What is a Payroll System? Why Do Companies Use This System?

If you’re struggling to manage your company’s payroll, you’re not alone. Managing employee compensation is a repetitive, mundane task. Keeping up with tax regulations while performing monthly administrative tasks can also be a headache. Additionally, manual payment processing can consume significant time and lead to inefficiencies and errors. But there is no need to worry! Payroll System has revolutionised how businesses handle this crucial aspect.

According to recent studies, companies without automated payroll systems spend an average of 12 hours per week on payroll-related tasks, while those with automated systems cut that time down to just 6 hours. However, not all payroll software applications have the same functionalities. Basic systems offer features like payroll processing and generating payslips, while sophisticated solutions go above and beyond. Advanced payroll software can handle tasks such as managing employee benefits, calculating taxes, and filing payroll taxes.

70% of businesses that implement an advanced payroll system report significant time savings. They can now save up to 50% of time on payroll processing. Moreover, 85% of companies say that using this specialised software has improved their overall payroll accuracy, leading to greater trust and satisfaction among employees.

In this blog post, we’ll take a closer look at the world of payroll software, exploring its features, types, and why it’s a worthwhile tool for businesses. By the end, you’ll be armed with the reasons to implement the right payroll solution for your business. So buckle up as we embark on this journey into the world of payroll software.

What is Payroll in HR?

Payroll is the process of paying employees for their work and maintaining compliance with relevant laws and regulations. You may also encounter the term “payroll software” or “payroll system,” which refers to the tools used to manage employee payments.

It handles essential aspects of employee compensation, including:

  • Calculating gross pay based on hours worked or salaries.
  • Determining deductions, such as taxes, benefits, etc.
  • Distributing net pay to employees by check or direct deposit.
  • Managing time tracking and leave accrual.
  • Ensuring compliance with tax laws and filing requirements.
  • Providing pay reports and insight.

The specific functionalities of your payroll system will depend on which product you choose.

For example, NYGGS provides an integrated payroll solution that brings salary calculation, statutory compliance, leave management, reimbursements, and other core pay processing functions into a single platform. Instead of manually calculating pay, maintaining registers, or using disconnected tools, this cloud-based payroll software allows you to manage the entire compensation process in a single, automated system.

Types of Payroll Systems

Let’s know 3 types of payroll systems that come in different settings to suit various needs.

On-Premise Payroll Software

On-premise payroll software means companies install it locally on their systems or servers. The company or a provider they hire is responsible for the upkeep of the software, security, and hardware it runs on.

This requires the staff and budget to maintain the software, which is a downside due to the added costs it brings. The upside can be the added security and control the business has. In some industries, this pay processing solution option may be necessary for contractual reasons.

Cloud-Based Payroll Software

A cloud-based Payroll System means that your business data resides on the payroll provider’s servers. This has become the most popular option for payroll software implementation.

The vendor maintains the servers and system, so the company using the software requires little or no maintenance. This eliminates the need for companies to maintain their servers, reducing costs.

The downside is that another company is holding your employee data, which can be a security risk for some industries. Another downside is that you don’t own the software and have to pay an ongoing leasing fee to use it.

Payroll Service (Agency Managed)

An external payroll provider or agency manages a company’s pay processing requirements. The business outsources its employee payment operations to these agencies, which handle all aspects of payroll processing, compliance, and reporting.

The benefit of this service is that it is often cost-effective compared to maintaining an in-house payroll system. Also, being managed by expert’s means that a business can rely on accurate and compliant pay processing without having to invest in specialised staff or software. This can work for companies of any size, especially those with complex compensation requirements or limited internal resources.

Why Do Companies Use Payroll Systems?

Managing employee compensation accurately and efficiently is crucial in the commercial world. The costs associated with non-compliance and errors in pay processing can be detrimental to a business. Therefore, every employee’s compensation needs to be handled with the utmost care and precision.

The more employees a company has, the greater the need to manage the payroll process effectively. One way to achieve this is by automating pay calculations, tax with holdings, and reporting through a robust payroll system. However, the more complex your compensation requirements are, the greater the need to have a reliable system in place.

Payroll Software helps businesses gain insight into their pay data and automate their processes to ensure correct and on-time payments to employees. In essence, this system helps a business recognise the value of its employees and capitalise on improved employee satisfaction. Hence, we can say that the more efficient your pay process is, the more motivated and productive your workforce can be.

An effective Payroll Software can help by:

  • Maintaining accurate records of employee hours worked, deductions, and payroll taxes.
  • Streamlining compensation calculations and automating reporting processes.
  • Ensuring compliance with labour laws and regulations.

Benefiting from a payroll system is not just a matter of buying the right software. You must also adapt your employee payment processes to leverage the full capabilities of the system and meet the needs of your employees and business.


Employee satisfaction and retention are undeniably the most crucial factors affecting a business’s success. So you need to put the right tools and processes in place to help improve the employee experience. Payroll software has the crucial benefit of reinforcing employee trust and loyalty in your organisation.

To benefit, you must choose the most efficient automation solution that can easily adapt to your business needs. To identify this, assess the features and analyze them against your employee payment requirements.

Reliable payroll providers, such as NYGGS, offer demo sessions, enabling you to get an overview of the system’s capabilities so you can make an informed decision. You can choose such a comprehensive Payroll System to maintain accurate and compliant pay processing for a long time to come.


Q1. Why is It Called Payroll?

Ans. The word payroll consists of two separate words: ‘pay’ and ‘roll’. Here, ‘pay’ means the payment of workers for what they do, while ‘roll’ refers to the fact that the time to pay employees rolls around periodically (often once a month).

Q2. Is Payroll and Salary the Same?

Ans. Salary is the fixed amount of cash paid to a worker for his or her job, and payroll is the process of calculating and distributing workers’ wages.

Q3. Who Uses Payroll Software?

Ans. Payroll system software is typically used by HR or payroll professionals to manage the entire lifecycle of compensation operations.