Fact: Getting off track with payroll taxes is one of the most common reasons that small businesses fail. I hope that got your attention because I don’t want this to be your story! Choosing a payroll provider is not only about paying your employees on time, but also about ensuring that everything is done correctly, legally, and in a way that doesn’t distract you from your business goals. But what exactly goes into determining how much you pay for payroll services? This breakdown helps you understand what shapes payroll pricing and the different approaches to customer support.
Number of Employees
This is a key driver of the cost of payroll processing. In fact, most payroll processors charge per employee each month. I know it’s pretty obvious, so we are just getting this one out of the way.
Payroll Frequency
How often you pay your employees can also impact payroll pricing. Weekly payroll can get very expensive. This is especially true if you don’t enter everything into this software yourself. Here are some things to consider when selecting a payroll frequency:
Weekly Payroll: This is expected in certain industries such as lawn care, cleaning, construction, and temp agencies. Unfortunately, more frequent payroll runs typically require more work and higher costs.
Bi-weekly (every 2 weeks): Standard for most industries. This is more cost effective than weekly payroll. Doing payroll every two weeks instead of weekly also reduces the time that management has to spend on payroll related tasks. Here is a link to our article “How to Transition from Weekly to Bi-Weekly Payroll Without Losing Your Team.
Semi-Monthly: Less popular then bi-weekly because it’s harder to track when payday is a different day of the week every-time. Cost should typically be the same as bi-weekly.
Monthly Payroll: Upside – maybe slightly cheaper than bi-weekly, Downside – many employees will be frustrated at getting paid so slowly
Who enters the data?
Does the payroll processor have to enter your information into the system, or do you enter it into a cloud-based portal or software system? Having a payroll processor enter the information that you give them via email or paper documents into the system is a premium level of service and many payroll providers don’t even offer this option. Here’s why – Not only is this time consuming, but it also adds more opportunity for human error and employees get frustrated or angry when the pay is wrong. Work like this also needs to be done in a very tight time window, and that can be very difficult to staff. Most payroll companies also have some clients who go down to the wire with turning in payroll. That’s often caused by a disorganized system of collecting everyone’s hours, commissions, etc. It can cause a payroll processor to spend extra time chasing the employer to get the info and stress from trying to make tight deadlines. It’s not just entering hours either. The payroll processor may be entering new hire info, collecting employee bank info for direct deposit, and setting up withholdings like benefits and advances. For these reasons, you will pay a premium price if you don’t want to put your information directly into a payroll system.
Geographic Location and Tax Laws
Most payroll providers charge additional fees based on having employees in multiple states.
Some locations require local payroll taxes in addition to state payroll taxes and You need to understand whether your payroll provider will actually file those local taxes for you and what the additional costs may be.
Direct Deposit Fees, Supplies, and Postage
The payroll processor will typically either direct deposit the employee checks, provide paper checks, or provide reloadable cards to get the employees their money. All of these options have some hard costs that the payroll processor may be paying to a vendor. E.g. the cost of check stock and special MICR ink to print routing numbers. There are many different services that use ACH to direct deposit funds to employees, and all of them have related fees. Reloadable pay cards may work well for certain employers, but they cost a little extra. If you want checks mailed to you or your employees, that service is going to incur some postage and other fees (and many processors do not offer this option). Here is what you need to watch out for: Some “affordable” providers, (looking at you QuickBooks Desktop) seem like a good deal for the annual fee, but the hidden cost of that the charge you direct deposit fees every pay period. And they have raised those direct deposit fees significantly over the past couple of years. So, you usually get a better deal if the payroll processor includes direct deposit fees in the price that you pay them. At least make sure that you compare apples to apples.
Error Handling and Support
Payroll mistakes are more than just inconvenient; they can lead to fines, penalties, and unhappy employees. A service that includes strong customer support and error handling is an investment that can ultimately save you money in the long run.
Support for Mistakes: If a mistake happens and your payroll service quickly fixes it without additional charges, that can save you a lot of headaches. Some services charge extra for handling payroll mistakes, while others offer it as part of their basic service.
Ongoing Customer Support: The availability and quality of customer support is another factor that impacts pricing. If you need help frequently, or if you encounter complex issues (like tax errors), 24/7 support might be essential, but it often comes with a premium. If you work with a big national payroll processor, you can often be waiting for weeks or months for a payroll correction to be made.
Integration with Other Business Systems
In the world of software solutions, payroll doesn’t live in isolation. Many small businesses use accounting software, time-tracking tools, or HR platforms that need to integrate seamlessly with their payroll systems. If you want your payroll software to connect with other systems you use, the service provider may charge more for these integrations. It’s critical to integrate your payroll software with your bookkeeping software. Don’t try to save money on a payroll system that doesn’t integrate just to spend way more on wasted effort on manual entry bookkeeping. If your payroll system integrates with your Human Resource Information System (HRIS), you may streamline things like recruiting, benefits tracking, and performance management. There are a host of additional payroll and HR features and services you can get through some payroll processors. Find out if any of these are included in your base package with your payroll processor. Make sure you understand the additional costs of any of these services you want use. We plan to explain these further in an article coming soon.
Conclusion
As you can see, several factors influence the cost of payroll services. Whether you’re a small startup or a growing business, it’s important to weigh all the elements— frequency, location, support, and additional fees—before making a decision. Payroll pricing is not one-size-fits-all, and understanding the nuances of what drives costs can help you choose the right solution for your business.
By taking the time to consider these factors, you can find a payroll solution that not only fits your budget but also supports your long-term business success. Bearden Stroup CPAs offers competitive payroll pricing and top-notch payroll support and expertise. Click here to meet with us about how we can help you!