PAYDAY Workforce Solutions Blog

How to Find the Best Payroll Services for Small Business

On Jan 27, 2012

How to Find the Right Payroll Service

Part one of a two-part series

Is your business looking for a payroll service provider? The following article will be helpful.


Payroll processing is a very meticulous and vital component of operating a business. It involves far more than simply paying employees. The process entails filing federal, state, and local taxes, submitting reports, processing year-to-end data, etc. Larger business may have a separate department to handle the task of payroll, but many small to medium businesses make the decision to outsource for their payroll needs. Whether a business decides to conduct the service in-house or to seek an outside provider, the best decisions are educated decisions.
Types of payroll systems

In general, there are three types of payroll systems: manual, computerized, and external. A business may always choose to infuse the systems together, but many experts will tell you that combining in-house processing with outsourcing can become confusing and will leave you more susceptible to problems and penalties.
Manual payroll

"Manual" means that either the employer or an employee within the business calculates the payroll for each pay period. This involves assessing taxes, insurance, 401(k), vacation time, and other applicable deductions in relation to earnings. The advantage to a manual payroll is that there are virtually no start-up costs, but the disadvantage is that employee's or employees' time will be heavily spent on engaging in the payroll process. It is very easy to make a mistake and the penalty for mistakes can be quite costly (the IRS has expressed that nearly 1 in 3 businesses have transgressed a tax law).


There is a multitude of computer software that will enable an employer or employee to process payroll. Information is inserted and the computer will conduct the calculations thereafter (some will even process W-2 forms). Fewer mistakes made and less time spent on the process are two advantages of this form. Multiple employees can be trained to use the software, so a business can allocate their resources. Disadvantages of this process include the time still invested in computing information and on modifications of the information with each employee hired or fired and with each new tax law change or addition. Additional charges may also be accrued if the software is specifically engineered to meet a business' particular specifications.


Businesses may outsource to have their payroll services for small businesses completed. An outside provider will process the payroll, submit all tax payments, and generate year-end reports. At first look this may be the most expensive type of service, but it depends on how a business analyzes the tradeoff. The service will not be conducted by one of their employees and there will be little or no mistakes made by the provider. Also, outside providers often present the option of direct-deposit which is very popular with most employees. Outside providers will often provide reports for an extra fee which may or may not be helpful, so this is an extra fee that can be avoided. It is important to find a payroll service provider that is bonded, so that your business is protected from liability in the case of mishandled finances. Security can become an issue, so it is recommended that a business devote a computer strictly to the payroll process. Information must be transmitted to the outside provider each pay period.

External services

Provider's services include calculating the paychecks, calculating tax obligations, printing checks, delivering checks, and providing management reports. Your business will have the options of receiving checks on a weekly, bi-weekly, monthly, semi-monthly, or yearly basis. Additional services may include automatic check signatures, direct deposit, and the formation of W-2s. Many services include calculations for 401(k) plans and mutual fund plans, so employees can establish automatic deductions from their paychecks.

Choosing a provider

An acronym to think about in sailing the sea of providers is S-E-A. SEA represents three prime attributes of providers: Speed, Ease, and Accuracy. You want the provider to exhibit speed when there is an issue to be addressed and in correcting an issue, a business wants to easily track and update each employee's information, and a business wants their provider to be especially accurate in dealing with employee's pay and filing taxes.

Transferring information to the provider

A business will have to transfer information each pay period to the provider. All data can be transferred electronically, though some businesses still use phone and fax systems. The provider will supply your business with software to be logged into the computer which will ultimately be transferred to their systems. This process can also be achieved using the provider's secure Web page.

Provider pricing

The market for payroll services is competitive (which is good news for you) and is contingent on local market conditions. Basic payroll processing services charge between $2 and $3 per check in addition to an account fee. Additional services such as tax filing and delivery can cost between $4 and $9 per payroll period. Other services such as direct-deposit often have a nominal per-check fee. For full-service, a small to medium sized business can expect to pay about $3 to $5 per paycheck issued.

There may be additional fees for dropping and adding employees, adjusting employee information, or setting up the account initially. Different providers will have different packages and rates, so it is most beneficial to get various quotes from different providers. Most providers will offer discounts for increased volume of checks.

Questions to ask providers

- What is included in your basic service?
- What are the most popular add feature and their price?
- Do you cover penalties and interest charges if there is a tax violation?
- What is the cost of your services for one year?
- Can you help me with engineering W-2s?
- How much will it cost to establish an account with you?

Number of employees

A determinant in what method to use for payroll is the size of your business. A small business with under twenty employees working the same hours consistently or on salary may benefit from using a manual system. Since there is a small number of employees, it should not take a lot of time for someone to devote their energies towards the calculations with minimal or no errors.

A business with between twenty to sixty employees may best benefit from a software program. As stated, multiple employees can be devoted to the process and the calculations are done by the computer. This will work well as long as there is no complex pay issues involved within the business.

A business with over sixty employees will best benefit from either outsourcing their payroll services for small business or hiring an employee or employees to strictly handle the process. An in-house employee would have very little time to do anything else if completing the process manually, and enough issues could arise for employees running the software program that it would be wise to devote someone full-time to the process.

vibramAccounting software

A good software program to locate is one that can integrate your accounting in with your payroll systems. This way, all of your financial information can be located into one package. One thing to keep in mind is to find a software package that will allow your business to grow; it would not be beneficial to become accustomed to a system that will eventually become obsolete in relation to your business needs.

Payroll complexity

Your business will benefit from using an outside provider if your payroll consists of employees with different benefit packages, retirement plans, payrolls, and work times. It would be quite complex to proficiently keep up with all of the different aspects involved with such a diversified payroll.

Providers will have varying services provided and charges for each additional service. It is suggested to get several quotes from different providers and see what relationship would work the best for your business.

Blog Comments

Subscribe to Email Updates

Posts by Topic

see all