Best Payroll Services for 2021

For small business payroll, payroll services typically have a monthly or per-payroll cost structure. With monthly plans, you pay a base fee and a per-employee fee. Base fees are usually $30 to $150 per month, and per-employee fees range from $2 to $15 per month.

With a monthly fee structure, you can run payroll as often as you like for one flat fee. With a per-payroll fee structure, companies charge anywhere from $10 to $100 per payroll run, plus per-employee costs of $2 to $15 per month. In addition, some payroll companies charge extra for year-end tax service and initial setup fees.

Most online payroll services offer free trials of between one and two months, giving you the chance to try out the software for at least a couple of payroll runs to see if it meets your needs.

Key takeaway: Most online payroll services charge a base monthly fee of between $30 and $150 per month, plus per-employee fees of between $2 and $15 per month.

Payroll services handle all of your payroll processing and payroll tax needs. An online payroll service calculates how much each employee should be paid based on their pay rate and required deductions.

Most employees have a choice to be paid by direct deposit, paper check or prepaid debit card; based on each employee's chosen method, the payroll service makes the appropriate payments. It is important to note that the money the payroll service uses to pay the employees comes out of the employer's bank account. Typically, the money is withdrawn from the business's account on selected days before the final payments are made to employees.

The other critical task payroll services handle is ensuring adherence to payroll tax requirements. Payroll services withhold the proper amounts from each employee's paycheck and determine how much payroll tax the employer is responsible for. In addition, the payroll service fills out the necessary paperwork. Finally, the payroll service files the required paperwork and makes the payroll tax payments directly to the proper federal, state and local agencies.

Payroll services can also handle other tasks, such as filing new-hire reports with the state, managing PTO and overseeing benefits administration.

Key takeaway: Payroll services handle all payroll calculations, payments and tax requirements.

Payroll services offer a variety of features and tools that streamline payroll processing for small businesses. Here are some of the most valuable features:

Unlimited payroll processing. Some payroll services allow employers to run payroll as many times as they want each month, thus giving them the freedom to determine the pay periods that make the most sense for their employees. This flexibility also lets employers pay independent contractors as often as they'd like without having to pay extra for additional payroll runs.

Payment options. Online payroll services allow employers to pay employees by direct deposit, paper checks and prepaid debit cards.

Payroll tax. Online payroll services determine how much employers owe in payroll taxes; complete and file the paperwork with the appropriate federal, state and local tax agencies; and make the required payments.

Year-end tax forms. Payroll services prepare all of the necessary year-end tax forms, including W-2 and 1099 forms, and then provide them to employees and independent contractors.

PTO management. Some payroll services handle some or all of employers' PTO management. This includes tracking how much time off employees earn and use, as well as allowing employees to request time off and managers to approve or deny those requests.

Employee self-service. The software has an online portal that employees can access to view their paystubs and year-end tax forms.

New-hire reporting. Many payroll services can complete and file the required paperwork each time you hire a new employee. This paperwork needs to be filed in the state in which your business operates.

Mobile access. Most payroll services provide either a dedicated mobile app for iOS and Android devices or a mobile-friendly website, thus ensuring the payroll software can be accessed from smartphones and tablets.

HR services. In recent years, many payroll services have started offering additional HR services, such as onboarding tools, employee benefits management and HR compliance. Additionally, some payroll services give businesses access to a dedicated human resources professional who can help them navigate HR issues.

Key takeaway: Some of the valuable features online payroll services offer include unlimited payroll processing, the ability to pay employees in multiple ways, assistance with year-end tax forms, PTO management, employee self-service and mobile access.

Here are the answers to some of the most commonly asked questions about payroll software and services:

What other benefits does payroll software provide? 

There are several big benefits of using comprehensive online payroll solutions. One major plus is its efficiency. You don't have to hire someone to handle all of your payroll needs, because pretty much anyone can use the software. In most cases, all you need to do when running payroll each pay period is to enter the hours each employee worked and any bonuses or commissions they earned. The software does the rest for you: It calculates the pay amounts, withholds the proper deductions and automatically deposits the money into each employee's bank account. 

Another benefit is that the payroll company takes care of the tax filings and payments for you. Most offer a tax guarantee, so if the payroll service makes a mistake when filing or paying your taxes, the company will fix the problem and pay any fines you incur. 

What type of payroll service is right for my small business? 

When you're choosing an online payroll service for your small business, there are several factors to consider. First and foremost, make sure it can handle all of your payroll and payroll tax needs. Can you run payroll as often as you like? Will the service make the deductions you need? Does it give your employees self-service access? 

Also consider whether the payroll solution is easy to use. The online interface should be simple to understand, and it should allow you to run payroll in a matter of minutes. 

Depending on your business's needs, you may benefit from selecting a payroll company that offers additional services, such as a time-and-attendance system and HR solutions. 

What is unique about comprehensive payroll companies? 

Comprehensive payroll companies do much more than prepare your business's payroll; they also handle your payroll tax needs, manage your employees' paid time off, report new hires to the proper agencies and offer workers' compensation insurance. Many comprehensive payroll solutions also offer HR management, benefits administration, time-and-attendance services, and 401(k) and college savings programs. 

Why are payroll services important for small businesses? 

Many small businesses don't have a dedicated HR team that knows the ins and outs of payroll. Instead, they rely on payroll companies to manage those responsibilities for them. They depend on these services to ensure that their employees are paid properly each month and that their payroll taxes are filed and paid appropriately. 

Online payroll services give small businesses the peace of mind that, with just a few clicks, their employees will get the money they are owed and the proper payroll taxes will be withheld. This way, you don't have to worry about whether you filed the tax documents correctly and are paying the right amounts. In fact, online payroll services are so confident in handling these tasks that most services offer an error-free guarantee.

What is online payroll software?

Online payroll software and online payroll services are essentially the same thing. The payroll software is the cloud-based solution provided by the online payroll service provider; the software is what you technically interface with to run the payroll and add new employees to the system. Most online payroll software is easy to use and allows you to process payroll in minutes. 

What's involved in implementing payroll software?

It doesn't take a lot to get payroll software up and running. Once you prove your business is legitimate, you can connect your business's bank account to the payroll service. Next, you enter your employees' information. In addition to providing the basics – including their names, addresses and Social Security numbers – you must input  their pay rates and withholding information. Employees who want to be paid by direct deposit can enter that information in the system's online portal.

With that information, you can set your pay schedule and start processing payroll. Although it's easy to enter the details yourself, some payroll services handle it for you. Some charge an additional fee, while others include this service in their base fees.

Do payroll service providers offer mobile applications?

Yes, most payroll providers offer mobile apps for iOS and Android devices. Most of these apps allow administrators to run payroll, review past payroll runs and pay payroll taxes. Additionally, employees can use the mobile apps to review their paystubs, pay history and PTO accruals.

How long does payroll take to process?

This varies by payroll provider, but many payroll services complete the process within two days. This means that payroll administrators need to submit the final payroll numbers two days prior to payday.

Are there any free payroll software solutions?

There are several free payroll software solutions, including Payroll4Free.com, Wave Payroll and eSmart Paycheck. However, before choosing a free program, make sure it meets your company's basic needs. A free program is great for a business that's just starting out and helps manage tax calculations, wage garnishments, and Social Security and benefits deductions. However, when using a free service, you may have to sacrifice a few features, like customer service or security tools. 

Should you use a payroll service or hire an accountant?

You should hire an accountant if you need help managing the collection and reporting aspects of payroll processing. Accountants can analyze your payroll and provide valuable guidance for businesses.

However, hiring an accountant can also be expensive. The average hourly fee for an accountant is $33.89 per hour, and certified public accountants charge an average of $160 to $275 per hour. Payroll services, by comparison, usually cost about $29 to $150 per month, with an additional fee of $2 to $12 per employee per month.

How can you save money on payroll?

To save money on payroll, consider outsourcing your payroll tasks. When managing it yourself, you may not do it correctly or on time – and mistakes or late processing can result in hefty penalties and fines. You may also consider looking for a free payroll service. However, most free payroll services don't offer all of the features and tools paid offerings do.

Using a time-and-attendance system is also a way to save money on your payroll, because it helps ensure you aren't paying employees for time they didn't work. When using a paper time sheet, employees can easily add a few minutes that they didn't actually work. Paying employees for a few minutes of time they didn't work might not seem like a big deal, but if this becomes a habit, the costs can really add up. A digital time-and-attendance system forces your team to input exact times, which keeps you from overpaying your staff. 

What are unpaid payroll tax penalties?

Unpaid payroll tax penalties apply when an employer fails to pay the Internal Revenue Service the proper amount of payroll tax funds they owe. Failure to complete Form 941 or to provide proper documentation, like W-2s or 1099s, is also a problem. To avoid fines, you also need to make sure your deposits are on time.

What is an example of a payroll tax?

An example of payroll tax is the Federal Insurance Contributions Act (FICA) tax. This is a mandatory payroll deduction that employers pay to the IRS to cover Social Security retirement benefits and Medicare for employees.

What do you do with unclaimed paychecks?

If you are in possession of unclaimed paychecks, this does not mean you get to keep them. According to escheat laws, unclaimed paychecks become abandoned property and must be signed over to the appropriate state's treasury agency after a certain amount of time. This means that, if someone who works for you never claims their paycheck, you need to return it to the state where that person last worked. When submitting these documents to the appropriate agency, be sure to disclose all of the attempts you made to contact the employee about their check.

What is a pay period?

A pay period is the recurring length of time during which an employee's wages are calculated for payment. Pay periods can be weekly, biweekly, semimonthly or monthly. Learn more about the pros and cons of each schedule and issues to keep in mind so you choose the best schedule for your business.

What is the difference between payroll and salary?

Payroll is the system a company uses to record wages (and salaries), pay employees and track payments (and the payroll taxes you've paid). A salary, on the other hand, is a fixed, consistent payment, usually listed as an annual figure, that you give to specific employees. Learn more about whether it's best to pay your employees a salary or an hourly wage.

To determine which payroll services are best for small businesses and household employers in 2021, we spent dozens of hours researching the top online payroll companies. Here is an explanation of our selection process:

Locating the Best Services

To determine the best payroll services for businesses, we started with a pool of more than 70 online payroll service providers. Following preliminary research of other best-picks lists, we interviewed small business owners to discover new providers to add to our list.

Choosing the Best Services

After conducting some initial research into each payroll service, we settled on 16 to consider as best picks for our business categories: ADP, APS, BenefitMall, Big Fish Payroll Services, Fuse Workforce Management, GetPayroll, Gusto, QuickBooks Payroll, OnPay, Patriot Software, Paychex, Paycor, Paylocity, SurePayroll and Wagepoint.

Researching Each Service

Next, we scrutinized each finalist. We reviewed their offerings, watched tutorials and how-to videos, read user comments, reviewed Better Business Bureau ratings and complaints, and tested out services when demos were available. After narrowing down the list to our final contenders, we contacted each company, posing as business owners, to test their customer support and learn more about their services.

Analyzing Each Service

In all, we looked at cost, tax services, ease of use, customer service, integration options, incentives (e.g., free trials, free months), tax guarantees, mobile accessibility, payroll reports, employee self-service, extra services (e.g., employee retirement plans, workers' compensation), and Better Business Bureau ratings and complaints.

Best Household Employers

We followed a similar methodology to determine the best payroll service for household employers. In addition to SurePayroll and QuickBooks Payroll, which have plans tailored specifically to household employers, we considered five companies that specialize in payroll services for household employees: NannyChex, HomeWork Solutions, Savvy Nanny Payroll Services, GTM Payroll Services and HomePay.

As a part of our research, we reached out to online payroll software users to learn which solutions they find most valuable and what they like about them.

Aalap Shah, founder of 1o8, a consumer-packaged-goods growth agency based in Chicago, said he uses QuickBooks Payroll for his team of nine employees. Having tried other options, Shah said he appreciates the software's seamless integration, ease of use and added options.

"It's easy to set up team members on the platform and provide them a login for them to review their paystubs and such," Shah told Business News Daily. "The functionality and options are endless, including the ability to add in health benefits and workers' comp insurance with a few clicks."

The customer support is also a plus for Shah. "The support is pretty awesome," he said. "Usually, I get a response within five to 10 minutes via chat, and email is within 24 hours."

Rick Hoskins, founder of Filter King, said he is a fan of QuickBooks Payroll because it integrates well with the QuickBooks accounting software and allows him to focus on payroll while his HR staff attends to more pressing needs.

"I pay $85 per month for a very smart, integrated accounting and payroll service," Hoskins said. "Having set this up myself, my HR manager is able to concentrate more of her time on employee wellness and helping employees settle into a life of remote work. This, for me, is my company's top priority right now."

Phil Ash, founder of Pro Paint Corner, said he uses Gusto for his team of five employees. Before using Gusto, Ash spent an exorbitant amount of time on payroll, which didn't leave him enough time for other tasks, like developing marketing strategies.

"I have been in investment and finance for 25 years and can assure you that it is time-consuming to be filing tax reports," Ash said. "Gusto does it for you, and if you are not a finance expert like myself, then it will be an even larger relief."

Having a remote team spread across the country, Tim Milazzo, co-founder and CEO of StackSource, said he appreciates Gusto for taking so many compliance issues off his plate.

"They do all the compliance from state to state, which would be arduous for a national/remote team like us," Milazzo said. "I'll never use anything else."

Alex Thompson, director of Festoon House, said he has used QuickBooks Payroll and Gusto but switched to OnPay because of the cost structure. He likes OnPay because it allows for unlimited pay runs and is easy to use.

"OnPay has an intuitive interface where it's easy to navigate the different areas for verifying information and setting up transactions," Thompson said. "It's also easy to add things such as retirement plans [and] health and dental [benefits]."

Key takeaway: The business leaders we heard from pointed to QuickBooks Payroll, Gusto and OnPay as some of the payroll services they use, in part because of the services' ease of use and the tasks they handle.

The global necessity to embrace digital solutions will further streamline the 2021 adoption of online payroll services powered by cloud computing. Cloud software eliminates the need for payroll to be handled on-site, and both the rise in digital platforms dedicated to online payroll management and a need to reduce staffing costs have incentivized businesses to outsource the function. The expected growth of the outsourced payroll industry has increased by 27% in 2020 alone, and experts predict that rate to increase again in 2021.

Digital payroll platforms also allow the flexibility to account for varying work-from-home schedules and incoming federal changes and guidelines regarding 2021 sick-leave policies. Automated software can also ease the transition for many businesses that will rely more on freelancers as they resume their prior growth trajectories in 2021.

Businesses should also prepare for a postponed tax schedule that is further clouded by the uncertain status of 2020 Paycheck Protection Program loans. Experts predict an inevitable delay to tax season after the IRS announced that it currently holds over 1 million unprocessed tax returns and 3 million pieces of unopened mail while banks still await answers from the government regarding the payment of those PPP loans. Depending on various global factors such as further stimulus packages, relief funds and political transitions, the 2021 tax landscape sits in an unpredictable state.