Many business processes today are digital, and payroll is no exception. Sure, some small businesses may still manage payroll using spreadsheets, but paperless payroll is faster, simpler and more secure. Employers who have not yet made the switch may want to explore all that paperless payroll has to offer their team.
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What is paperless payroll?
Paperless payroll uses software programs to run payroll online. Most leading systems will handle tax deductions, voluntary and involuntary withholdings, tax filing and remittance, and employee payments. For a truly paperless experience, employers can also integrate payroll with time tracking software, eliminating time cards. Employees clock in and out electronically and time data is sent directly to payroll for increased accuracy.
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Download NowWhat do paperless payroll providers offer?
When employers go paperless and partner with a payroll service provider, they usually can expect the following:
- Automated payroll processing
Payroll software automatically converts employee gross pay to net pay quickly and accurately. Some full-service providers will even file and pay taxes on the employer’s behalf. - Electronic payroll records
Employers are required by law to save payroll records for specific periods of time. Paperless payroll digitizes these documents, freeing up storage space and improving data privacy. - Employee self-service
With self-service tools, staff members can manage their withholdings, check their paperless employee pay stubs, log their hours and more. These features save time and may help improve productivity. - Electronic funds transfer (EFT)
Flexible pay options, like direct deposit and pay cards, are in demand with employees today. Paperless payroll makes such payments possible, though employers must abide by state laws governing electronic pay.
What are the benefits of paperless payroll?
While it’s true that going paperless is good for the environment, paperless payroll benefits are not limited to saving the planet. Employers who switch to electronic payroll may also be able to:
- Reduce payroll costs
If allowed by state law, paying employees electronically is usually cheaper than printing paper checks. - Enhance data security
Many of the best payroll solutions store data in the cloud – a more secure option than paper documents, which can be lost or stolen. - Ensure consistency
Because mail delivery is not needed with paperless payroll, payments are not delayed by holidays, weather or unexpected events. - Save time
Thanks to automation, employers using paperless payroll don’t have to spend long hours calculating wages, tax withholdings and voluntary deductions. - Improve accessibility
Paperless payroll solutions with self-service tools and mobile apps allow employees to check their pay stubs from anywhere, at any time.
How to get started with paperless payroll
Employers who are used to managing payroll using spreadsheets may feel nervous about disrupting their workflow. But by understanding the transition process to paperless payroll technology, they may be able to preserve peace of mind. The basic steps are as follows:
- Find a payroll provider
When searching for a paperless payroll solution that meets business needs, there are many factors to consider, including cost, customer service, integrations and more. - Supply tax and business information
Paperless payroll providers require information about the business, its employees and their jobs, and any applicable state and local regulations. - Report payroll provider authorization to the IRS
Employers must complete Form 8655, Reporting Agent Authorization, which notifies the IRS that a paperless payroll provider will handle the business’s payroll and tax records. - Obtain employee consent
State laws vary, but employees generally must authorize their employer to pay them via electronic methods, like direct deposit. - Integrate payroll with time and attendance
Most payroll systems are capable of integrating with time tracking solutions so that time cards and printed timesheets are no longer necessary.
Are there any laws to consider with paperless pay?
Employers must abide by state laws governing electronic employee payments. Most states permit direct deposit only if employees voluntarily authorize it in writing. A few states, however, allow employers to mandate direct deposit with exceptions. Employers should check the laws in their state or consult legal counsel before offering direct deposit or creating a mandatory policy.
Pay card regulations
Pay cards present another paperless payment option for employers, albeit with regulations. The federal government prohibits employers from requiring that employees receive wages using a pay card. Those offered a pay card must be given at least one other payment option, such as a paycheck or direct deposit. More than half the states in the country also have pay card regulations, which vary by jurisdiction. Employers should consult legal counsel for further guidance on the applicable pay card laws and regulations.
Employment forms and record keeping rules
In addition to electronic payment regulations, there are rules stipulating which payroll records employers must keep and for how long. For example, the Fair Labor Standards Act (FLSA) requires employers to save payroll records for non-exempt workers for at least three years and retain timesheets or other documents that show how wages were calculated for at least two years. Some state and local governments also have payroll record keeping rules, which may mandate longer retention periods than the federal government.
These regulations apply whether an employer uses electronic payroll or not. However, paperless payroll, by its nature, may make record keeping compliance easier.
Frequently asked questions about paperless payroll
Is paperless payroll software legal?
No laws prevent a company from using electronic payroll systems. However, employers generally must obtain written consent from employees before paying them electronically.
What are the risks of paperless payroll?
Electronic payments may make it difficult for employees who don’t have bank accounts to access their wages. Employers can still process payroll electronically, but they may want to preserve printed paychecks as a payment option for unbanked and underbanked employees.
What are the benefits of paperless Form W2?
Electronic distribution of Form W-2, Wage and Tax Statement, is faster and more secure than mail delivery. However, employees must first consent to receive the form in this manner.
This guide is intended to be used as a starting point in analyzing paperless payroll and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
