Whether you're leading a marketing agency or growing a brick-and-mortar store, you have to navigate confusing pricing plans and ever-changing tax rules. So how do you choose the right payroll service for your small business?
The best option for your business will fit your unique needs and budget. Ideally, your payroll service will also simplify time-consuming tasks so you can reach your business goals, now and in the future.
What does a payroll service do?
A payroll service helps small business owners manage employee paychecks and adhere to tax and labor regulations. These services streamline a variety of tasks involved in the payroll process, including:
Salary and wage processing: These services calculate and process both full-time and part-time employees' salaries and wages. They'll let you send direct deposit payments to your team's bank accounts and issue paper checks when needed.
Deductions and withholdings: Many small business payroll solutions automatically determine and withhold employee taxes, including Social Security and Medicare contributions. They'll also withhold pre-tax deductions like retirement plan contributions and insurance premiums.
Payroll tax management: Payroll services help you manage payroll tax calculations, garnishments, and deductions. They'll also simplify tax filing—and some will even automatically pay taxes on your behalf.
Bookkeeping: A good payroll solution will help you maintain organized records related to employee compensation, tax withholdings, and other critical payroll data, which streamlines bookkeeping for your business.
Attendance and time tracking: This includes tools for accurate time and attendance tracking to help you monitor employee work hours.
Year-end processes: Payroll services assist with essential year-end processes, like creating annual tax forms (W-2s and 1099s), reconciling payroll accounts, and providing reports for the IRS.
Does your small business need a payroll service?
Navigating payroll as a small business owner can be challenging. How do you decide if outsourcing payroll is worth the investment, or if you can handle it on your own? Every business is different, but with the four steps below, you can make an informed decision for your company.
1. Assess your employee count
Consider your current and projected employee headcount. If you're steadily adding employees and managing payroll is becoming increasingly challenging and time-consuming, it may be time to explore a payroll service. They can handle growth-related challenges and help you avoid payroll mistakes.
2. Consider your current time commitments
Reflect on the time and effort you and your team are dedicating to payroll tasks. As your business grows, managing payroll can become more time-consuming. If payroll processing pulls you away from strategic business activities, a payroll service can free up valuable time.
3. Review compliance concerns
When you have employees on payroll, you have to stay on top of compliance at all times. This can be overwhelming for a small business owner—especially since tax laws and regulations are always changing. A payroll service can ease the burden of tax compliance and reduce the risk of costly errors and penalties.
4. Calculate cost vs. value
Finally, weigh the cost of a payroll service against the value it provides. While outsourcing always comes at a cost, a payroll service can improve payroll accuracy and help you manage compliance risks—which can save your business money in the long term.
Ultimately, the decision to use a third-party payroll company should align with your business's growth plans and your ability to manage payroll efficiently. If you're struggling to keep up with payroll tasks and your team is expanding, it might be time to enlist a payroll service.
How to choose the right payroll service
A 2020 survey by Paycor found that employee wages, benefits, and taxes related to payroll can make up as much as 70% of a company's total expenses. Your payroll service can make a big impact on those costs, so don't take this decision lightly.
Here are a few factors to consider when choosing a payroll provider for your small business.
Reputation and reliability
As you start your search, investigate the reputation and track record of potential payroll service providers. Look for testimonials, reviews, and references from businesses in your industry. A reliable service with a solid reputation will help your business manage payroll and taxes with ease.
Budget alignment
Take a close look at your budget before making a decision. Outsourcing will come with additional expenses, and you want to be sure it aligns with your financial goals. Investing in a payroll service may save you money in the long run by reducing errors and penalties.
Tax compliance features
A good payroll service will automatically calculate the correct withholdings for all employees and file the necessary paperwork on time. This safeguards your business against fines and penalties, and it saves you valuable time and resources.
Data security
If your payroll service doesn't come with reliable compliance and security features, it can put your business at risk. You'll also want to look for a service with features that let you easily manage access to sensitive payroll data.
Ease of use
Not every payroll service is created equally. When you choose a service that's user-friendly and easy to set up, you'll be able to streamline your processes and simplify employee onboarding.
It's also a good idea to look for a payroll platform that offers employee self-service features. For example, employees should be able to log in to view their pay stubs and tax documents without involving HR or payroll staff. This saves time and promotes transparency, giving employees visibility into their own information.
Exceptional customer support
Payroll can be complicated, so it's crucial to find a payroll service with reliable, fast customer support. Look for a provider that offers various channels of communication, including phone, email, and live chat. Access to knowledgeable, helpful support can save you time and stress in the long run.
Integrations to make your life easier
If your business uses software solutions for HR, accounting, or time tracking, consider finding a payroll service that integrates with those systems. This can help you save time and reduce manual data entry.
For example, the payroll software Gusto integrates with the online banking platform Relay (that's us). With Relay, small business owners can open up to 20 individual checking accounts with no monthly maintenance fees. Then you can connect Gusto to your Relay account to access helpful money management features.
Relay will help you stay on top of payroll costs by showing you detailed transaction data for every payroll cycle and debit type (like net salary, tax deduction, and reimbursement payments). Plus, we'll send you a notification if your account is low on funds, two weeks before a scheduled payroll cycle.
The best payroll software for small business owners
Tired of processing payroll manually? Payroll software can help you pay employees on time and simplify financial processes. Here are some of the best options for small businesses, with their pros and cons.
Gusto
Gusto is a user-friendly payroll service tailored for small businesses. It simplifies payroll processing with automated tax filing and offers HR features. Pros include ease of use and strong tax support—but costs may rise as your business grows.
Pros:
User-friendly interface
Automated tax filing
Helpful HR features
Cons:
Limited customization options
Can become pricey as your business grows
QuickBooks Payroll
QuickBooks Payroll integrates with QuickBooks accounting software, making it a convenient choice for business owners who already use that platform. It offers user-friendly payroll processing and reliable tax support. However, it may lack some advanced HR features and could be costly for businesses with many employees or complex payroll needs.
Pros:
Integration with QuickBooks accounting software
Easy to use
Reliable tax support
Cons:
Limited HR features
Pricing may be high for some businesses
ADP
ADP, or Automatic Data Processing, is a well-known payroll and human resources management company. They offer a wide range of services, including payroll processing, tax compliance, benefits administration, time and attendance tracking, and HR management.
Pros:
Comprehensive payroll and HR solutions
Excellent customer support
Scales with your business
Cons:
Can be expensive for small businesses
Some users find it complex
Paychex
Paychex is a well-established payroll and HR services company that caters to businesses of various sizes. They offer customizable payroll solutions, HR services, and benefits administration. Paychex is known for its flexibility, strong compliance support, and various add-on services.
Pros:
Customizable services
Strong compliance support
Helpful add-ons
Cons:
Pricing can be on the higher side
Inconsistent customer service
Wave
Wave is an accounting and financial software platform that includes a basic payroll service. It's known for being free, making it an attractive option for very small businesses and freelancers. Wave offers features like payroll processing, direct deposit, and tax calculations. It's great if you're just starting out and don't need advanced payroll features.
Pros:
Completely free to get started
User-friendly interface
Basic payroll features
Cons:
Limited in features compared to paid services
Not suitable for larger businesses
Understanding the true cost of a payroll service
If you've found the perfect payroll service for your business, congratulations. Now you'll need to figure out how much it will cost. It's not always straightforward—but in this section, we'll give you everything you need to properly evaluate the true cost of a payroll service.
3 common pricing models
Most payroll services start with a base fee that can be paid monthly or annually. From there, it can get a little complicated. They might charge a fee for each additional employee, or your payroll service might be more like a streaming subscription—where you pay the same no matter how many employees you have.
As a rough benchmark, most small-business payroll services charge a base fee of about $20 to $150 per month, plus roughly $2 to $15 per employee per month, according to Business.com's 2026 pricing guide. Where you land depends on the provider and the features you add.
Here are the three most common pricing models for payroll services, so you can choose the option that works best for your budget.
Employee-based pricing: With this approach, providers calculate their fees based on the number of employees you have. The more employees you add, the higher your costs may become.
Monthly subscription: Similar to how you pay for a streaming service, some payroll providers offer a monthly subscription model. You pay a fixed amount each month, regardless of the number of employees on your payroll.
Per-payroll charge: Alternatively, a few providers might charge you each time you process payroll. This means you pay for each payroll run, which can suit businesses with varying payroll frequencies or sizes.
Additional costs and hidden fees
On top of the base fee, some payroll services come with hidden fees. These unexpected charges can add up quickly if you're not careful. Here are the most common fees to watch out for when choosing a payroll service:
Add-ons: Check if there are extra charges for things like handling taxes, managing employee benefits, or tracking working hours.
Set-up fees: Before signing up, look out for setup fees—a common hidden cost. These aren't always clearly listed on the payroll company's website, so double-check.
User licenses: If more than one person needs to use the software, see if you have to pay extra. These costs can add up quickly if you have multiple team members managing payroll.
Scaling: Will the payroll software get significantly more expensive as your business grows? If so, you might want to consider a more affordable option.
Cancellation fees: Read your user agreement carefully. Understand what will happen—and what you'll be charged—if you decide to cancel your payroll subscription.
Can online payroll services help with employee benefits?
Even when you have a small team, it can be tough to stay on top of PTO, workers' compensation, and other employee benefits. The good news is that your payroll service might be able to help. Some offer this as an add-on, while others include it in the monthly subscription fee.
For example, ADP offers a range of employee benefits services like retirement plans and health insurance. Paychex also provides benefits administration support. Keep in mind that these additional services may come with extra costs—if your team is relatively small, you might not want the added expense.
Still not sure? Here are a few ways your payroll service can help you manage employee benefits.
Simplify enrollment: Your payroll provider can help your employees enroll in their chosen benefits plan. This saves you time and minimizes confusion for your team.
Reporting: Payroll services can often help you track employee benefits usage, calculate costs, and produce reports.
Compliance support: If you're providing benefits, there are likely regulations and laws you need to follow. A payroll service can help ensure you stay compliant.
Documentation: Your payroll system can help you keep track of employee benefits-related documents—like health care enrollment forms (Form 1095-C) and Summary of Benefits and Coverage (SBC) statements.
The bottom line
Choosing the right payroll service is an important decision that can impact your bottom line, compliance with tax laws, and overall efficiency. With the right payroll partner, you can streamline your processes and better manage employee benefits—saving you time and money in the long run.
Relay can help you stay on top of cash flow and never miss a payroll cycle. With Relay, small business owners can open up to 20 individual business checking and savings accounts with no monthly maintenance fees. Then you can use our Gusto payroll integration to get a heads-up when your balance is too low to process payroll, plus detailed transaction data for every payroll run—so you never have to waste time decoding a bank statement again. Get started with Relay.
Frequently asked questions
How much does a payroll service cost?
Most small-business payroll services charge a monthly base fee plus a per-employee fee. Expect roughly $20 to $150 per month as a base, plus about $2 to $15 per employee per month, according to Business.com's 2026 pricing guide.
Watch for add-ons, setup fees, and per-user charges that aren't always listed up front—they're what make two "cheap" quotes end up costing very different amounts.
Do payroll services file year-end tax forms like W-2s and 1099s?
Yes. Generating and filing year-end forms is a standard payroll-service feature. Providers typically prepare and distribute W-2s for employees and 1099-NECs for contractors, then file them with the Social Security Administration and the IRS by the late-January/early-February deadline.
The IRS requires electronic filing once you have 10 or more information returns, which most payroll services handle automatically as part of their service.
Can a payroll service handle employee benefits?
Many can. Larger providers offer benefits administration—health insurance, retirement plans, and PTO tracking—either bundled into the subscription or as a paid add-on.
If your team is small, weigh whether the extra cost is worth it, or whether you only need core payroll for now and can add benefits administration later.
How do I compare payroll providers?
Start with the four factors that drive the decision: reputation and reliability, total cost (base fee + per-employee fee + add-ons), tax-compliance and security features, and integrations with the tools you already use.
Get quotes based on your actual employee count, and confirm what's included versus what costs extra before you sign—that's where the real price difference between providers shows up.
