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Choosing a Payroll Service
A Buying Guide for Businesses.

A Business News Daily Buyer's Guide

Product and service reviews are conducted independently by our editorial team, but we sometimes make money when you click on links. Learn more.

All businesses with employees run some sort of payroll in order to get their staff paid. Instead of processing it on their own or outsourcing the task, many of today's companies opt for an online payroll service to make this process simpler and more convenient.

Online payroll services operate in the cloud. They don't require any software to be installed or maintained, and businesses can manage and run their payroll from anywhere. They can be used to pay full-time and part-time employees as well as contract and freelance workers.

In this guide, we cover everything you need to know about what these services offer and how to choose one. Already know what you're looking for? Visit our best picks page to see which ones we recommend.

Our Best Picks
To help you find the right online payroll service, we analyzed and examined dozens of options. Here is a roundup of the payroll services we think are best for 2020.
Featured Sponsor
Featured Sponsor
Custom pricing
Best for Sole Proprietors or S-Corps
Base fee: $39 to $149 per month
Best for Very Small Businesses
Base fee: $36 per month
Best for Small Businesses Overall
QuickBooks Payroll
Base fee: $20 to $109 per month
Best for Household Employers
Base fee: $39.99 per month

Online payroll typically includes a variety of services:

  • Payroll processing: Online payroll services automatically calculate how much employees should be paid each pay period. The systems account for wage rates, shift differentials, overtime, holiday pay and taxes as well as Social Security and benefit deductions. They then make payments to employees by direct deposit, prepaid debit cards or paper check.
  • File and pay payroll taxes: These services can withhold employee taxes, file quarterly payroll tax reports, and pay tax withholdings to the proper local, state, and federal agencies. They also issue employee W-2 and 1099 forms at the end of the year. Some services offer an error-free guarantee. If a mistake is made, these payroll companies will correct the error and pay any fines or interest incurred.
  • New hire reporting: Many payroll services report new hires to the government on your behalf.
  • Integrations: Online payroll services integrate with a variety of payroll-related programs businesses are already using, such as accounting software, time and attendance systems, and human resources software.
  • Paid-time-off management: Many of these services manage paid time off by tracking how many vacation and sick hours employees have earned and how much they've used. Some payroll solutions even facilitate the time off request and approval process.
  • Employee self-service: Typically, employees can access the online system to view pay stubs, PTO balances and year-end tax forms.
  • Mobile access: Many systems offer mobile apps or mobile-friendly websites that let businesses manage and run payroll from smartphones or tablets.
  • Payroll reports: Detailed wage and labor reports from your service can provide a deeper look at how a business operates.

The biggest benefit of online payroll services is that all the work – payroll calculations, payroll tax payments, year-end tax forms, etc. – is completed for you. With these systems, payroll can typically be run in just minutes.

One downside is that using an online payroll service is more expensive than handling payroll on your own. You are also entrusting your payroll provider to get everything right. If the provider makes a mistake, you may face a rash of angry employees or a fine from the government.

The cost of payroll services varies, but most follow a standard pricing structure: a flat base fee that is charged per month or per pay period. With per-pay-period providers, you are charged each time you run payroll, while per-month providers allow for unlimited payrolls each month.

Some providers offer multiple pricing plans for different levels of service. For example, a basic plan might only include the running of payroll, while more advanced and expensive plans might also include paying taxes and printing W-2 forms for employees.

Base fees range between $20 and $100, depending on the plan and provider. Most services also charge between $1 and $15 for each paid employee or contract worker per month or pay period.

Some services have added costs to use direct deposit, to complete year-end tax services and to set up the system.

Editor's note: Looking for information on payroll systems? Use the questionnaire below, and our vendor partners will contact you with the information you need:

Not all payroll providers offer the same level of service. Here are some specific things small businesses should look for from a payroll provider, including:

Features. Besides payroll processing and the handling of all tax obligations, you should consider whether the service offers multiple pay options, like direct deposit, paper checks or prepaid debit cards. You'll also want to see if the provider offers multiple wage rates, garnishment payments, paid-time-off management, workers’ compensation administration, unemployment insurance and detailed payroll reports.

Ease of use. The payroll service should not be too complex to understand. It should have an easy-to-use interface that allows you to run payroll and add employees into the system in a matter of minutes.

Cost. Businesses want to find a service that they can afford. In addition to cost, you  need to determine if a contract is required. Many services operate on a month-to-month basis with no long-term contracts, while others require yearly commitments. It is also important to factor in whether you are paying by month or pay period. Depending on how often you run payroll, the type of structure you choose could have big cost implications.

Reputation. Find a provider with an established track record, so you can feel secure knowing the company has dealt with the payroll issues you may face.

Integrations. Whether they are built in or able to be created via an open API, you want a payroll service that integrates with the programs you are already using, like time and attendance systems and accounting software.

Support. Look for a payroll service that provides help when you need it. You should inquire about whether you will have a dedicated support representative who will always be your main point of contact.

Outages. Online payroll services are cloud-based, which puts businesses at the mercy of the payroll provider to keep it up and running. Be sure to ask whether the provider has many outages and how often it is down for maintenance.

Employee self-service. Your payroll service should allow employees to log in on their own to view digital pay stubs and year-end tax forms.

Added services. Some payroll providers offer a variety of additional services, such as human resources as well as benefits and retirement plan administration.

Other questions to consider when choosing a payroll service include:

  • How often are their tax tables updated for compliance?
  • Do they have other clients in your industry?
  • Can they integrate with your employee benefits offerings?
  • How will they handle your business as your company grows?
  • What type of security measures are in place to keep your company's payroll data secure?

If you're still not sure whether an online payroll service is a good fit for you, here are several questions and answers that might help you come to a decision.

Q. Do payroll services pay taxes on your behalf, or do they just calculate what you owe and you are responsible for filling out the forms and sending in the payment?

A. Most payroll services handle all payroll tax needs. Online payroll companies withhold the required taxes from paychecks and set it aside for when your business needs to pay those taxes to local, state, and federal agencies. Online payroll services also fill out the necessary forms and submit payments on your behalf.

Many payroll providers guarantee their tax services. If a mistake is made, they will fix it and pay any incurred fines or interest. Check with any provider you are considering to see what type of liability they are willing to accept should an error occur.

Q. How important is it for the payroll provider you select to integrate with other services you use?

A. Having a payroll service that integrates with other programs you already use, like accounting software or time and attendance systems, can save businesses a lot of time.

These integrations allow the programs to seamlessly work together. For example, accounting data can automatically be inserted into your payroll program without having to enter any additional information. Having these types of integrations also  reduces errors that may occur when data is being manually transferred between programs.

Q. Does it matter when you start with a new payroll service? Does it need to happen at the first of the year or can you switch midyear?

A. Businesses can switch to a new payroll provider at any time. However, switching at the end of a calendar quarter can save your business some extra work.

If you think an online payroll service is right for you, check out our best picks page that lists our top choices for various types of employers, our reasoning for selecting each one and a comprehensive list of reputable online payroll services.

Ready to choose a payroll service? Here's a breakdown of our complete coverage:

Editor's note: Looking for information on payroll systems? Use the questionnaire below, and our vendor partners will contact you with the information you need:

Chad Brooks

Chad Brooks is a Chicago-based writer with more than 20 years of media experience. A graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff as a senior writer. Currently, Chad covers a wide range of B2B products and services, including business phone systems, time and attendance systems, payroll services, and conference call services. Before joining Business News Daily and business.com, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago. Chad's first book, "How to Start a Home-Based App Development Business," was published in 2014. He lives with his wife and daughter in the Chicago suburbs.