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Feb 21, 2024

Top 5 Payroll Compliance Software Services + How To Choose

Teddy Butz
Marketing

In brief: 

  • Payroll compliance software is either stand-alone or add-on software used to ensure a business’s payroll system complies with applicable regulations in the jurisdictions a business operates in.
  • Payroll compliance is important in order for businesses to avoid back pay, fines, low worker morale, legal costs, reputational damage, and even suspension of operations.
  • Good compliance-aiding features to look for in payroll software include process automation, ease of integration, auto-documentation, robust security, and multi-jurisdiction functionality.
  • Before choosing a payroll compliance solution, a business should consider which regulations apply to it in terms of jurisdiction, labor standards, expense handling, compensation formats, and employee turnover.

When you run a company, there’s more to paying employees than just giving them the amount of money they’re owed. For example, you have to register with regional governments to collect tax off those earnings and pay it. If you don’t do this – or any of your other payroll obligations – properly, you can face serious consequences.

In that light, it makes sense to use a third party solution like Middesk to help you keep track of (and, of course, adhere to) all of your payroll obligations—both to your workers and to regulatory agencies. This article discusses what to consider and look for in choosing a payroll compliance solution, and what some of the best options currently on the market are.

First, we’ll talk more in depth about what payroll compliance software is and why businesses should use it.

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What is payroll compliance software?

Payroll compliance software is payroll software—or an add-on module for payroll software—that contains functions designed to help an organization’s payroll operations comply with all applicable laws and regulations. In the US, that includes requirements at the federal, state, and local levels.

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Why payroll compliance software is important

There are many types of payroll regulations you must comply with. To complicate matters more, in the US, each state can have different regulations in addition to the across-the-board federal ones. Some common categories include:

  • Compensating workers fairly, correctly, and on time
  • Filing payroll taxes correctly and within deadlines
  • Submitting reports on pay withheld from workers for other contributions
  • Classifying workers properly as employees or contractors
  • Following employment laws, such as limits on overtime
  • Keeping records of payroll activities
  • Dealing with employees joining or leaving the business

Failing to comply with these regulations can result in a range of consequences. You may have to pay back unpaid wages or taxes, and will likely also incur fines and other penalties from regulators. You may also be put under more in-depth and frequent audit scrutiny. In a worst-case scenario, you could have your business operations suspended—or even lose your good standing and be forced to close permanently—in a state or country.

Workers, meanwhile, may lose morale and even quit on a regular basis if they are not paid fairly and/or on time. They may even file lawsuits to reclaim the money they’re owed, which can cost you even more money in legal fees. They could also cause you reputational damage by sharing their negative experiences, which can make it more difficult for you to attract new workers.

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Top 5 features to look for in a payroll compliance software

So what specific parts of payroll compliance services can help you ease the burdens of complying with payroll regulations? Here are 5 important factors to focus on.

Multi-jurisdiction capabilities 

In the US, tax and other payroll laws can differ between regional jurisdictions. If you have large or spread-out operations that cover more than one jurisdiction, it’s critical to have payroll software that can efficiently deal with these intricacies.

Automation

Using technology to automate tedious compliance-related tasks has two main benefits. One is that it reduces the chance of a human-made mistake or omission costing you in terms of non-compliance. The other is that it shortens the time compliance as a whole takes, allowing the process to scale up with your operations and/or client base.

An example is using AI-powered optical character recognition to pull relevant information from payroll regulatory agency letters or forms.

Integration and centralization

Another useful feature for payroll tax compliance software is the ability to connect with existing IT infrastructure. One thing this allows for is consolidating relevant payroll compliance information (such as specific forms) in one place. This, in turn, reduces the need for duplicate information, which can cause errors if there are inconsistencies between entries.

Another thing integration allows for is providing seamless access to payroll information for other departments that might need it. For example, your accounting department needs to know about how payroll is regulated in different jurisdictions in order to balance the books properly. Being able to get at this information from a central hub avoids siloing issues such as delayed access and duplicate information errors. This enables the accounting department to comply with its own set of regulations by getting the correct information from payroll in a timely manner.

Documentation

A good payroll service should also have features for times when manual intervention in compliance may be needed. For example, if it can’t automatically adapt to payroll registration regulation changes itself, it should at least be able to alert compliance teams and make it easy for them to adjust the system.

More importantly, though, it should be able to automatically catalog all of these alerts, changes, and actions. This helps with auditing, whether that’s a business reviewing the effectiveness of its own compliance operations, or an external firm or agency ensuring a business is following the regulations it should.

Security

Payroll software doesn’t just need to follow laws related to finance and labor. It also needs to respect data privacy laws. After all, it’s going to contain sensitive information about both a business and the people who work for it. If this information is lost, stolen, or misused, it can cause the business a host of operational and legal issues.

Again, different countries—and sometimes different jurisdictions within countries—can have varying data security requirements. For businesses with large and/or spread-out operations, it’s important for their payroll services to cover all regulations in all jurisdictions they operate in.

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How to choose a payroll compliance software

When deciding between payroll and compliance services, here are some things to consider.

  • Jurisdictional scope: Some businesses may operate in only a small local area. Others may operate in multiple jurisdictions within the same country, or even in multiple countries. Either way, they should make sure their payroll software can be calibrated to comply with all regulations in the jurisdictions they operate in (as well as any areas they intend to operate out of in the near future).
  • Labor laws: Different jurisdictions can have different regulations regarding work mechanisms that affect payroll. These include minimum wage, paid leave, benefits, and overtime. A business should know which ones apply to it, and pick a solution that can cover the related requirements across each jurisdiction it registers to pay taxes in.
  • Business expenses: The jurisdiction(s) where a business registers to pay taxes can have different rules regarding what kinds of purchases can or can’t be claimed as business expenses. So a business should ensure that its payroll software can take these regulations into account.
  • Worker compensation: Most modern businesses pay their workers with credit through checks or direct deposit. However, some still opt to pay workers with cash. Whatever method a business chooses (depending on what’s allowed in the jurisdictions in which it registers), its payroll system should be equipped to handle it—including having the appropriate level of security.
  • Worker retention periods: In some industries, workers might be hired for the long term and stay at the same business for several years. In others, workers might be casually or temporarily employed, staying at a particular business for a much shorter period of time. As payroll includes dealing with workers joining and leaving a business, the business should consider its worker turnover rate when choosing a payroll solution.

Given those things to consider and look for in choosing a payroll compliance solution, what are the best options for meeting a business’s needs? We’ll discuss some top software in the next section.

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Top 5 payroll compliance services

To demonstrate how different payroll platforms integrate compliance-aiding features (or not), here’s a comparison of five payroll registration solutions and how well they handle compliance.

1. Middesk

Best for: Navigating complex state-specific payroll registration obligations in the US

Middesk’s payroll compliance solution, Agent, has a direct link to Secretary of State offices in each US state and territory. This makes it easy to follow and stay up to date with US state payroll tax regulations, regardless of which state your employees are in.

Agent also organizes, tags, and provides notifications regarding regulatory agency mail. This allows you to know what actions to take on what paperwork, and by when. Agent is even able to integrate pre-existing registration information from other payroll systems (making integration a breeze), and sort accounts by the specific states they’re in. Middesk can even automate payroll tax registration to improve efficiency.

2. Corpnet

Best for: Covering US federal and state tax requirements, including SUI and SIT

Corpnet’s Tax Registration bundle simplifies registering for US federal and state payroll taxes, including State Unemployment Insurance (SUI) tax and State Income Tax (SIT). It collects your company’s information to verify it and determine your eligibility, then completes your registration within 7-10 business days.

Corpnet’s main weaknesses are that it is somewhat more expensive than its competitors, and it only offers registered agent service for 60 days in its less expensive packages (as opposed to a year for its more expensive ones). Some have also said its customer service isn’t as helpful as is sometimes claimed.

3. Wolters-Kluwer BizFilings

Best for: Warranty-backed compliance with US state-specific payroll tax laws 

Wolters-Kluwer’s BizFilings platform includes services for registering for US payroll taxes. It provides an overview of necessary filings, then has you provide your company’s basic information. It will then review your applications and submit them.

Its main strength is that it has been around for a long time, so the people behind it know state-specific payroll tax regulations pretty well. It also offers a warranty against filing errors. However, it’s a rather expensive service, especially because it automatically signs you up for a registered agent service. It also has slow turnaround times (around 4-6 weeks). 

4. Experian Employer Services

Best for: Comprehensive suite of payroll tax management services

Experian Employer Services has payroll tax registration features that also cover account updates, account closures, SUI successions/transfers, and more. The package also offers payroll tax compliance consulting services, cost savings through lookback reviews, merger & acquisition navigation, and unemployment tax management. This makes it helpful for enterprise businesses undergoing significant employee growth or operations expansions (including M&A). Some of its reporting and update functions are confusing or limited, though.

5. CSC Corptax Compliance

Best for: Coordinated US and international tax compliance

CSC Corptax provides payroll tax compliance functions for the US and beyond. It features an interface powered by a singular unified database that streamlines either doing compliance jobs manually or automating them. This includes industry-leading entity management and automatic accommodation of regulation changes.

Its main disadvantages are slow turnaround times, difficulty in learning the system, limited automation capabilities, and costly implementation.

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Middesk makes complex US payroll regulations simple to comply with

The US is one of the more difficult countries to achieve payroll compliance in, especially for nationwide and international businesses. This is because, as opposed to the federal government, each state and territory sets its own payroll requirements. 

To learn more about how Middesk can help optimize your payroll compliance process, talk to our sales team and set up a demo to see exactly how it can help you register in states within minutes and onboard employees without delays.

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