If you're a budding business owner, you may need an affordable payroll service, but is it wise to choose the cheapest one you can find?
- 39% of U.S. companies – that's more than 10 million businesses – outsource their payroll processing.
- 43% of U.S. companies outsource their payroll tax responsibilities.
- Payroll processing companies have security features in place, including backup systems and multiple servers, to keep your company's information safe.
Operating a business comes with many costly expenses, but hiring a payroll service doesn't have to be one of them. There are many affordable payroll services, in addition to software, for small businesses to choose from.
Just because you're looking for a budget-friendly payroll processing service doesn't mean you need to settle for a barebones solution. But on the flip side, paying more for payroll processing doesn't always mean you're getting the best value for your money. Every company works differently, and if you don't need the extra bells and whistles, why should you pay for them?
You can find options that fit your budget and match your business's model and expectations when you know what to look for and what to expect from a payroll processing solution.
What is a cheap payroll service?
A cheap payroll service has just the basic features that a company needs to process its employees' wages, and it provides them for a low price. Choosing a cheap service does not mean your employees won't be paid or you won't meet reporting regulations, but it does mean that you will need to do more on your end to get the job done; it's not going to save you as much time as a full-service payroll solution would.
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How much does it cost to have a payroll service?
There's a wide range of payroll service costs, depending on the features you need and the number of employees you have. Other factors that can affect the amount you pay include how many times your employees are paid, whether you pay by direct deposit, how many of your employees live out of state, and tax filing services. You can also buy a monthly subscription at a set rate or per payroll. The set rate is typically the payroll base cost plus the per-employee cost. In our testing to find the best online payroll services of 2020, we found base fees ranging from $29 to $150 and per-employee fees from $2 to $12.
What makes it cheap?
Like more expensive options, cheaper payroll services are usually automated and can help you transform hours of work into minutes – which saves you money as well as time. However, a cheaper payroll service may lack some of the nicer features that more expensive plans include, such as overtime hour calculations, tax filing, reimbursement payments, commission calculations or any service that goes beyond the basic needs of payroll management. If you choose a cheaper payroll plan and the company offers these services, it may charge you an additional fee to use them.
What are the advantages of a cheap service?
An advantage of using a cheaper payroll service, besides the lower cost, is the quicker access you have to your information. Cheaper services usually come in the form of software or apps that you and your team can manage yourselves, eliminating the middleman. This is especially useful when you discover mistakes that need immediate correction.
What are the disadvantages of a cheap service?
It's difficult to find a cheap payroll that offers automated tax filing and service deals, which are typically a bunch of features for a set price. A cheaper service may take more manual operation to process your workers' hours. Sometimes updates about new hires or terminations are also manual, which can eat up some of your time.
It's uncommon for cheap payroll services to offer assurance checks – double-checking your payroll information to ensure it's accurate. You probably won't have access to the additional human resource services and benefits that higher-priced suites offer either.
What are the cheapest options for payroll services?
Understandably, small businesses typically operate on a tight budget – especially when they are starting out. However, the last thing you want to do is sacrifice quality payroll service because you're a little short on cash. If you can't afford the costs of hiring and training HR specialists to run payroll, or if you prefer to outsource it, you have several options, including payroll processing companies, certified payroll processors, bookkeeping services and professional employer organizations (PEOs).
The number of employees you have also contributes to the price of a payroll service. If you only have one or two employees, you could do it yourself, but most small business owners prefer to use a payroll service to save time and ensure accuracy.
Another option is payroll software, which is usually cheaper and can compute wages, taxes, and employee checks. These solutions often charge per employee, so the smaller your team is, the less expensive it will be to manage payroll.
Remember that free or cheaper options may be missing a few features. Lack of customer support or inconsistent payroll reports can be a problem with cheap options.
Here are four types of affordable payroll services you should consider and how you should assess their value to you.
Is payroll software a good cheap payroll option?
Do you know what's cheaper than payroll services? Payroll software. If you find that even the cheapest payroll services are bleeding your wallet dry, payroll software may be for you. You can manage, organize and compute your employees' payments with this software. It holds all your payment records and is more affordable than payroll services.
Benefits of payroll software
Payroll apps automatically calculate taxes based on state and federal regulations. The software also manages deductions and calculates the taxes for payroll, Social Security, and Medicare.
As an employer, you want to avoid violations and fees. Payroll software helps you electronically file W-2, W-4, 1099, 1095 and any other payroll forms you'll need for your business.
Payroll software gives and your team more payroll management freedom. You can address mistakes quickly without going through someone else. You can monitor your information from your phone. No middleman or third-party user means fewer people have access to your company's private information. It's also easy to calculate bonuses and paid time off (PTO) and to automate end-of-year reports.
Are bookkeeping services an affordable payroll option?
A bookkeeping service does what an in-house bookkeeper or accountant would do. This service handles your transaction coding, accounts payable, accounts receivable, payroll and financial reports.
How to choose the right bookkeeping service
Before you pay for a bookkeeping or accounting service, inquire about the company's payment structure. Are there annual fees? How long does it take to process your company's data? How much experience does the company have in employment law compliance, and how often will someone from the company check in with you? With an outsourced service like this, you may not have as much interaction or communication with the company as you'd like, so it's important to understand what you are getting into before you decide to work with one.
Is a payroll processing company affordable?
A payroll processing company handles a company's payment of wages to its employees by providing payroll and HR operations management.
How to choose the best payroll processing processor
Do your research on a payroll company before hiring it to manage your company's data, said Rick Fish, a payroll professional certified by the American Payroll Association. Ask for references. Remember your company's needs and evaluate whether the payroll provider matches your expectations. Look into the company's credentials and see if it has experience working with a company like yours, Fish said.
To avoid using the wrong payroll processing company, there are several things you should make sure the company manages and offers. At the very least, the company should automatically run and calculate payroll for each pay period. Inquire about the level of contact you'll have with the payroll data and what the process of gaining access to your data looks like. Does it take a couple of business days? Is there a bunch of forms to fill out or steps to take beforehand?
Check if the company offers tax filing services, like managing deductions and W-2 and 1099 forms for employees. Does the system flag issues, and how does the company notify you of those issues? Does it send alerts for employee benefits eligibility or overtime?
"Make sure you have a way of confirming your taxes are being filed [in a] timely [manner]," said Alexia Matak, sales and marketing director at Payroll Experts.
Matak also encourages business owners to find out who is liable for payroll errors, because it's usually you. "Be careful of companies that say, 'We're taking full responsibility,' because payroll taxes are the biggest liability."
Analysis reports are also a good way to give you updates and information on your company. It is also important to have the function of PTO requests and a web-based system so you can check in when you want.
It's good to get references for your prospective payroll providers before hiring one. You should also take advantage of free trials so you know what to expect and can assess the service's reliability before you pay.
Understanding the service your payroll processing company offers is key to saving money. Asking the right questions will help you avoid paying added fees later.
What are the benefits of payroll processing companies?
Many U.S businesses outsource their payroll responsibilities to payroll processing companies. According to a recent survey by Robert Half and the Financial Executives Research Foundation, 39% of U.S. companies, which equals more than 10 million businesses, outsource their payroll processing, while 43% outsource their tax responsibilities.
A payroll processing company shifts some of the administrative weight off your shoulders. Payroll sometimes needs to be reviewed more than once, so outsourcing this task can save you both time and money. Instead of spending the funds and effort; calculating wages; printing, signing and sending checks; and preparing and paying payroll taxes, you can hire a payroll company to handle all that for you. This gives you more time to work on your actual business operations.
In addition to being a timesaver, outsourcing is a safer option. Payroll processing companies have features like backup systems and several servers to keep your company's information secure.
Compliance with tax laws
Keeping up with compliance can be a pain, especially with payroll tax laws constantly changing. With a payroll processing company by your side, there is no need to keep track of those regulations, because your provider does it for you. As a result, you maintain compliance with laws and avoid violations and fees.
Some features of affordable payroll processing companies allow you to add payroll services through your accounting software. You can also choose how much service you want based on your budget and business – you can purchase full-service or self-service payroll or anything in between.
Same-day direct deposit is another service payroll companies offer; however, Fish warns employers not to get swept up in the "same-day pay" craze if it's not something you need. Some companies also provide flexible payment options, like automatic payroll processing for salaried and hourly employees, and varied payment schedules like weekly, biweekly and monthly. They can also set up automatic adjustments for tips, child support or other court-ordered deductions.
What are the disadvantages of payroll processing companies?
Vendors that have a one-size-fits-all pricing system do not consider your company's size or specific needs in the price. In some cases, you might not need all the services they provide in their base plan, which could feel like a waste of money. See if you can cherry-pick what you like and just buy what works best for you.
The tricky thing about dealing with a payroll company is that it might offer a really low price, but only at first. Before you partner with the service, do your research to avoid sneaky added fees. Sometimes prices are subject to change after a year, so look out for that.
Regardless of the service, a payroll processing company is a separate entity that handles your company's information. For the same reason, if you need to correct a payroll error, your payroll processing company may not respond as quickly as you like.
How does a PEO affect your payroll?
PEOs work specifically with small and midsize companies. They manage payroll taxes, human resource operations and benefits through a co-employment model. Your employees will be on the PEO's books but still under your management. If you need to outsource other HR tasks, like administering benefits, a PEO might be a cost-saving option for you. If you use a company like this that offers payroll, it may be convenient and cost-effective to add these services to the ones it already performs for your business.
What are the advantages of full-service payroll?
A full-service payroll company is typically larger and operates almost like a tech company, said George Kocher, CEO of Brand North. Processing companies can offer a platform for time tracking and time-off requests through easy-to-use smartphone applications.
"Because of their size, they also have strategic relationships," Kocher told business.com. "For instance, they might be able to help you create your HR handbook and have free access to online hiring platforms or even attorney services."
Although full-service payroll companies are usually larger, they can provide dedicated payroll specialists to assist you. A full payroll service also provides flexibility for submitting payroll information. You often have the option of submitting it by phone or email at any time of the day. Many companies offer automated tax filing, and some even give you access to other HR and benefits services.
What are the disadvantages of full-service payroll?
A full-service payroll company has a lot to offer, but when you're a small business, it might cost more than you have at the moment. You should also be on the lookout for hidden charges like setup or account maintenance fees.
Cost isn't the only drawback of using a full-service payroll company. Its size can make working with the payroll company feel impersonal if it doesn't assign a payroll specialist to your account. Liability for payroll tax filing errors may also be a problem. Some full-service payroll companies take responsibility on your behalf, but some do not. This means you could be hit with fees for mistakes your payroll provider makes.
How do you choose between cheaper and full-service payroll?
When choosing between cheap and full-service payroll, take time to assess what you need as a company. A full-service payroll company may have everything you need and more, which can be costly compared to a free or cheap payroll service that's a bit more limited. The best way to decide is to weigh what you need against what you want or can do without.
You should also plan on testing out a service if a free trial is available. When using the trial, ask yourself the following questions:
- Is it easy to navigate?
- Does it offer tax services?
- What self-help resources are available on the company's website?
- Is its tax service management as complete as you'd like?