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How Does Online Payroll Work For My Business

Online payroll is a popular trend sweeping the business world.

Despite its recent popularity, online payroll is still a mystery to many people. How does online payroll work? Is it safe to use? Is it the right choice for your business? Today, we’re going to answer those questions.

Most online payroll programs come with a simple, three-step process and a free trial:

  1. Enter employee hours into the payroll software and receive instant paycheck calculations
  2. The payroll software instantly calculates payroll taxes
  3. Your payroll software notifies you when various tax forms are due and may even enter data into these tax forms

These steps vary from program to program. Some programs will enter all data into tax forms and remind you when they’re due, for example, while others will simply print out blank tax forms.

Typically, the more you’re willing to pay for online payroll, the less work you’ll have to do.

How Are Hours Entered Into The Payroll Software?

Hour entry systems vary. Most online payroll services force the employer to manually enter hours every payroll period – which isn’t that hard or time-consuming unless you have hundreds of employees.

If you do have hundreds of employees, then you’ll want to find payroll software that lets employees enter their own hourly data. Some payroll systems let employees enter hourly data over an app, for example: they can edit their own hour information but cannot access other parts of the account.

Depending on which payroll system you choose, entering hours can either be extremely easy or relatively time-consuming.

How Does The Online Payroll Software Calculate Taxes?

In the United States, all companies are required by federal law to pay the following payroll taxes:

  • 6.2% Social Security tax
  • 1.45% Medicare tax
  • Federal Unemployment Taxes (FUTA)

Both the employer and the employee must pay their share of the tax. In other words, the employer and employee split a total deduction amount of 15.3%. Social Security taxes are only applied to a certain maximum income each year, which means you should never pay more than around $7,000 in Social Security tax.

When you enter employee hours into your payroll system, it automatically calculates all legally-required deductions. Those deductions include the federal taxes mentioned above along with any state taxes – like State Unemployment Taxes (SUTA).

Payroll software is specially programmed to work in every state in the United States. It understands the unique local, state, and federal laws that apply to your business. In less than a second, the payroll software uses all of this data to create an accurate paycheck for your employees.

How Does Online Payroll Calculate Other Deductions?

All paychecks are legally required to deduct certain taxes. However, some companies apply additional deductions based on various things – like a stock purchasing plan or 401(k) agreement.

In that case, you’ll need to enter these deductions into the payroll software prior to calculating paychecks. You should only have to enter these deductions once.

You can also choose to supplement or garnish employee wages where appropriate.

In short, payroll software makes it easy to deduct or supplement your employees’ wages according to company policy – so if you’ve avoided switching to online payroll due to a perceived lack of flexibility, then you may be surprised.

How Does Online Payroll Handle Tax Forms?

Many people subscribe to online payroll software purely for the tax form support. Specifically, online payroll software helps you quickly and easily create accurate tax forms.

Your payroll software notifies you when your tax forms are due. From W-2 employee forms to 1099 contractor forms, payroll software ensures that you never miss an important form submission deadline.

Different payroll systems handle tax forms in different ways:

  • Some will print out blank tax forms. You fill in the appropriate data and submit the forms via the deadline.
  • Others will provide pre-filled forms with accurate data for every employee in your office. You e-file these forms to the IRS with a simple click.

Obviously, the second option will save you more time than the first option, but you can also expect to pay more money for it. Most basic payroll plans do not include IRS form submissions, although they may still remind you of upcoming deadlines.

One of the coolest things about online payroll software is that it often guarantees no tax penalties. Specifically, Intuit Online Payroll guarantees your business will never receive tax penalties while subscribed to its ‘Full Service’ plan. This is a huge advantage for businesses which want an extra layer of protection.

Is Online Payroll The Right Choice For Your Business?


Well, it is probably the right choice. Today, there are few disadvantages to using online payroll software for your small or medium business. Unless you like crunching numbers (some people do!) or you appreciate the personal interaction of talking to your accountant, then payroll software can save your business a lot of time and money.

About Johnson Hur

After having graduated with a degree in Finance and working for a Fortune 500 company for several years, Johnson decided to follow his passion by embarking on a path to the digital world. He has over 8 years of experience with large companies setting marketing strategy.

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