The payroll process is not a task for the faint of heart. It can be daunting, which is why some business owners outsource the work. But with so many free and paid services and apps to choose from, it's challenging to find the best payroll solution for your business. When choosing between a free payroll service and one you must pay for, keep in mind that an expensive option isn't necessarily better, but free alternatives might not be your best option either.
Understanding your business's needs and which payroll features you want are key to choosing the right service and payroll provider. However, if cost is king and you feel like you need a free payroll service, it's important to be aware of what features you'll get and which ones you'll miss out on.
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What is the difference between a payroll app and a payroll service?
Before you can decide whether free or paid payroll works for you, you must first understand the difference between a payroll service and payroll app. This is key to understanding what features they offer. It's easy to lump the two together, and there are some similarities, but each has its own advantages and disadvantages.
What is a payroll application?
A payroll application is just payroll software. It only automates certain payroll functions. For example, a payroll application typically allows you to set payment processing for employees, calculate wages, implement pay schedules, enter data, and file taxes, benefits, and retirement information. It's online, so it has the obvious advantage of being accessible from anywhere that has an internet connection.
The accessibility and convenience of payroll apps give employers and employees autonomy and flexibility. For instance, if an employee forgets to file a request for paid time off while they're at work, they can take care of it on the commute home by connecting to the system on their smartphone.
Payroll apps eliminate the need for a payroll company, processor or any service you use outside of your company to help process your company's financial information. This helps keep employee information secure and allows payroll errors to be handled immediately.
However, this freedom can be a double-edged sword, because we're human and sometimes forget to fill out a form or enter the wrong numbers.
What is a payroll service?
On the other hand, payroll services are third-party companies that process payroll on your behalf. This takes the load of completing tedious payroll operations off of you, saving you time and giving you peace of mind that all the right forms are filled out and filed correctly. Payroll services manage all payroll processing and sometimes human resource functions as well. They also manage tax filings, which can be a pain to do yourself.
One of the biggest differences between payroll software and services is the cost. Using a third-party company to manage your business's payroll is not often free and usually not cheap. Payroll apps are less expensive because the responsibility to enter data correctly falls on you, and they may not have all the same features as a payroll service.
What are the benefits of free payroll services and apps?
The obvious advantage of free payroll services is that you don't have to spend any money. When looking for a free service, especially to manage information as sensitive as your company's financial data, you need to do your homework.
"Always ask for a reference and speak with three to five companies that are doing business with them," said Rick Fish, a payroll professional certified by the American Payroll Association.
If you're just starting out, a free payroll service or app can be a good tool to use. Any assistance with payroll administration is helpful at this stage, freeing up time for you to focus on other tasks that help you grow your business.
Free payroll services or apps have tools that automatically calculate taxes, wage garnishments, and Social Security and benefit deductions. This feature ensures that your company's information is analyzed accurately and that you're in compliance with new tax laws, helping you avoid violations and fines.
This service also offers the choice of direct deposit or paper checks, tax form generation, and access to electronic paystubs. Its integration options allow you to merge other accounting or business software with your payroll, which means you don't have to worry about keeping two separate systems in sync.
What may be missing from free payroll services and apps?
While saving money is great, you should be prepared to sacrifice a few things when using a free payroll service, said Alexia Matak, sales and marketing director of Payroll Experts. A free option typically gives you just the basic features, so free payroll may not have everything you want or need for your company.
One feature that free services don't often include is customer support.
"If you are fine with having more of a '1-800' call center atmosphere and you could forgo the local presence of a dedicated point of contact, then you'll be OK," Matak said.
Personable customer service may seem like something you can do without if you feel confident using the payroll app, but let's say you make a mistake or enter information incorrectly. If you aren't a paying customer, the service provider may not step in to help you resolve the issue as quickly as you would like.
The use of free payroll services may compromise the accuracy and punctuality of your payroll tax filing as well. According to the Internal Revenue Service, 40% of small businesses are hit with fines that average $845 a year for incorrect payroll tax filings. Do not be a statistic! To avoid this problem, make sure you know who is responsible for filing your taxes. Matak encourages business owners to ask questions and be wary of payroll service companies that require you to enter your employees' wage information yourself. You should look for a company that handles that task for you.
If you're interested in a free payroll service, you may also have to compromise on your security. While payroll companies that charge for their services invest money and resources into multiple servers and data security systems, free payroll software may be glitchy and may not be secure against data breaches and online hackers.
Also, while full-service systems typically back up the system for you automatically, a free payroll service may require you to do a bit more work to keep your data secure, so you may have to back it up yourself. Each pay period creates a cascade of payroll information that you are legally obligated to keep for a certain amount of time, and losing it to computer failure would be disastrous.
Quality assurance checks
Withholding errors are also common. Some systems aren't advanced or efficient enough to tell the difference between regular and additional voluntary withholding amounts. You can find these safeguards and system checks in paid services, with alerts and accuracy assurance consultants who review your information for errors. Glitches can lead to fines for under-withholding, and other costly blunders like overpaying and underpaying employees can also lead to angry staff. Reporting of paid time off and sick days may also be affected.
What are the benefits of paying for payroll services and apps?
A staple rule of buying something is that you get what you pay for. Payroll features vary, and you may discover options you didn't know you needed. Sometimes paying for services comes with the benefit of more features to choose from. This gives you the flexibility to customize the service, because the base plan isn't your only option. In some cases, this can even save you money.
Paying for higher security is a smart investment to protect your company's sensitive information. When you use payroll software, your information is accessible to anyone with access to the online platform. This can lead to theft or embezzlement. Paying for a software or service with encryption technology and routine data backups will save you headaches and likely keep your company from falling victim to fraud and financial harm. Some payroll companies don't charge for this service, while others make it very expensive.
In addition to heightened security, paying for services can provide access to functions that make your payroll processing experience even easier. Additional features include contract generation, contractor services, labor law compliance, access to health benefits, workers' compensation payments and bookkeeping services. Depending on your type of business, some of these services may be just what you need.
Lower costs than for in-house HR
Depending on your company's size and complexity, a payroll processing service may replace your need to hire a human resources specialist. Instead of hiring another employee and paying their salary and benefits, you would simply pay the payroll company for its services, which is likely much less expensive.
What are the common issues of paying for payroll services and apps?
Just as you'd create a shopping list to keep you grounded in the grocery store, make one for the features you need and want for your payroll operations. Nothing is worse than realizing after several months of paying for a service that you were tricked into buying a bunch of bells and whistles you've never even used.
Some payroll services bundle their features into preconfigured plans, so sometimes you end up paying for amenities you don't need. It's important to look through each payroll service's plans closely to see exactly what each one offers. All-inclusive deals can be cost-effective, but not when they include a lot of features that are not useful for your kind of business.
Some companies may charge you for pay frequency, which is how often you pay your employees. Other companies charge a monthly base fee regardless of how many times you pay your employees, but you should double-check this.
Payroll service expenses can increase quickly if you're not careful. Some companies may charge an extra fee for tax assistance because they don't provide payroll tax operations off the bat, hitting you with an expensive surprise at the end of the year.
Surprise fees for check signing, paper check printing, envelope stuffing, direct deposit and new employee reporting can also sneak into your bill. With any service, stepping outside of your set features can lead to additional costs. To avoid extra charges, think about features you may not know you are using, like payroll adjustment services.
How do you look for a good payroll service or application?
Whether you are looking for a free or paid payroll service or application, dependability should be the first thing you look for. Here are a few additional factors you should consider when determining if your payroll service is a quality choice.
First, when picking a payroll service – whether free or paid – do your research. Ask questions, ask for references, check online reviews, and call the company's customer support line. Take advantage of a free trial if one is available so you can see if the payroll app is easy to use and has the features you need.
Make sure the service or application you choose will pay your employees and payroll taxes on time. The last thing you want is to be fined because your software is glitchy or your payroll service missed a deadline. Find out if your payroll service has an online portal that you can check to see whether the data you entered is what is getting processed. It is also important to understand who is liable if a mistake is made and how long it takes to address an error. Usually, Matak said, the client is held responsible.
Ask the company whether annual fees change after a year, how often you'll get reports, and if there is an extra fee for filing in more than one state. Also, inquire about the availability and schedules of customer service representatives to make sure you can get help when you need it.
What are some of the leading free payroll software in the market?
When it comes to free payroll software, options abound for small business owners. Some will give you access to a free trial, while others make it free for a predetermined time. Other online payroll software won't cost you a dime while you use it. You may not get a slew of bells and whistles, but if you need a low-cost way to manage payroll, here's a list of free options and what they have to offer.
- Payroll4Free: Free for businesses paying fewer than 25 employees, this cloud-based software gives you several functions in addition to paying employees and contractors. It completes tax calculations for you, tracks vacation time, offers employees a self-service portal and provides detailed reports. Payroll4Free lets you pay employees by direct deposit or and paper check. The software is ad-supported, which is why it's free to its customers.
- TimeTrex Community Edition: TimeTrex gives business owners access to a free, open-source version of its software. It includes payroll, attendance tracking, HR management and scheduling. The paid versions have several more features, including a mobile app, a facial recognition time clock tablet, invoicing, and expense tracking.
- eSmart Paycheck: This program enables small business owners to create and print paychecks and paystubs for free. eSmart Paycheck's service automatically calculates federal and state payroll taxes, generates IRS and state payroll forms, and creates management reports on payroll records. It also has a free payroll calculator.
- Paycheck Manager: This online software provider offers free and paid payroll services for small businesses. Its paycheck calculator is free, enabling business owners to prepare and print paychecks in less than 10 minutes. There is no registration required for this service. The basic plan starts at $5 a month. For that, small business owners get unlimited payroll runs, the ability to print checks anytime, and federal and state tax calculations. Its managed service costs $12 a month, plus $2 per employee and a $10 setup fee. Both plans come with a three-month free trial.
- HR.my: This free software supports 65 languages, giving business owners the ability to automatically generate paystubs, manage attendance and paid time off, and support unlimited employee web accounts. HR.my is crowdfunded by the community, which is how it remains free for all users.
- ExcelPayroll: ExcelPayroll, as the name implies, runs on Excel, giving business owners access to a full set of payroll tools for no cost. Through the free Excel-based program, you can print tax forms, print checks, run vacation and workers' compensation reports, and account for wage deductions such as 401(k), medical benefits, and garnishments. The software is designed for businesses with fewer than 50 employees.
- Zenefits: While not completely free, Zenefits includes a full year of its payroll software free with an annual subscription to its Growth and Zen HR software packages. With its payroll service, business owners get unlimited pay runs, support for multiple pay schedules, and federal and state tax filings.
Donna Fuscaldo contributed to the writing and research in this article. Some source interviews were conducted for a previous version of this article.