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Summary: Payroll Services Pricing
Most payroll companies will charge a per person or per check fee plus a base monthly fee. You can expect to pay between $20 and $150 per month for the base fee and between $2 and $5 per employee per payroll cycle.
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Dealing with payroll is one of the more complicated tasks facing a business owner, especially in a company with many employees. Aside from making sure that your employees are paid on time and in the correct amount, payroll involves a host of other tasks, including withholding all applicable local, state, and federal taxes from workers' earnings, paying your fair share of taxes for each employee, updating vacation and sick pay, and more. Luckily, there are companies that offer payroll services, allowing you avoid this time-consuming process and focus your energy on more important tasks.
How Payroll Services Work
Outsourcing payroll involves paying a company to take care of a business' various payroll functions independently. When an employer signs up for a payroll service, it must set up an account and provide each employee's name, pay rate, and W-4 form, in addition to company tax information. When the time comes to pay employees, the employer submits each worker's hours for the period and funds are transferred from the employer's bank to the payroll service account. After that, employees are paid via check or direct deposit and the employer receives management reports.
That is the basic service provided by a payroll company. Payroll service providers can also perform more complex tasks such as issuing and processing W-2 and 1099 forms, ensuring that employer taxes are paid on time, managing employee benefits (such as keeping track of vacation/sick time, health benefits, and retirement payments), handling direct deposit, providing electronic signatures, and much more.
What Are the Benefits of Outsourcing Your Payroll?
There are a host of benefits that come with hiring a payroll service, some of which include:
- Avoiding penalties: Making sure you've filed the right deductions in the right way can be difficult, leaving many small business owners with penalties to pay. A professional payroll service is familiar with the requirements for both state and federal taxes. It also ensures that you file properly and on time. This helps you to avoid IRS penalties and saves you money in the long run.
- Cost savings: For a large business, maintaining large in-house payroll departments is usually easier and more affordable. But for a small business, staffing an in-house payroll eats up funds and work hours. Maintaining a payroll department means hiring, training costs, additional payroll costs, and extra work. Outsourcing to a payroll service saves you training and hiring costs, leaving you free to focus on the rest of your business while professionals handle your payroll.
- Regulatory compliance: Keeping up with the various payroll laws and penalties is difficult, requiring you to pay close attention to existing and changing laws at the state and federal levels. Payroll services are trained on these laws and the various penalties that may occur should they be broken, and work to keep you compliant with all payroll-related laws. Read more about how a payroll company can keep you compliant.
- Security: Payroll services have secure systems that protect sensitive company and employee information, such as multiple server locations and redundant backup systems.
Payroll Services Sample Costs
- According to Entrepreneur.com, basic payroll processing services cost between $0.80 and $2.00 per check in addition to a base account fee, while advanced services such as direct deposit and tax filing could cost between $4 and $9 per payroll period.
- Companies such as ADP and PayChex might charge around $3 per check for basic services.
- A company with around 25-35 employees that uses ADP or Paychex to handle all of its payroll services (basic as well as advanced) might pay anywhere from around $250 to $1,500 a month.
- It may be possible to have an accountant perform payroll services. A small business with around ten employees might pay an accountant approximately $250 per month to perform payroll.
- Subscription online payroll services via companies such as Gusto and SurePayroll that work with computer software cost around $75-$250 per year.
- One Massachusetts retailer paid $25 per bi-monthly pay period and $35 for year-end filings per employee for full payroll services.
- A Colorado business paid $13/month per employee for full service payroll, tax filing, and direct deposit.
- An Insurance company from Michigan with 4 employees paid $45 per month for small business payroll services, including biweekly pay, envelope stuffing and signed checks, direct deposit, income tax payments, and monthly and quarterly statements.
- A consulting firm in California with fewer than 10 employees paid $31 per month to outsource payroll services, including full payroll, tax payments, W-2 and 1099 services, and yearend tax reports.
What to Look for in a Payroll Service Provider
It is important to note that not all payroll service providers offer the same level of service, or even the exact same options. When looking at possible payroll companies, there are multiple factors you need to consider.
First, look for a provider with a reputation for quality service and support; there is no need to select a company that isn't known for its reliability. You also want to make sure that whatever systems the service uses are easy to understand and can integrate with your existing software. Otherwise, you'll be spending money to replace all your programs and time trying to understand it all.
While cost is a major deciding factor, it should never be your only consideration. Even if a service is exactly within your price range, it still needs to offer the features you need and want. Any payroll company that doesn't provide what you need simply isn't a payroll company worth hiring.
Common Payroll Compliance Issues
There are a number of issues that could cause your payroll to be out of compliance, some of which include:
- Failure to maintain records: Payroll involves a lot of paperwork, which is difficult to keep track of. However, compliance laws require you to keep consistently maintained records for all active employees as well as those who have left your employ within the last three years, at least. Requirements vary from state to state, but failing to maintain your records can easily get you into trouble with state tax agencies and the IRS.
- Forgetting forms: Again, there is a lot of paperwork involved with payroll and missing a page or a section has consequences. The forms you need to fill out and submit vary based on the size and type of your business, but you need to know exactly what you should be sending out, to whom, and when.
- Miscalculating overtime: This seems as if it shouldn't be an issue, but miscalculating overtime is fairly common. Many people think it is as simple as multiplying the standard hourly rate by the overtime pay (which is usually time-and-a-half, so hourly wage multiplied by 1.5). But this fails to take bonus pay, commission, stipends, and other compensation into consideration. Underpaying employees can get you in trouble with tax agencies and land you in court.
- Misclassifying employees: Classifying employees incorrectly is a good way to get yourself in trouble. The IRS has started cracking down on employers who incorrectly classify regular staff as independent contractors. A worker is only an independent contractor if the employer does not control the means by which their final project was made.
In addition to ensuring your payroll is compliant, a payroll service will take care of any existing issues. Methods for this include:
- Compliance management: Payroll service companies manage all or most aspects of the payroll cycle and ensure that all forms are filed properly and promptly. A combination of software and service keeps all of your payroll processes in compliance with the latest tax laws and regulations.
- Integrating software: A software that integrates all of your payroll functions simplifies and streamlines the process, allowing all information to be handled properly, faster. Payroll companies usually offer multiple types of software that can be integrated to provide a total solution.
- Timekeeping: An accurate and efficient digital timekeeping system is the ideal way to eliminate employee work-hour problems. This is usually offered as a part of the base package from most payroll companies and ensures that all reported employee hours are accurate.
- How Much Does a Payroll Service Cost?
- Payroll Compliance Guide: Common Mistakes
- Wages and the Fair Labor Standards Act