;
  • Updating payroll information.

Such updates are usually the responsibility of your accounting department (in-house or outsourced). As well, the accounting department is responsible for managing the system and checking the accuracy of delivered results.

Top features to look for in a payroll system

Because of country-specific regulations, the functionality of a payroll management system will differ for businesses from different countries. However, there is a set of core features that is universal for any payroll management system:

  • Automatic calculation of wages and budget;
  • Time and attendance tracking;
  • Taxes calculation;
  • Management of additional finances;
  • Report generation;
  • Integration possibilities;
  • Direct deposit.

It is important that the chosen system can be easily integrated with other software that you are currently using if you want to ensure smooth and accurate information exchange between the systems. And obviously, your top priority should be country-specific features, such as certain taxes relevant to the location of your business. 


A payroll software system is an undeniable advantage and quite a must-have for any company. While it’s up to you whether to go for a readymade or custom solution, any option that you choose will bring more clarity and organization into your processes – and hence, will contribute to improving the overall productivity. 

Want to stay updated on the latest tech news?

Sign up for our monthly blog newsletter in the form below.

Softteco Logo Footer