The case against payroll in Excel. A tech accountant’s opinion.

Often times, small businesses opt to use Excel for payroll; however, it complicates matters rather than simplifying them. If you are a small business that has employees, it is almost certain, they did not join you expecting to make impressive salaries from the beginning. Granted, everyone ultimately works to get paid, but most employees seek employment opportunities that they will enjoy while working for that paycheck. 

Yet, if something goes awry and payroll can’t be processed, or is miscalculated, employees can quickly become upset and you may even risk losing them. People want to get paid for work performed on the job, just as you expect payment for your products and services in business. 

Whether you’re a business owner taking care of all the finances of your business or an accountant, it is no mistaking the amount of time and detail required for the proper processing of payroll. From calculating hours, verifying pay rates, figuring out taxes, and all the reports and payments associated; it is no small chore, especially if your business is growing rapidly. 

Disadvantages of Using Excel for Payroll

If you’re using Excel to manage your payroll, there are many other options that will reduce the hours and hassle of managing payroll. Excel is a great tool for spreadsheets and charts and even useful in complex calculations, but in regards to payroll, it isn’t the ideal solution. Why? Payroll involves many factors and rates are often changing. As your business expands, maintaining payroll in Excel will require more of your time and a lot more manual entry versus using software that is designed for payroll processing. Let’s review some of the downsides of using Excel for payroll.

1. Manual Data Entry: The details of payroll constantly change and if one figure changes, then ultimately, other numbers will be affected during payroll processing. With Excel, all of the data must be entered manually and it becomes quite difficult to maintain, especially when operating in multiple locations. 
2. Scattered Data: Using Excel poses major issues in calculating and tracking withholding for taxes, insurance, etc. It is also more problematic to add employees and is much more time consuming than payroll software would be. 
3. Increased Risk of Human Error: The standard process of calculating payroll within Excel involves the use of multiple tabs and creating formulas that link various spreadsheet and page data together. Unfortunately, these formulas can be altered by someone very easily with or without intention and increases the possibility of wrong calculations. Imagine the potential fees and penalties that could be incurred if tax reports are incorrect.
4. Lack of Documentation and History: Every business requires ongoing documentation and the retention of records for multiple years. Having a streamlined process that grows with your business without requiring additional manpower will enable you to track with accuracy and make changes as staff receive pay raises, bonuses and come or go.

Excel is useful in many ways; however, it is not ideal for payroll. The lack of manageability will hinder future growth for your business. And, if you ever need to lure investors to help you expand, those individuals will expect detailed information and past history. 

Also, depending on the area you’re in, tax laws may change. For example, areas like Singapore have certain requirements for payroll processes and maintenance of history. In the interest of your business, invest in accounting software that will help streamline the payroll processes. This will save you time and money in the long run.