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What are Payroll Systems?
Payroll systems are platforms that help employers manage the process of paying employees locally or globally. They are also responsible for correctly calculating wages, withholding taxes, processing direct deposits, filing taxes, and complying with other compliance regulations.
When integrated with HR-driven platforms, payroll systems go beyond payroll processing to help employers maintain compliance. Whether businesses aim to automate HR operations, payroll, time tracking, attendance approvals, employee surveys, or onboarding, various payroll solutions can efficiently support these needs.
With the evolving technology, the majority of employers are utilizing some form of payroll system to manage their payroll processes. According to The Business Research Company, the HR payroll software market has grown rapidly in recent years, with the prediction to expand from $35.27 billion in 2024 to $40.03 billion in 2025 at a compound annual growth rate (CAGR) of 13.5%. The forecast also predicts the market to grow to a whopping $65.66 billion in 2029 at a compound annual growth rate (CAGR) of 13.2%.
Types of Payroll Solutions
While some payroll systems only allow you to run payroll and manage tax compliance, many platforms often offer combined payroll and HR management services, including onboarding, performance management, employee surveys, etc.
Below are the types of different payroll systems:
Core Payroll Solution
The core payroll system offers payroll and tax compliance services. These solutions help businesses pay their employees accurately, calculate and file taxes, and ensure compliance. Core payroll systems also facilitate compliance and payroll reporting, and some may offer employee self-service to allow employees to access their tax documents and paystubs.
Here are some well-known payroll-only solutions:
Core payroll solutions are mostly used by organizations that are just starting and have a small headcount. These small organizations mostly have in-house tools to manage other HR tasks.
They only require payroll solutions to ensure they are paying their employees correctly, deducting and withholding the right taxes, and staying compliant with respective state departments.
Outsourced Payroll & HR Solution
Sometimes, employers find it a bit overwhelming to manage payroll and benefits for their employees, whether local or global. In this case, they may choose to outsource their payroll. The two most commonly used methods for outsourcing payroll and other HR management tasks are utilizing either a PEO or an EOR.
While both PEOs and EORs can manage payroll, benefits, compliance, and other HR tasks, the key advantage, especially for small businesses, is that they can offer affordable benefits. This is because both PEOs and EORs have a large network of vendors and providers they can use for multiple clients (even for clients with small headcounts). The major difference between these two is that a PEO is only the employer for payroll and benefits purposes, while an EOR acts as the sole legal employer.
Find out whether PEO or payroll services are the better fit for your company—read our full breakdown.
PEOs and EORs are great ways for organizations to scale their business without worrying about accurate payroll and compliance in any region where they want to hire workers. Because of their cost-effectiveness, these solutions are suitable for all business sizes, especially small and medium businesses.
Discover the best international payroll providers to simplify cross-border payroll.
HR-Driven Payroll System
HR-driven payroll systems, also known as HRIS or HCMS systems, are software that helps businesses manage and scale their HR processes, including payroll, performance management, recruitment, employee data management, benefits administration, tax compliance, reporting, and more.
These advanced cloud-based systems incorporate modern technology and automation to make employers’ lives easier and improve overall organizational performance and productivity. They also help mitigate risks associated with non-compliance.
These systems are most suitable for medium to large-sized organizations because they are looking for ways to automate their workflows so that their team members can focus more on strategic planning and growing the business.
See our curated list of the best HRIS platforms for smarter HR management.
Final Thoughts
While technology has made work more efficient, the tremendous amount of technical solutions out there can be confusing for many employers. Many factors come into play when deciding which type of payroll system to use, such as cost, additional services, dedicated support team, etc.
An organization should assess its current workforce and HR and payroll processes before determining the kind of payroll solution to use.
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Written by
Charlotte Evans