7 min. read

Why use a payroll provider?


You can run payroll yourself, but should you?

As a business owner, you’re always careful to avoid unnecessary expenses. And at first, using a payroll provider might seem like it’s not worth the cost. Why would you need to pay somebody to pay somebody else?

But paying your employees can be more complicated than you think, and there’s a lot of room to get into legal trouble. Using a payroll provider may be the better option for most small businesses.

The basics

  • Payroll providers are an easy way to take care of some things that most business owners do not enjoy doing
  • They are also very helpful when it comes to taxes and other legal compliance issues
  • It costs money, but it’s a drop in the bucket all things considered
  • We usually recommend everyone uses a payroll provider
  • And if you’re not sure which payroll provider is right for you, we suggest Gusto

The benefits of using a payroll service

Let’s get this out of the way immediately: you should probably be using a payroll provider. It handles a few crucial aspects of running a business, and the cost is usually worth it.

Payroll means payroll taxes, and like anything tax related, it’s a common place where expensive and potentially legally consequential mistakes are made. You don’t want fines, and you don’t want audits. Payroll provider services can help make sure you stay on top of tax and other compliance issues, particularly when it comes to remote employees and employees in multiple states. They can even provide you with the W-2s that you’re required to issue to your employees every year.

A payroll provider can also automate things like pay schedules, payroll taxes, employee onboarding, benefits calculations, and more. That’s a lot of little administrative details that you won’t have to personally handle.

What does a payroll provider cost?

All of this sounds great, but it must be expensive, right?

We’ll let you judge that for yourself, but the average cost is about $200-$250 per year, per employee.

How is pricing structured?

The pricing usually works in one of three ways.

  • With fixed rate pricing, you’ll be charged a set rate per month, often covering a range of employees (one flat fee for ten employees, another for up to twenty, etc). This is nice and simple, with very little room for confusion.
  • You can also be charged per employee per month, which is what it sounds like: a monthly bill based on the number of employees at your business. This pricing method often comes with the best deals.
  • Finally, you have the most common price structure, per employee per frequency, meaning you’re charged every time you pay your employees, based on the number of employees. If you have a very predictable payroll, this is fast and easy.

What factors drive up price?

That depends on the particular payroll provider in question, but there are a number of factors that may influence your final cost.

First, you guessed it: the number of employees. Running payroll for more people will cost more! As discussed above, there’s several ways that can shake out.

Next, where are they located? Do you have remote employees working in different states?

The kind of benefits your company offers can also factor into the price. It’s just more stuff to process.

Finally, any extra features like general ledger and other software connectivity, options like direct deposits or pay cards, quarterly and end of year reporting, or W-2 and 1099 generation may require a “premium” service. This part is especially dependent on which payroll provider you’re looking at, so be sure to double check.

Why not just run payroll myself?

Well, there’s nothing stopping you! But based on our experience, payroll is a common area that small business owners need help with, often to correct mistakes with the IRS. And this is one aspect of your business that you want to be screwed on tight.

Running payroll is more than just cutting a few checks twice a month. In particular, there are tax withholding and reporting requirements that take careful attention to detail to get right. Essentially, you are taking a portion of employees’ paychecks and paying their income tax on their behalf. And if there’s any problems, you may find the watchful eye of the IRS turning towards you.

With a payroll provider service, tax withholding is automatic, and you can avoid any penalties. It’s like we said earlier: it’s an important way to protect your company and your employees. It’s a safety net for your business.

Beyond that, payroll takes a lot of time and energy that you’d probably prefer applying to the aspects of running a business that you’re actually passionate about. A payroll provider is faster and easier, and demands a much smaller chunk of your attention.

People also tend not to appreciate problems with their paychecks (we’ve all got bills to pay, right?) and a payroll provider can make sure everything goes smoothly on that front. And hey, if there are any problems, at least it’s not directly your fault.

Which payroll services are best?

There are a number of payroll providers out there, but let’s take a look at a few of the most prominent.

  • We like Gusto quite a bit. We use it ourselves, and it’s our number one recommendation for most small businesses. Gusto is easy, you can run as many payrolls as you want, it tracks time, and it’s affordable. We do have a few quibbles – the most basic plan is missing some features, and you can only contact support on weekdays – but overall, we think it’s a good fit for a lot of business owners.
  • ADP has a ton of features, especially for HR stuff. And they provide 24/7 customer service, which can be a huge help. Many of the best features are add-ons, however, and it’s not always easy to know up front what your needs will end up costing. You’re also cut off at 49 employees, which may or may not be an issue for you.
  • QuickBooks Payroll is, as the name suggests, very quick to use. It also offers one of the fastest direct deposits (which is always very popular). Like Apple, it integrates extremely easily with other QuickBooks software, but isn’t designed to work with other types of accounting programs. The most basic plan also doesn’t include tax penalty protection. But the free trial is very nice!
  • Lastly, you know Square from their popular POS systems that integrate with phones and tablets, but they also offer a very affordable payroll system that integrates seamlessly with other Square products. And, like those other Square products, the payroll service is simple and affordable but pretty limited in what you’re able to do with it. For certain small businesses, it’s everything you need and nothing you don’t. But if you need extra features, this might not be the best option.

When it comes to evaluating payroll providers, our wish list for features is a robust tax capability, W-2 generation, and smooth integration with the other software you want to use.

The bottom line

Payroll providers are not that expensive – usually not any more than $250 per employee, per year – and they take care of quite a few things that most business owners don’t particularly enjoy. Beyond that, it provides a level of protection against legal issues around payroll taxes and reporting requirements.

You can run payroll yourself, but let’s be honest. It probably won’t be fun, and it’s more likely that a costly mistake could slip through. Why not let the pros handle the boring stuff?

Speaking of letting pros handle stuff, how do you feel about preparing tax returns and financial books? Schedule a call with DiMercurio Advisors and find out just how much easier we can make your business ownership.

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