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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.

Any business with employees needs to run payroll to get their staff paid. 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 payroll from anywhere. They can be used to pay full-time and part-time employees, as well as contract and freelance workers.

If you're looking for an online payroll service in 2018, here's everything you need to know about what online payroll 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.

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 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 state and federal agencies. They also issue employee W-2 and 1099 forms at the end of the year.
  • New hire reporting: Many payroll services report new hires to the government on your behalf.
  • Integrations: Online payroll services can 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.
  • Employee self-service: Typically, employees can access the 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 several 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.

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:

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

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 also consider whether the service offers multiple pay options, like direct deposit, paper check or prepaid debit card. 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 a clean and easy-to-use interface that allows you to run your 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 also 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.

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 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 if an online payroll service is a 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 can handle all payroll tax needs. Online payroll companies withhold the required taxes from paychecks and put 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 the payments on your behalf.

Many payroll providers guarantee their tax services. Should a mistake be 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 can integrate with other programs you are already using, 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 can also help reduce any 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, we encourage you to check out our best picks page, which includes 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:

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Chad Brooks

Chad Brooks is a Chicago-based writer who has nearly 15 years' experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.