An illustration depicts a small business owner wondering how to choose a payroll provider for her small business.

How to choose a payroll provider

No matter how much your employees love their jobs, they probably won’t work for free.

The process of adding up hours worked and calculating employee pay is commonly referred to as running payroll. Running payroll is essential to any business, whether large or small, and it's crucial to getting your employees paid correctly.

While some business owners may handle payroll in-house, many choose to outsource payroll using a payroll provider. Before deciding whether or not working with a payroll provider is the right decision for your business, read through this guide, including the following considerations you should keep in mind when choosing a provider:

  1. Your business needs
  2. Service integration
  3. Payroll software pricing
  4. Customer support options
  5. Reputation
  6. Tax compliance updates

In addition, we’ll further break down how to choose a payroll provider, the services they offer, as well as their pros and cons.

Let’s get started!

But first, just what is a payroll provider?

A payroll provider is a company that handles all sorts of payroll services for different businesses. Payroll companies are typically responsible for processing payroll, which involves the various steps to compensating an employee for their work. Thus, payroll providers are tasked with calculating employees’ gross pay, making any necessary payroll withholdings or garnishments, disbursing payments, and creating the payroll records.

What services do online payroll providers offer?

Online payroll providers offer a wide array of different services. While some providers simply process payroll, others come with several advanced features that can serve as useful assets to a company. Let’s start with some of the services that payroll providers may offer:

  • Payroll automation: With payroll automation, you can set up your payroll to run automatically, helping free up your busy schedule.
  • Tax compliance: By utilizing an online payroll provider, you maintain compliance with all current tax laws and regulations. 
  • Time tracking: With integrated time tracking features, you can easily view, manage, and approve your employee’s timesheets on the go.
  • Payroll reporting: Online payroll providers often offer customizable payroll reports you can use to overview important payroll data, from payroll deductions to wage summaries.
  • Tax filing: Some online payroll providers also offer tax assistance, including calculating, filing, and paying your payroll taxes on your behalf.
  • New-hire reporting: Whenever you hire a new employee, you have to report it to your state agencies. Some online payroll providers can help take this task off your plate and do the necessary reporting for you.
  • PTO and sick leave management: An online payroll provider can provide easy-to-access data that can help you monitor your employee’s use of paid time off and sick leave.
  • Software integrations: With the ability to integrate your payroll with other software, such as accounting software, you can manage your payroll and small business accounting in one easy-to-use place.
  • Management of employee benefits and retirement plans: Certain online payroll providers offer additional services like health benefits and 401(k) plans, providing exciting perks you can offer your employees.
  • Direct deposit: A late paycheck can have a devastating effect on your employees. Choosing an online payroll provider with direct deposit can help you pay employees on time, the same day you run payroll.

With an understanding of what a payroll service provider can offer, you can better decide which provider will be best for you and your payroll needs.

How much are payroll services? 

The cost of online payroll providers can vary, with some costing as little as $37.50 a month for the first three months. While the cost of payroll service providers can vary based on your provider and the services you need, many charge on a monthly or per-pay-period basis.

Additionally, online payroll providers may offer tiered pricing plans that increase in price based on the additional services offered. For example, a basic payroll management service plan may only include full-service payroll, whereas a more expensive plan may offer additional time tracking services and 24/7 support.

How to choose a payroll provider: 6 things to consider

An illustration of a pop quiz business owners can follow to decide whether choosing a payroll provider is right for them.

If you’re in the market for a payroll provider, there are a few key things to consider before making a final decision. Below, we’ve outlined a few considerations and questions to ask yourself when assessing payroll options for your small business.

1. Your business needs

Before choosing a payroll provider for your company, you’ll have to determine which core features you need. Perhaps you’re just looking for a simple way to automate payroll processing. On the other hand, maybe you’d like a payroll service that has all the bells and whistles.

As you research payroll providers, consider your most urgent payroll needs. It may even be a good idea to list the features you’d like and find payroll providers that meet those particular requirements. 

Many payroll service companies offer tiered plans, ranging from the most basic package to more advanced ones. Compare your payroll wish list to the features in each tier to find the best payroll service for your company.

Consider business needs such as payroll processing, time tracking, and same-day direct deposit.

2. Service integration

Your company may use other programs such as accounting software or HR services. In this case, you may want to get payroll software that integrates with these other programs. This can streamline the payroll process, improve functionality, and make things more convenient for you as a business owner.

Plus, an online payroll provider that integrates with these services can help attract and retain talent. For example, employee benefits that can help your employees prepare for their future.

Choose a payroll provider that integrates with your current services, from HR advising to accounting software.

3. Payroll software pricing

For many companies, cost is one of the biggest determining factors when deciding on a payroll provider. And rightfully so, since no business owner wants to spend more money than necessary processing payroll. The best payroll services are generally the ones that save companies time and effort at a cost-effective price point.

The cost of payroll services varies depending on the features they offer and their pricing structures. Most payroll providers charge companies a flat rate every month or pay period. If you pay a monthly fee, then you usually get to run payroll as many times as you want within that month. However, if you’re charged every pay period, then you’ll pay a fee every time you run payroll.

When looking for a payroll provider, consider the size of your business. Payroll providers often attach a small charge for each employee on your payroll. Also, add-ons like tax filing, direct deposit, and HR service management may come with extra fees.

4. Customer support options 

It’s always a good idea to have a plan if something goes wrong. If your payroll software begins to malfunction, who will you call upon to fix the problem? If you can’t figure out how to add the new hires you’re onboarding to the payroll system, who will you call for help?

When you’re shopping for payroll provider systems, see what kind of support they offer their customers. Find out if they have a customer support phone number or an online chat feature available to customers. Consider the support system’s ease of use.

Browse through the payroll provider’s website to see if they provide helpful articles, troubleshooting tips, or guides. You might even check out online reviews to see what experiences other companies have had with this particular payroll provider.

5. Reputation

Another important thing to consider when choosing an online payroll provider is their reputation. You can learn more about a provider’s reputation by combing through online reviews and reading about other businesses' experiences with the provider.

Pay close attention to the types of businesses the payroll provider typically works with. If the provider already has experience working with businesses like yours, they likely have the proper experience for your payroll needs.

6. Tax compliance updates

Payroll providers often offer tax services, such as deducting Social Security from employee paychecks and filing payroll taxes on behalf of companies. However, tax laws are constantly changing. To avoid errors and help your company stay in compliance, payroll providers must stay up-to-date on laws and issue the correct tax forms. 

Make sure that the payroll company you use updates its tax tables as soon as new laws go into effect. You might also want to see whether they offer tax penalty protection in case of a filing mistake.

Pros and cons of using a payroll provider

To help you discover whether or not using a payroll provider is the best move for your business, we’ve gathered the pros and cons. As you read through this list, keep your current payroll process in mind, as well as your payroll needs and the improvements you’d like to see.

Pros of using a payroll provider include:

  • Save time: Very few, if any, business owners want to process payroll themselves. While it’s a necessary task, it’s also time-consuming and mundane. By using a full-service payroll provider, business owners can stop spending so much time on payroll and focus on their business.
  • Save money: Managing payroll in-house or hiring accountants can quickly become expensive. According to Glassdoor, the average salary of an accountant is $67,439 in 2023. This figure doesn’t take into account health benefits, paid time off, and so on. Online payroll software performs the same duties as an accountant but generally at a much lower price.
  • Minimize errors: Calculating payroll can get complicated, especially if you have a lot of employees. Processing payroll by hand is bound to result in errors, which can cause confusion and even tax noncompliance. An automated payroll provider can quickly perform complex calculations with minimal errors and file federal and local taxes on your company’s behalf. Some payroll providers even offer to pay penalties if they make an error on your behalf.
  • Easily access useful data: Most online payroll services generate detailed reports for each pay cycle. These reports can provide valuable insights for you as a business owner and may be helpful come tax time. Additionally, many providers have mobile apps and employee portals, so you can quickly access payroll data no matter where you are.

On the other hand, using an online payroll provider may have its cons, including:

  • Loss of control: If you’re used to having your hands involved in all of your business processes, you may find yourself missing the control you had when handling your payroll in-house. Fortunately, options like payroll software allow you to maintain some control while automating your payroll and handling tedious tasks such as tax calculations. 
  • Potential security risks: When utilizing an online payroll provider, you’ll have to share confidential information about your business and your employees. Once this data leaves your hands, it could be compromised if your payroll provider experiences a security breach. To avoid this, choose a payroll provider with robust security measures.
  • Unnecessary additional services: Depending on your online payroll provider, you may be paying for additional services that your business doesn’t need. For example, if all you need is payroll processing, then you want to avoid plans that offer additional unneeded services.

Now that you’ve considered the pros and cons of using a payroll provider, you can confidently make the right decision for your business.

What are alternatives to payroll providers?

Every business is different, and using a payroll provider may not be for everyone. With an understanding of what a payroll provider does, how to choose one, and the pros and cons of using one, you may wonder if there are any other options. 

Alternatives to using a payroll provider include:

  • Handling it in-house: Depending on your budget and the size of your business, you may have considered hiring an accountant or bookkeeper to assist with your payroll and accounting needs. While this option may not be realistic for everyone, it is another option for business owners looking to take payroll off their plates.
  • Online services: There are plenty of online services to choose from to manually process your payroll. Remember that this may be a bit time-consuming, as you’ll have to input all of the data yourself.
  • Payroll software: Utilizing payroll software can help you automate your payroll process while also providing additional features like tax penalty protection, time tracking, and accounting software integration.

Whether you’d prefer to continue handling your payroll yourself or if you want to reap the additional benefits of payroll software, you have plenty of flexibility when it comes to upgrading your business’s current payroll processes. 

Next steps for streamlining your payroll process

Now that you understand what payroll providers do, their pros and cons, and how to choose a payroll provider, you’re ready to take the next step for your business. To avoid manual calculations, automate the payroll process, and offer employee perks, consider using payroll software.

How to choose a payroll provider FAQ

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