Different Types of Payroll Methods for Employers

Types of payroll methods are broken down into different categories, depending on the business environment. Maybe you have a specific question for your new business, or maybe you’re trying to set up a payroll system from scratch. Perhaps you own a well-established company, but one of your accountants was some combination of incompetent and nefarious, and you’ve decided to revamp your company’s payroll system. Advanced Micro Solutions (AMS) has your answer for powerful, user-friendly, and affordable payroll.

As part of our payroll software resources, we work to get our clients the information they need to make the best decisions for their company. From putting together a compensation package for employees, to remitting payments to workers and employee benefit plan vendors, to complying with the form filing and payroll tax requirements of local, state and federal governments, here’s a basic rundown of what you need to know about various types of payroll methods.


Hourly vs. Salary vs. Commission

  • Hourly wages are the most popular payroll method. It’s also the easiest to understand and evaluate for both the employee and employer. On the other hand, it does put a heavy incentive on maintaining a staff in which hourly employees do not need to work overtime.
  • Many employers prefer to put the employees they rely on most in salaried positions. That way, when they need that employee to cover some work gap or project need, the payroll costs do not get out of hand. At the same time, it provides financial stability for the employee.
  • Frequently, commission pay is used as a supplemental addition to a base salary or hourly wage. Payroll that’s almost entirely commission-based can be a great motivator, but it can also serve as unnecessary stressor for employees who prefer to know exactly when and how much they’ll be paid. Though not technically “payroll,” you can also pay professionals who qualify as self-employed contractors a lump sum for a specific job or contract-based production fees.

We’d love to be able to say which choice is right for your business, but it really depends on the industry and nature of your company. Read more about hourly vs. salary vs. commission employees here.

Paychecks vs. Direct Deposit vs. Pay Cards

  • Direct deposit is the most convenient option in most cases and can be affordable with some kind of small business account package from your bank. It’s also become something of the “gold standard” in recent years. However, all your employees will have to maintain a bank account and be willing to share that information. Moreover, with direct deposit, employees tend to not look at their paystubs as closely. Payroll errors that might have otherwise been caught can go undetected for months or even years.
  • Even businesses that use direct deposit tend to have some kind of backup option, but it’s also true that paper paychecks are not as outdated as they might seem. Especially for businesses that are looking to tightly control their accounting costs. AMS offers a great paycheck printing solution that allows your company to print its own MICR checks at a great price point.
  • One of the new, fast-growing options is a pay card. There is a mixed bag of results for individual companies and these payroll debit cards. In theory, pay cards are a great, reliable and cheap way to pay your employees. In everyday practice, however, lost and stolen cards are a problem. ATM fees may be an issue as well. Check on your state laws as there may be prohibitions against any wage-related payment fees. In other words, if your employee loses their pay card, it may be on you to cover the replacement costs.

Read more about the pros and cons of different types of payroll here.

Free Bookkeeping vs. Payroll Programs vs. Payroll Services

  • Nobody does payroll by hand anymore. Sure, small business owners who manage a modest staff and a company that works with tight margins may choose to keep their own books and even handwrite paychecks in some cases. Even then, free bookkeeping and basic business management software is often critical to keeping a tab on various payroll obligations.
  • More than just spreadsheets and basic calculations, payroll programs that use pay-for software typically offer easy-to-use screen displays and sophisticated data management features. In other words, they save you time and headaches. Few, if any, do so as reliably as AMS Payroll Software. In addition to multiple payroll processing options, our software automatically ties your week-to-week and month-to-month payroll data to your quarterly 941 filings, Schedule H 1040, and W-2 forms.
  • In the sense that we think we offer a superior choice at a better price point, we’ll admit AMS is biased against payroll services that charge monthly software subscription fees that add up quickly. Most of these software services deliver fine payroll systems, but the average cost is around $50/month. In contrast, for just a couple hundred dollars, our in-house payroll software solution includes all the data management features your company needs for this year’s payroll.

Time Schedules and Types of Payroll Methods

  • Live vs. After-the-Fact Payroll: This distinction refers to companies that use “live” payroll in the sense that they keep running tabs on their YTD payroll data, payroll and income tax withholding, and other aggregate data. After-the-fact payroll is just what it sounds like. The payroll and tax information is calculated after the employee paychecks have already been issued. Often, in these cases, the employer will issue paychecks and then hire an accountant to do after-the-fact payroll.
  • Quarterly vs. Annual Payroll Tax Filings: Similarly, all types of payroll methods are subject to quarterly 941 payroll tax filings except one: Qualified household employers can use Schedule H Form 1040 to report their household payroll taxes on an annual basis. AMS offers software support for both types of filings.
  • Accrual vs. Cash-Basis Accounting: This refers to the option given to companies to report their various income and expenses either at the time they’re “accrued” or else the time the actual cash payment is made. This can make a big difference at the end of the day for companies that invoice million dollar contracts in one fiscal quarter but then don’t make or receive the payment until the next quarter. You can learn more about accrual vs. cash-basis accounting here. That said, unless you have unpaid wages or else pay employees an advance on their wages, the calculations should be the same for both accrual and cash-basis accounting methods.

Discover AMS Payroll Software

For all types of payroll methods, the right software choice is AMS. Learn about the key features that come with our AMS Payroll solution. It’s easy to build a software suite that’s tailored for your business with our sophisticated module interaction.

Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.