Types

• A manual payroll system requires the payroll representative to perform payroll tasks by hand. Due to its propensity for errors, the manual system is not recommended unless the employer only has a few employees. An in-house computerized system means that the employer uses payroll software to process its payroll. The outsourced or external system requires an employer to hire a payroll service provider to process its payroll.
  
  

Manual Set Up

• A manual payroll system is the most inexpensive to set up. An employer can buy time sheets or a standard punch clock and time cards from an office supply store. Additional requirements include stationary, such as paper and journals for recordkeeping and a tape calculator. The employer can use its bank checks to write paychecks. This system does not enable direct deposit and requires the representative to perform paper filing.
  
  

In-house Computerized Implementation

• An in-house computerized system requires the employer to purchase payroll software and a computerized timekeeping system, which enables the representative to transport employee time into payroll software. Depending on the size of the payroll, the employer can hire one payroll representative or a full in-house staff. The latter can get expensive, as it requires the employer to pay salaries and benefits and possibly overtime for the payroll staff. The software stores payroll data, which is convenient for recordkeeping purposes, and enables direct deposit.
  
  

Outsourcing Requirements

• The outsource system requires the employer to pay a payroll service provider a fee for processing its payroll. The provider sends the employer its paychecks, pay stubs and payroll reports for the pay period before the actual payday arrives. Many payroll service providers have an online service, which allow the payroll representative to upload employee hours and make payroll record changes via the supplier's system, as well as print paychecks and reports to her own laser printer. This system is ideal for employers that want to minimize payroll tasks.
  
  Many payroll service providers offer additional services, such as payroll tax processing and benefits administration. To establish the outsource system, the employer gives the payroll service its bank account information for direct deposit purposes, and signs a power of attorney document so the provider can handle its tax and benefits affairs.
  
  

Considerations

• The key to choosing the right standard payroll system is to examine the complexity and size of the payroll. For example, if the employer has a large payroll that includes hourly and salaried employees, wage garnishments, and piecework processing, it should consider outsourcing the payroll to a competent payroll service provider. If the payroll is small, instead of processing the payroll manually and risking errors, the employer should consider hiring one payroll representative and invest in payroll software designed for small businesses. If the employer uses the outsource system, it should have someone double-check the provider's work, since the employer is generally responsible for tax errors a third party makes.