Payroll Services 101: Pricing, Benefits, and Staying Compliant

CostOwl.com note: Need a payroll service at an affordable price? Fill out the 30 second questionnaire below and our payroll partners will send you free price quotes.

Reviewed By: Ingrid (Wickizer) Chawla, Senior Payroll Specialist
On This Page

Summary: Payroll Services Pricing #

You can expect to pay between $20 and $200 per month for the base fee and between $5 and $10 per employee per payroll cycle. Most payroll companies will charge a per person or per check fee plus a base monthly fee.

For a company with 10 employees paid biweekly, you may pay:

$50 per month base fee
$6 per month employee fees ($6 x 10 employees)
= $110 per month total
So in general, costs go up as you add more employees and increase frequency of payroll. Small businesses can often pay under $100 per month while larger companies may pay over $1,000.

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 #

Here is an overview of how payroll services work:

• Set up - The business provides details about employees, pay rates, W-4 forms, benefits, tax IDs, bank account info, etc. to the payroll provider.

• Data entry - On an ongoing basis, the business provides payroll data like hours worked, bonuses, reimbursements, etc. This is often done through an online portal.

• Tax calculations - The payroll service calculates taxes and deductions for each pay period based on income, location, exemptions, benefits and other factors.

• Payroll processing - On payday, the provider transfers pay to employees via direct deposit, paper check, payroll card, etc.

• Tax payments - The provider files and pays payroll taxes to the IRS and state agencies on the company's behalf. This includes federal, state and local income tax withholding, Social Security, Medicare and unemployment taxes.

• Reporting - Companies get access to payroll summaries, tax forms and reports through the provider's online platform to track pay and tax details.

• Additional services - Many payroll companies also offer other HR services like health insurance, retirement plans, compliance assistance, employee self-service portals, timekeeping and 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.

2023 Top Payroll Services Pricing #

Payroll Service Pricing Real World Examples #

Consulting Firm

• 25 employees
• $200/month
• $5 per employee
• Payroll processing, tax filing, compliance, online payroll
• Total: $325/month

Home Health Agency

• 75 field employees
• $475/month
• $8 per employee
• Payroll, scheduling, PTO management
• Total: $975/month

IT Company

• 50 employees
• $350/month
• $6 per employee
• Payroll, direct deposit, HR tools, reporting
• Total: $650/month

Manufacturing Company

• 100 employees
• $600/month
• $7 per employee
• Full service payroll, onboarding, ERP integration
• Total: $1,300/month

Bank Branch

• 35 employees
• $275/month
• $9 per employee
• Payroll, garnishments, reporting, year-end services
• Total: $540/month

Construction Firm

• 60 employees
• $400/month
• $10 per employee
• Certified payroll, prevailing wage, union compliance
• Total: $1,000/month

Veterinary Clinic

• 18 employees
• $150/month
• $4 per employee
• Basic payroll processing, taxes, online access
• Total: $186/month

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.

Watch: Best Payroll Services - Which Provider Is Right For Your Business? #

Watch this video to learn about the features you should consider when looking for a payroll service.

Additional Resources:

• How Much Does a Payroll Service Cost?
• Payroll Compliance Guide: Common Mistakes
• Wages and the Fair Labor Standards Act

Use Our Free Service and Find Payroll Service Companies Near You #