The Best Payroll Services For Small Business

Growing your team as a small business owner is exciting. It means that your business is growing and more folks are willing to invest their time into your vision. The logistics of managing them, on the other hand? Not that much fun (for most of us).

Online human resources (HR) and payroll solutions take a lot of the work off your plate so you can focus on the work you go into business to do. We researched the best payroll for small business to help you select the platform that’s right for your needs and budget.

Best Payroll Services of 2024

OnPay: Best overall
Gusto: Best for automating processes
ADP RUN: Best for customization
Paychex Flex: Best for simplicity
Justworks: Best for complex hiring
TriNet: Best for employer of record (EOR)
Wave Payroll: Best for solopreneurs and contractors
Paycor: Best for growing enterprises
Deluxe: Best for marketing and business development

What Are Payroll Services?

Payroll refers to the total compensation a company pays employees for their work. Payroll also refers to the process of calculating employees’ net pay and initiating payment to them. Whether you have one employee or 100, you’ll need to process payroll to ensure they get paid correctly and that proper records are kept.

Payroll Processing Stages

Payroll is a process with multiple steps that start before an employee’s first day. The basic steps include:

Decide pay cycle: This is the frequency with which you are paying your employees. Most employers choose either a weekly, biweekly or monthly cycle to make payments.
Collect employee information and tax documents: These documents include the W-4 form, state tax withholding form and bank account information.
Calculate gross pay: Gross pay is the amount employees are owed before taxes.
Determine net pay: You will withhold taxes (and any other deductions) from the gross pay and employees will receive the net pay.
Initiate payment: If you’re running payroll manually, you’ll cut checks and mail them out with pay stubs. If you are paying through direct deposit, you’ll initiate a transfer. If your payroll is managed through a payroll service such as Gusto, the platform will initiate payment based on a predetermined billing cycle.
Pay taxes and keep records of payment: Finally, you’ll pay federal and state taxes owed and keep a record of all payroll and taxes.

How To Process Payroll

There are three main ways to process payroll. You can process payroll manually, outsource it or use a payroll service platform.

Processing payroll manually involves using Microsoft Excel or other solutions to calculate the tax owed and how much to withhold from employees. This may work when there are only a few employees but it can often take more time and increases the chance of error.

Will Lopez, Chief Ambassador at Gusto, notes that while spreadsheets have long been the norm for small businesses, that doesn’t need to be the case anymore. “Thanks to internet-based technologies, today, [small businesses] have more options. They can choose payroll tools that are full-service and automated, saving them time and keeping them compliant. They can pay both employees and contractors, both in their home states and across state lines. And as they grow, they have solutions that can grow alongside them, providing benefits and HR tools so they can take care of their growing teams.”

Platforms such as Gusto and Wave can gather all the information for you, calculate required tax withholdings and initiate payments to employees directly. Using payroll systems such as these can be an easy and cost-effective way to take this process off your plate, particularly for small businesses that do not want to outsource this service.

How Does A Payroll Service Work?

Although each has a unique design with varied features, most online payroll services work basically the same way. They typically include a cloud-based portal for both employers and employees. Employers—or your accountant, bookkeeper or HR employee—set up benefits and salaries for employees and, on some platforms, contractors.

When you hire a new worker, you can invite them to self-onboard through the employee portal, so you’ll easily gather their W-4 or W-9 form and contact information, and they can sign up for relevant benefits.

Some payroll services offer automated payroll, so you can set worker pay and employees can track their time (if necessary) and the service runs payroll on schedule. The services let workers enter direct deposit information, and you connect a business bank account on the employer end, so payroll runs without you having to print and deliver checks.

If payroll isn’t automated, you have to run it manually on schedule a couple of days before payday, entering worker pay amounts and scheduling paydays.

Many online payroll services include features that help you administer benefits in the same platform, as well as integrations for accounting software. Many offer workers the option to get a payment card, so they can receive money before payday and use the card directly to make purchases.

Some payroll services are part of comprehensive HR platforms that include not only pay and benefits but also employee development, education and coaching programs.

How To Use a Payroll Service

How your team uses an online payroll system will vary depending on the size of your team, the expertise of your employees and the system you use. Most services come with excellent sales and customer service reps who can help you get set up and answer questions you have along the way.

A basic payroll solution helps you pay employees and, on some platforms, contractors. Use it to facilitate direct deposit as well as to manage payroll checks, taxes and reporting.

Most payroll services also include benefits administration, so you can use the platform to set up paid time off, retirement plans, insurance and other benefits for employees and integrate benefits with payroll.

How To Choose A Payroll Service

The best payroll services offer core capabilities, ample software integrations and other key features that may or may not match your company’s current size and payroll needs.

Essential Features

These features make payroll tools a step up from running payroll manually with a spreadsheet.

Variety of payment methods: Payroll software should provide a range of ways to pay your employees, whether through paper checks, direct deposit or via prepaid debit card.
Payroll tax filing and payment: Payroll software and services should automatically prepare, file and pay taxes based on where your employees live. This feature is all the more important for companies that hire employees in multiple U.S. states and in other countries.
Unlimited payroll runs: If you have employees and contractors that get paid on different schedules, you’ll want a payroll solution that allows unlimited payroll runs for flexibility.
Self-service: An advantage of payroll software and services is that they provide an online portal for HR staff, payroll administrators and employees to view and sometimes make changes to payroll-related data.
Basic reports: Payroll software runs a variety of reports on company-wide or individual levels for metrics such as total compensation, deductions or taxes paid in a given quarter or tax year.
Automatic compliance updates: Payroll software and services stay up to date with the latest payroll and tax regulations, so you don’t have to.
Mobile access: HR staff, payroll administrators and employees should be able to access payroll tools on the go. Employees especially should have access to their pay history and pay stubs through the mobile app.

Software Integrations

The payroll software you use should integrate with QuickBooks or whichever accounting software you use to keep an accurate record of payroll history in the event of an audit. Payroll software should also integrate with benefits administration software for accurate deductions and with time tracking software.

Other Important Considerations

To further evaluate your payroll needs, answer these ten questions about your business and its payroll system.

What Is the Size of My Business?

When considering outsourcing payroll, you don’t need to think about the size of your business in terms of its turnover or number of customers. You need to take into account just two things: how many employees do you have currently and how many more are you likely to add in the near one to two years?

What Types of Employees Do I Have?

You can have both regular employees and independent contractors on your payroll. Additionally, you might pay your employees a fixed monthly salary, hourly wages or a base wage plus commissions or tips.

Payment structure and taxation requirements for each of them differ and you need to know these numbers to evaluate your payroll needs. If you have only independent contractors, you might be able to meet your needs using an online payroll system, which is usually cheaper.

How Do I Pay My Employees?

Do you need to make direct deposits or handle check payments? Do you need to make international payments via platforms like Stripe and PayPal? Think about how you will get money from your bank account to your employees and make it as painless as possible.

How Often Do I Pay My Employees?

Do you pay all your employees at one time, or do you have different schedules for different categories? For instance, you might be paying them weekly or biweekly. In the case of independent contractors, you might be paying them anytime they invoice you.

The payroll system should be able to handle these payouts in addition to off-cycle payments like expense reimbursements, bonuses, commissions, etc.

Are All Employees Based Out of the Same Location?

If you have employees spread across different states or around the globe, you will need to meet more regulations. With hybrid and remote work becoming commonplace as a result of the pandemic, you must consider if you might have people working from different locations in the future.

Who Is Responsible for Processing Payroll?

If you have a dedicated person or team for processing payroll, you will likely be able to manage with a DIY payroll solution, which could be cheaper. Otherwise, you should consider investing in an outsourced payroll service even if it is more expensive. This will help ensure that payments are processed accurately and on time.

What Are My Local/State Payroll Laws?

The payroll laws depend upon the locality, state and countries where your employees reside. You must know what city, state, federal or international payroll laws you need to comply with. If you’re not sure, contact a payroll professional in your area to get some guidance.

How Do I Want Payroll Taxes Handled?

Payroll taxes can get complex and tedious as your business grows. You need to decide if you want the new payroll solution to handle taxes or not. If the answer is yes, look closely at the cost for year-end calculations because that usually comes with an extra price tag. If you don’t, make sure to hire a reliable tax professional to handle this process for you.

What Deductions Do I Need To Plan For?

Before disbursing payments, you need to withhold deductions for taxes, such as income tax and Social Security tax; wage garnishments, such as unpaid loans, alimony, and child support; and benefits, such as health insurance.

What Is My Budget?

Cost is an important factor when choosing a payroll company. You must have an estimate in mind that you are willing to pay monthly or annually to meet your payroll needs. This will help ensure that you don’t overextend yourself when you are tempted to pay extra for à la carte features.

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How Much Do Payroll Services Cost?

“Cost is always an issue for small business but a cheap system costs more in bad press when the payroll system fails and employees go unpaid,” Stolpe says. “Remember that employees are the greatest resource and the expectation is that they will be paid timely and accurately.”

Besides a fixed monthly cost, online payroll services often charge per transaction or employee payment. This implies that the larger the number of employees, the greater the transaction fee. If you are planning to expand your workforce, carefully consider how your payroll service cost will change while you are growing. Most payroll providers have a tiered payment structure to cater to businesses of different sizes. Evaluate which tier would be least expensive for you in the long run before signing up.

You might need to opt for paid add-ons to ensure you have all the “must have” features in your payroll service. Be mindful of how much they cost. If you can squeeze some “good to have” features as well, do so but don’t overextend yourself.

To sum up, these are some of the costs you need to look at before you make a final decision: