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 provider 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 allow you to 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 payroll options 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. This will streamline and simplify bookkeeping for your business.
Attendance and time tracking: This includes providing tools for accurate time and attendance tracking and helping businesses monitor employee work hours.
Year-end processes: Payroll services assist with essential year-end processes, like the creation of annual tax forms (W-2s and 1099s), reconciliation of payroll accounts, and the provision of 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? 🤔 Well, every business is different, but with the four steps below, you can make an informed decision for your company. ⬇️
1️⃣ 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. 🙌
2️⃣ 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 and more time-consuming. If payroll processing will take you away from strategic business activities, a payroll service can free up valuable time—and allow you to focus on revenue-generating tasks. 📈
3️⃣ 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 alleviate the burden of tax compliance and reduce the risk of costly errors and penalties. 📝
4️⃣ Calculate cost vs. value
Finally, weigh the cost of a payroll service against the value it provides. While outsourcing always comes at a cost, remember that a payroll service can improve payroll accuracy and help you manage compliance risks. This can actually save your business money in the long term. 🙌
Ultimately, the decision to use third-party payroll companies should align with your business’s growth plans and ability to manage payroll efficiently. If you’re struggling to keep up with payroll tasks and your team is expanding, it might just be time to enlist the support of 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 you shouldn’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, be sure to 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 services will come with additional expenses, and you want to be sure it aligns with your financial goals. Remember that 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 offer comprehensive tax compliance features, automatically calculating the correct withholdings for all employees and filing necessary paperwork on time. This not only safeguards your business against fines and penalties but also saves you valuable time and resources.
🔒 Data security
If your payroll service doesn’t come with robust compliance and security features, it can put your business at risk. You’ll also want to look for a service with features that allow you to 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 implement, 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 not only saves time but also promotes transparency and empowers employees with visibility into their own information.
👥 Exceptional customer support
Payroll can be complicated, so it’s crucial to find a payroll service that comes with reliable and fast customer support. Look for a provider that offers various channels of communication, including phone, email, and live chat. Having access to knowledgeable and 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 20 no-fee, individual checking accounts. 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 your employees on time and streamline financial processes. In this section, we'll explore some of the best options for small businesses and 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 comprehensive tax support—but remember, 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 that already use this platform. QuickBooks Payroll offers user-friendly payroll processing and robust 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
✅ Robust 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
✅ Scalability
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 needs. Congratulations! Now, you’ll need to figure out how much this service will cost your business. Unfortunately, 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 Netflix subscription—where you pay the same no matter how many movies you watch (or employees you have).
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, some software 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 cable or streaming services, some payroll software 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 be suitable for 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 their working hours.
Set-up fees: Before signing up for a payroll service, be sure you look out for the most common hidden cost—setup fees. These might not always be clearly listed on the payroll company’s website, so it’s a good idea to 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 or service get exponentially 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? Your payroll service might be able to help. 🙌 Some offer this service 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 comprehensive benefits administration support. However, keep in mind that these additional services may come with extra costs. If your team is relatively small, you might not want the additional 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 that you need to follow. A payroll service can help ensure you stay compliant with these rules.
📝 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 for your business 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 your 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 multiple, no-fee business checking and savings accounts.
Then, you can use our Gusto payroll integration to get notifications when your balance is too low to process payroll. Plus, you’ll get detailed transaction data for every payroll run—so you’ll never have to waste time decoding your bank statements again.
Ready to get started with Relay? You can sign up here. 😎
