Jeremy Sacco
BuyerZone.com Editorial Staff

As companies are becoming more comfortable using the Internet for critical business processes, online payroll services are becoming increasingly popular. Are you ready to make the switch?

For many businesses, payroll services offer an attractive and valuable alternative to in-house processing. They can provide a less expensive and simpler means of paying employees, filing taxes, and performing other essential but mundane tasks. Until recently, most electronic communication with the payroll service was done using a direct modem connection.

With this method, payroll data is "called in" to the provider using software that tracks each employee's pay rate, deductions, and vacation time. You enter the information, and the software dials into the provider's server and transmits the data.

This method is very secure - since you establish a direct connection to the provider's computers, there's no chance of losing data. However, it requires a dedicated computer with its own phone line and modem, which is kind of an anachronism in a world where most businesses use broadband connections like DSL or T1 lines.

Now, online payroll services use the Web for collecting payroll data. There are two ways this can happen. The most basic is very similar to the modem method: using software on your computer, you enter all your employee data and then hit a button to transmit it to the provider. The only difference is that instead of dialing in over a modem, the software creates a secure connection over the Internet.

The more novel method is similar to the application service provider (ASP) model that has become popular for all kinds of business processes. Instead of using a program installed on your computer, you access the online payroll service's web site and do all your data entry there. All the processing and storage is done on the provider's side.

Some HR professionals have doubts about the security of online payroll services, but these are unfounded. The security of payroll data is so critical to these companies that they often do a more comprehensive job of protecting data than most small-to-medium-sized companies can do in-house. Secure Sockets Layer (SSL) encryption ensures that your data can't be read by online snoops, and secure data centers with multiple firewalls keep your data safe once it's at the provider.

Prices are usually comparable for all methods, and many online payroll services offer multiple options. Choose the one that offers the best combination of convenience and security.