10 Benefits of Paperless Payroll

What is paperless payroll?

The best online payroll services support paperless payroll, which is an entirely electronic payroll system. The software suite typically includes fully digital tools for paying employees, delivering pay stubs and tax forms, tracking employee attendance, creating payroll reports and more. These solutions can make implementing and executing a paperless payroll system seamless and straightforward while meeting your business’s specific needs.

The paperless payroll process starts with collecting relevant onboarding information from team members, such as their employment eligibility, withholding elections, bank details, etc., through a standardized onboarding process. The information is uploaded to the digital payroll platform.

“The software uses this information to calculate the employee’s tax withholdings and benefits deductions from each payroll. It then pulls funds from the business bank account and deposits the appropriate amounts in employee bank accounts,” said Christian Putnam, founder of Augur CPA.

On the employer side, the payroll software calculates employer taxes for each payroll. It will also file payroll tax returns with the appropriate state and federal tax authorities on your company’s behalf. 

“Additionally, paperless payroll can integrate with your benefits provider, such as insurance brokers, to ensure that employee deductions are accurate for each payroll,” explained Putnam.

What are the benefits of paperless payroll?

Businesses should consider implementing paperless payroll because it can save money and improve operations — not just because digital solutions are trendy right now. Below are 10 reasons paperless payroll can benefit your organization. 

1. Paperless payroll can save money. Paperless payroll pays employees via direct deposit instead of paper checks, which saves several dollars per payroll run. Additionally, sending employees pay stubs online instead of through the mail saves, on average, $1.20 per payroll run. Paperless payroll also eliminates the chances of checks getting lost in the mail and removes the expense of reprinting and remailing them.
2. Paperless payroll saves time. Cutting paper checks — and then signing and mailing them — can be tedious and time-consuming. Paperless payroll eliminates these processes and saves your business precious time. Also, you won’t have to spend time dealing with lost checks. In addition, you can find any payroll information you’re looking for within minutes thanks to digital recordkeeping. “CFOs and other executives can quickly access a financial overview without digging through manual records,” said Pavel Shynkarenko, founder and CEO of Mellow.
3. Paperless payroll streamlines tax payments. Many paperless payroll software programs proactively notify you when it’s time to fill out payroll forms and file your payroll taxes. They may even create your forms automatically and allow you to file directly from the platform. Your forms will be more accurate and timely, resulting in a lower chance of tax penalties.
4. Paperless payroll ensures consistent employee payments. When you mail checks, you must account for post office closures for federal holidays that delay employees’ receipt of their payments. While staffers might be able to pick up their checks at your office, this may be inconvenient. Paperless payroll solves both problems; automated electronic payments ensure employees are paid promptly and consistently.
5. Paperless payroll supports SOX compliance. The Sarbanes-Oxley (SOX) Act of 2002 was created to help prevent corporate fraud. It requires companies to perform an annual audit of their financial statements. “As long as it’s set up correctly, paperless payroll assists in SOX compliance. It makes it so that no human can interject themselves into the payroll process and ‘change’ an outcome,” explained Chris Goumas, a consultant at CloudSmartHR.
6. Paperless payroll boosts data and records security. Storing sensitive employee information digitally through cloud-based payroll platforms is more secure than traditional document storage. Digital storage includes security measures like electronic encryption, which is much harder to breach than physical security efforts. Plus, with digital storage, crucial paperwork isn’t stored on-site but instead in the cloud, so your records remain intact even if your facilities endure a natural disaster or fire.
7. Paperless payroll provides ample storage. Physical storage has inherent limits. In contrast, digital storage is theoretically boundless. While your payroll provider may cap your data storage, you can ask for more — and chances are it’ll be a long time before you hit your cap anyway.
8. Paperless payroll is eco-friendly. Printed payroll uses paper, which requires the elimination of trees that would otherwise absorb excess carbon dioxide and help combat climate change. Producing 100,000 sheets of paper requires eight trees and 2,000 kilowatt-hours of energy and has a carbon footprint of 6,000 kg. If you’re aiming to reduce your company’s carbon footprint, paperless payroll is a good start.
9. Paperless payroll is accessible for employees. With paperless payroll, employees can easily access their online payroll data or tax forms via mobile devices or web browsers. Paper-based payroll lacks this convenience. If your employees needed specific information, they’d have to access the business’s physical records.
10. Paperless payroll integrates with other business software. If you’ve automated your business accounting with cloud-based software but still run payroll manually, you’ll spend a great deal of time entering your payroll records into your accounting platform. Paperless payroll systems integrate with the best accounting software and other solutions, like HR programs, streamlining operations. “These tools sync seamlessly with ERP, CRM, HRS and HRIS systems, avoiding manual data transfer between platforms,” said Shynkarenko.

How do you implement paperless payroll?

You can implement paperless payroll by following the steps below.

1. Install paperless payroll software.

Paperless payroll begins with the installation of payroll software or one of the best HR software solutions that includes payroll processing features. Installing these platforms is typically straightforward, but it may take time and training to set up integrations and other elements. 

2. Get employee consent.

In some states, you may need employees’ consent to pay them electronically. Learn and follow your state’s laws before onboarding employees to the paperless payroll system. In all states, you must obtain your employees’ consent to provide their W-2 forms electronically. Workers who decline must receive paper forms.

3. Have your employees sign up for the payroll software.

Once you install your paperless payroll solution and receive consent, your employees must create accounts within the program. Through their accounts, they can access their pay stubs, tax forms and, most importantly, paychecks. This is known as employee self-service.

4. Have your employees input banking information.

To enable direct deposit, your employees must add their banking information to your payroll software. Once they’ve added their bank account and routing numbers, all should be in place for them to receive a direct deposit when payroll is processed.

5. Integrate payroll software with your time-tracking system.

A key function of payroll software is linking employees’ hours worked with the pay they should receive for a specific pay period. Many payroll platforms integrate with scheduling or time-tracking tools to ensure ease and accuracy when calculating payroll. This eliminates the need for team members to manually enter hours worked into two platforms and minimizes errors that could lead to overpayment or underpayment.

6. Train your employees on the system.

You’ll likely need to train employees on how to use your new payroll platform. Payroll companies often provide guided training and onboarding assistance to relieve you of this burden. If the service you use doesn’t, your HR team should host a company workshop on getting started.

7. Process your first payroll.

With your new payroll platform fully set up, you’ll be able to process your first payroll. The program itself or one of the vendor’s customer service representatives should be able to walk you through this process. Then, you’ll likely have the option to automate future payrolls.

8. Generate tax forms and payroll reports.

When it comes time to pay your yearly or quarterly payroll taxes, your payroll solution can generate these forms and send copies to your employees as needed. You should also use the system to generate payroll reports that further detail your tax liabilities. These reports also come in handy for other needs, such as tracking employee vacation time.

What are the types of paperless payroll solutions?

Most paperless payroll platforms fall into one of three categories: electronic payroll records, employee self-service or electronic funds transfer.

• Electronic payroll records: This is the most basic type of paperless payroll platform. It has only rudimentary electronic payroll tracking and calculating functions, which is all that some businesses need. With this setup, the payroll process may be digital, but you’d still pay your team with paper checks.
• Employee self-service (ESS): Through employee self-service software, you can couple payroll processing features with other HR tools and services, such as employee benefits administration, in an easy-to-use portal that staff members can access for any human resources needs. ESS platforms also automate employee clock-in and clock-out processes and your calculations of hours worked.
• Electronic funds transfer (EFT): This category encompasses electronic payroll records with direct deposit tools. EFT platforms eliminate the paper clutter associated with paper checks and set up rapid payments. However, as mentioned earlier, in certain states, you may need employees’ consent to pay them electronically.

What are the drawbacks of paperless payroll?

Paperless payroll can save your business time and money and benefit your employees. However, it’s not perfect. Before you implement such a system, you should understand these potential drawbacks.

1. Expenses: Payroll software and online payroll processing services cost money and take time to implement. If your business is barely in the black, you might need to stick with doing payroll on paper to keep your payroll expenses reasonable. “The main downside is cost. Payroll software can be costly since it’s often billed at a per-employee rate,” said Putnam. Some providers also charge a monthly fee.
2. Business internet concerns: If you lack computers or robust business internet access, paperless payroll may cause more problems than it solves. The convenience and security afforded by cloud-based payroll programs are valuable, but it’s all for nothing if you can’t easily access your payroll information because you don’t have reliable internet.
3. Personal internet concerns: Similarly, you may have employees who can’t easily access computers or high-speed internet, particularly in rural areas. Their ability to receive electronic payments may also be limited. “Some employees, especially in low-paying roles and those who live in more rural areas, may not have banking that allows for direct deposit,” said Goumas.
4. Bank account requirement: Some employees may not have access to a bank account, which makes direct deposit impossible. You could counter this problem by storing payroll records electronically but still paying workers via paper or direct deposit alternatives like cash or payroll cards. Still, your nonelectronic payment options must adhere to state laws.
5. Legal challenges: Unfortunately, not all paperless payroll solutions comply with local or international payroll regulations. “For global payroll, these risks multiply significantly,” said Shynkarenko. You’ll want to choose a payroll provider that prioritizes compliance, has a deep understanding of applicable laws and offers legal assistance.
6. Security risks: As with most software, paperless payroll platforms are a prime target for cyberattacks. “Noncompliance with security standards like SOC 2 or GDPR can lead to major issues,” explained Shynkarenko. You can reduce the risk of a data breach with proper cybersecurity protocols.

When choosing between paper and paperless payroll processes, assess your budget and security and your team’s internet and banking access before you decide on the best solution for your organization.

Anna Baluch and Jennifer Dublino contributed to this article.