Online Payroll Providers vs. Payroll Software: What’s Best for Small Businesses?

Any small business owner knows paying staff on time is non-negotiable. And, with remote and hybrid work coming to the fore, the way staff invoice for their work has changed. 

This means small businesses need the best payroll software solutions. This software can assist by automating tasks that are time-consuming and require 100% due diligence. 

Two main payroll solutions to consider are payroll software and online payroll providers. This guide will help small business owners decide which option suits their payroll needs best.

Payroll challenges small businesses face

There are several common small business payroll software challenges. The following factors make managing staff payments tricky: 

1. Tracking hours
2. Calculating wages 
3. Ensuring tax compliance
4. Managing wage deposits.

There are other issues relating to the payroll for small businesses information staff entrust you with, including:

1. Ensuring secure on-boarding and off-boarding
2. Securely managing personal data.

These reasons and more provide the key to understanding why small businesses must have efficient payroll processing software solutions. They make a difficult process seamless and save significant time (and costs). 

What is payroll software?

Let's get down to the nitty-gritty. When we talk about payroll small business software - what do we mean? 

Payroll processing software solutions for small businesses offer features for managing wages, invoicing, and taxes internally. They have key primary functions, like:

• Automated wage calculations
• Tax compliance tools
• Data storage solutions for staff and management.

Small business payroll software is managed in-house. This means business owners have more direct control over their payroll, and automating payroll tasks is much simpler. 

Key features of payroll software

Let’s take some time to look at the essential features of payroll software for small businesses. 

• Automated payroll calculations: Pay is automatically calculated on total hours worked. Will also adjust for necessary deductions like taxes, insurance, or pensions.
• Tax compliance updates: Small business owners can get assistance with tax compliance wherever they’re based. 
• Employees can access their pay information: Staff can view all their personal information, invoices, and tax forms. 
• Integration with other accounting systems: Payroll software integrates with other business systems, such as HR management or accounting software, ensuring smooth data flow across various departments.

These key payroll software elements make it much easier for small businesses to streamline payroll management. Used long-term, they save time and allow business owners to prioritise business development. 

What are online payroll providers?

We’ll now focus on online payroll providers and tell you what they are. They’re web-based services that small businesses use to handle their payroll management externally. Online payroll providers will manage tasks such as:

1. Payroll processing
2. Filing taxes
3. Compliance 

All this is carried out on behalf of the small business rather than being managed internally. This means a company has to get used to an external entity carrying out secure payroll work instead of doing it themselves. 

They’re a worthwhile option if you have a larger staff rota or want to outsource wage management completely. 

To engage these services, you’ll need to pay either a fee per employee or a flat monthly fee, but everything will be managed for you. 

Key features of online payroll providers

What can an online payroll provider bring to the table? 

• Full-service payroll processing: Everything from staff working hours to accrued bonuses and overtime can be factored in. 
• Automated tax filings: Tax from staff pay will be deducted and sent to the appropriate government agencies.
• Compliance assurance: Services will be constantly updated on employment law and tax regulation changes, ensuring that your small business is always law-compliant. 
• Regular reports: These services will offer detailed reports on all payroll positions, expenses, and taxes, which are essential for future financial planning and analysis.
• Dedicated customer/business support: There will be full and dedicated customer service support should you have any queries or concerns regarding your payroll processes. 

These features can considerably reduce the extra workload small business owners face. 

Benefits of using payroll software for small businesses

We’ll run through a few of the advantages of using small business payroll software options now:

• Controlled payroll processing: As the business owner, you control how and when your payroll is processed. Features such as calculating pay based on hours worked, generating pay slips, and managing taxes stay within internal management. 
• Cost savings: Keeping services in-house means saving money, which is important if you’re operating on a tighter budget but still need assistance with automating tasks. 
• Flexibility: Payroll software offers flexible plans that adapt easily to changing needs and circumstances. 
• Ability to manage payroll in-house: You’ll be able to see exactly what payments are coming out and make adjustments as needed. 

Control over payroll management

Payroll small business software management provides all the necessary tools for a business to handle its payroll processing internally. It gives small business owners more control over payroll processes. 

It considers everything from staff pay based on work hours to generating pay slips. 

It’ll assist with managing taxes. Small business users in charge of payroll software will also have direct control over payroll tasks and any associated data. 

The user is responsible for learning the software platform and finding the best way to use it to suit their company's needs. However, great customer support services will always be on hand to assist with any problems. 

Ultimately, payroll software for small businesses gives flexibility in managing employee payments and deductions. 

Benefits of using online payroll providers for small businesses

We’ll now take some time to look at the plus points of using online payroll providers for small businesses: 

• Time savings: Services are given by external providers. They’ll take care of the entire payroll process. Typically, this means the internal workload of staff is greatly reduced. Payroll provider services offer all wage calculations, tax filings, and deal with compliance issues. 
• Compliance expertise: They’ll be responsible for ensuring compliance with all applicable laws in your location. Reducing the risk of penalties associated with payroll errors. They’ll make sure you’re fully compliant with tax regulations.
• Dedicated support: Provide expert payroll handling. Professionals who work on this are always up-to-date on new tax laws and payroll compliance. This is beneficial for small businesses that might not have in-house payroll experts. 

This is the best option for your small business if you lack in-house resources to manage payroll. Letting a team of professionals organise this work for you can relieve a lot of stress. 

Saves time and simplifies payroll

The main benefit of online payroll providers is time savings. They can handle all the complex payroll tasks that are overwhelming for small businesses. 

This means small business owners can focus on their core business activities, knowing that a professional team of dedicated experts handles all the intricacies of wage management. 

The payroll process is also simplified. Staff can see individual pay slips and know exactly what they’re being paid for, hours they’ve done, and the tax they need to pay. 

Ensures compliance and accurate tax filing

Tax and changes to filing rules can be complicated. Online payroll providers will handle your tax compliance. 

They can help small businesses avoid costly mistakes and stay up to date with regulations as they’re updated. 

Outsourcing means reducing the risk of penalties associated with errors on your payroll or non-compliance with changes in tax laws. In the long run, this saves time and money. 

Ongoing customer support

Online payroll providers like QuickBooks will provide continuous, ongoing customer support, and will be available to answer any payroll-related questions. 

The best payroll software provides a welcome safety net for business owners who might not know all the rules and regulations or need assistance managing payroll options. 

Cost comparison: payroll software vs. online Payroll providers

Hopefully, you’re closer to deciding on the best payroll software. It’s important to think about the cost of your chosen payroll option. There are typically two different fees:

• Upfront: A fee paid in an annual lump sum to the company to manage your payroll requirements. 
• Recurring: A subscription fee, which can be cancelled, paused, or restarted if your business payroll circumstances change. 

Both solutions have value. It’s best to decide which is correct for your business based on its needs. Consider the amount of staff you employ and type of assistance you need. 

• Payroll software: Typically requires an upfront investment or subscription fee. It may be less expensive than full-service options. Fees are based on a single monthly fee or worked out per employee. Some payroll software is billed monthly or in one lump sum annually.
• Online payroll provider: They may charge a fee per employee or a single flat rate. Services include handling all payroll activities and compliance issues. QuickBooks charges $4 per month plus $1 per employee. Advanced payroll features cost extra. 

Choosing the right payroll solution for your small business

When choosing a payroll solution, what’s the best approach? Here’s some practical tips to consider. Think about: 

• Control preferences: What control level do you want over your payroll? If you want full control, it might be best to consider a payroll software package you can install and manage in-house. However, online payroll providers are the solution if you want someone else to handle everything. 
• Budget: What’s your monthly or annual budget? Think about the amount you can spare or want to invest. This can vary from business to business. 
• Payroll complexity: How complex is your payroll, and how many employees does it cover? Small businesses vary in size, so this is a key consideration. The more staff, the more likely you need dedicated payroll support to ensure everyone is paid on time. 
• Level of in-house expertise: If no one on your team has any real in-house knowledge of payrolls and accounting, consider investing in this service. 

Factors to consider when choosing a payroll solution

We’ve considered the level of control, budget, and in-house expertise. Here are three other important factors to consider when it comes to choosing a payroll solution: 

• Ease of use: If your knowledge of finance-based software isn’t great, or no one on your team can help, it might be worth investing in an online payroll provider. That said, it’s not tricky to learn, and with a little investment, learning about payroll software can save you time and money. 
• Integration needs: Ensure that your payroll software can integrate with other systems like HR management or accounting software. Some payroll services offer excellent integration capabilities, but may not always match the specific systems you use. 
• Scalability: Consider how quickly your company is growing and any projections for the near future. Payroll services and software are typically very agile and flexible, meaning they can scale up or down accordingly. 

Why choosing the right payroll solution matters for small businesses

Selecting the right payroll processing software solution for a small business matters. Accurate payroll management's value for compliance, efficiency, and employee satisfaction can’t be underestimated. 

Whether you manage payroll software in-house or opt for an online payroll provider who manages everything for you externally, you’ll invest in something that frees up time, brings cost savings, and ensures your staff is paid promptly. 

Final thoughts on payroll providers vs. payroll software for small businesses

When it comes to small business payroll solutions, think about what you need most. 

If you want to outsource completely, consider investing in an online payroll provider. Want to retain control over your wage management? Choose payroll processing software instead. 

Whatever you choose, take a look at QuickBooks. We make managing your payroll simple, and our team can assist with all your small business needs. 

See how we can collaborate on various accounting, invoicing, and other features to help with payroll. 

Take a free trial today.