How to Set Up Payroll Software for Your Small Business

In this article we discuss:

• The Benefits of Automated Payroll Software
• Choosing the Best Payroll Software
• 7 Key Steps for Payroll Implementation

This week marks National Payroll Week in the US, a time to recognize the critical role payroll professionals and systems play in keeping businesses running smoothly. For small businesses, effective payroll management isn't just about paying employees on time, but a cornerstone of compliance and employee engagement.

But despite its central importance to business health, 87% of respondents to a recent Workday survey said the evolving complexity of payroll is a challenge. A separate survey of 1,000 small business leaders found that:

• 84% experienced compliance risks from payroll errors

• 40% incurred financial penalties from payroll issues

• 31% still rely heavily on manual spreadsheets or forms

Modern payroll software-especially when unified with the company's HR systems-can help reduce these risks and keep payroll running smoothly. To realize these benefits, teams must take steps to deploy the software properly from the start and avoid rollout issues that could frustrate employees or disrupt operations.

Workday research found 87% of businesses report the evolving complexity of payroll is a challenge.

The Benefits of Payroll Software for Small Businesses

Payroll software can be a powerful tool to transform how small businesses manage their most critical people processes. It helps create a streamlined, compliant, and insight-driven operation that saves time, reduces risk, and supports growth.

It's also becoming a requirement for modern businesses-even small ones-to keep up with the demands and pace of operations today. Workday research found that while almost all payroll leaders (92%) recognize its strategic importance, 89% say their current solutions could be doing more to support their business and 90% agree leadership could be more involved with elevating payroll's impact.

Further, G2 reports that businesses using automated payroll systems experience 70% fewer compliance issues and 30% fewer errors overall. The right payroll platform offers powerful benefits for small business that include:

• Accurate on-time pay: Automated processing ensures employees are paid correctly and consistently, building trust and reducing turnover risk.

• Compliance confidence: Built-in updates apply the latest tax rates and labor laws without manual intervention.

• Improved cash flow management: Real-time expense forecasting helps align payroll schedules with incoming revenue.

• Operational efficiency: Integrations with accounting, time tracking, and benefits eliminate duplicate data entry and errors.

• Enhanced employee experience: Self-service tools let staff access pay stubs, update personal details, and manage benefits on their own.

When payroll is part of a unified HRIS system, these advantages are enhanced even further. A single system can manage tax forms, benefits, time tracking, onboarding, and performance data all in one place. Integrating payroll and HR delivers a single platform for workforce management, keeping people processes aligned and reducing the friction of switching between disconnected tools.

Choosing the Best Payroll Software for Small Businesses

Choosing the best payroll platform for your small business means looking for a solution purpose-built for the pace, resources, and compliance demands of small business operations. Smaller teams often operate with leaner administrative support and need a system that simplifies complex tasks without sacrificing accuracy.

It's also important to consider how it integrates with your HR solutions, or provides HR functionality. These are key features to look for:

• Automated compliance updates: Automatically apply changes to tax rates, filings, and labor regulations so payroll stays accurate without manual checks.

• Time tracking integration: Pull approved hours from timesheets directly into payroll to prevent mismatches and disputes.

• Flexible payment options: Support direct deposit, pay cards, and other timely, secure payment methods to suit different employee needs.

• Built-in benefits administration: Connect health insurance, retirement plans, and other programs so deductions and contributions are calculated correctly every pay cycle.

• User-friendly interface: Make it easy for both administrators and employees to navigate, access information, and complete tasks with minimal training.

• Room to scale: Accommodate new locations, pay structures, and growing teams without costly software migrations.

Selecting a platform with these capabilities helps small businesses operate with confidence while also laying a durable foundation for growth.

Businesses using automated payroll systems experience 70% fewer compliance issues and 30% fewer errors.

7 Key Steps for Payroll Implementation

Successful payroll software implementation starts with organizing and verifying your data, configuring system settings, and aligning integrations so the platform works seamlessly from the start.

This level of preparation prevents common small business challenges related to payroll, such as processing errors, compliance with tax regulations, and maintaining a system that's intuitive for both administrators and employees. Here are the key steps, including helpful checklists to ensure each stage is a success.

1. Define Your Requirements

Before you compare software options, map out exactly what your payroll process needs to handle. This should include:

• The number of employees

• Types of workers (full-time, part-time, contingent workers)

• Pay schedules

• Benefits offered

• Tax jurisdictions

• HR integration requirements.

Document all your must-have features versus nice-to-have extras to help you choose a platform that meets your highest-priority needs. Without defined goals from the outset, identifying the right tool will prove difficult.

2. Select Your Software

Once your requirements are clear, evaluate HR and payroll platforms that align with them. Compare each solution with your business needs, as well as:

• Feature sets

• Pricing models (per employee, per month)

• Ease of use

• Customer support quality

• Scalability

Read reviews from other small businesses in your industry to learn how each system performs in real-world use. Finally, request demos or free trials to test navigation, speed, and integration with your existing tools, such as accounting software or time-tracking apps.

3. Gather Employee and Company Data

Before implementation, collect all the information your payroll software will need. This includes:

• Employee names

• Addresses

• Social Security numbers

• Tax withholding forms (like W-4s)

• Bank details for direct deposit

• Benefits enrollment information

On the company side, have your Employer Identification Number (EIN), state tax IDs, and business bank account details ready. Having complete, accurate data upfront reduces onboarding delays and payroll errors.

4. Configure the System Settings

Once you have your data, set up the core system preferences, including each of the following:

• Establish pay schedules (weekly, biweekly, monthly)

• Define overtime rules

• Input tax rates based on location

• Add benefit deduction settings

• Confirm PTO accrual rules

• Check any custom earnings or deductions specific to your organization

If your software offers compliance alerts, enable them so you'll be notified of changes to payroll tax laws or deadlines. Without the proper settings in place, you won't get the maximum utility out of your payroll system.

5. Integrate with Other Business Tools

Maximize efficiency by connecting your payroll software with accounting platforms, time-tracking tools, and HR systems. This reduces manual data entry, keeps records consistent, and ensures payroll data flows seamlessly into your financial statements.

If you offer benefits, integrate with your provider to automatically sync deductions and contributions. Verify that all integrations are secure and compliant with data privacy regulations.

6. Run a Parallel Payroll Test

Before officially switching to your new system, run at least one test payroll cycle alongside your old process. Compare results to confirm that gross pay, deductions, tax withholdings, and net pay match expectations.

This testing phase helps identify configuration errors, missing data, or integration issues-allowing you to correct them before employee paychecks are at stake.

7. Train Your Team and Go Live

Ensure anyone responsible for payroll understands how to use the system. Provide training on each of the following processes:

• Entering new hires

• Making adjustments

• Running reports

• Troubleshooting common issues

• Updating personal details

• Viewing pay stubs

• Accessing tax forms

After training, process your first live payroll and monitor results closely to confirm everything runs smoothly. If your platform provides self-service, ensuring your employees are informed and engaged can drive major efficiencies.

The benefits of payroll software multiply when it's part of a unified HR platform.

Bringing It All Together: The Case for Unified HR and Payroll Solutions

The benefits of payroll software multiply when it's part of a unified HR platform. Combining payroll, benefits administration, time tracking, onboarding, and compliance management in one system gives you a single source of truth for all workforce data.

For small business owners, that integration saves hours each month and helps to minimize the headaches of juggling multiple disconnected tools. Payroll data flows directly into HR records, benefits deductions stay accurate, and compliance tracking becomes automatic.

Instead of thinking of payroll as a stand-alone task, view it as the backbone of your people operations. A unified HR and payroll system ensures every pay run is accurate, every compliance requirement is met, and every employee interaction-from onboarding to benefits changes-is handled in one place.

That level of efficiency not only protects your business from costly errors but also builds trust with your team and gives you the bandwidth to focus on growing your business.

Is your business ready to transform its approach to HR and payroll? Download the Workday HCM and Payroll Buyer's Guide to refine your solution selection criteria and build a compelling business case for change.