How Much Should You Pay a Payroll Service Provider?

Payroll is one of the most dreaded and complicated details of running a business. Not only is it important to ensure that each and every employee is paid accurately and on time, but payroll involves much more. The duties and responsibilities include updating vacation and sick pay, plus taking into account such details as withholding applicable local, state, and federal taxes, paying the company’s share of taxes for each employee, and a list of other things. It’s no wonder that most business owners make the decision to outsource payroll to a service provider.

But you are in the business to make money, not to spend money. So for every dollar that goes out, you have to be ensured the ROI is worthwhile. With that in mind, this article will strive to help you determine how much you should pay for a payroll service company. Keep in mind, a specific dollar amount is not given as a one-size-fits-all solution.

The reality is, the best solution for one business may not be a good fit for another. Please read through the information and apply it to your business and needs.

Hiring a Payroll Service Provider Makes Sense

Obviously, the time involved in dealing with payroll can be a full-time responsibility. In addition to being time-consuming, payroll tasks can be frustrating — so much so that the duties can easily zap your energy, leaving little for other tasks related to running the business. It really does make sense to hire a payroll service company.

You will save valuable time that can be used in other ways, and outsourcing is usually cheaper than hiring an in-house payroll person or team. One of the biggest advantages of outsourcing payroll is the expertise provided. Payroll mistakes can be extremely costly — especially when it comes to tax errors.

Another benefit of using payroll services is the flexibility they provide. As your business grows, the service and features/functions offered can grow with you.

How the Services Work

When a business signs up for the services of a payroll provider, an account must be established. This involves providing the names of employees, as well as their pay rates and other relevant information.

In most instances, the business’s responsibility during payroll time is to provide the payroll service company with the hours each employee worked during the given time period. Some companies even have time-tracking services built in.

Depending on the service provider, funds will be transferred from the employer’s bank to the payroll service account and employees will be paid. Almost all payroll providers offer the option of check distribution or direct deposit. Each pay period, the employer will receive a payroll management report.

While that is the basic payroll service, providers can also offer more complex services. They can manage employee benefits, including tracking vacation and sick time, retirement payments, and health benefits. Service providers can also issue and process certain tax forms, which will ensure that employer taxes are paid appropriately. This eliminates concerns about tax penalties.

Determining the Value

Now you are probably convinced that outsourcing is a good idea, but you are wondering how you can afford it. After all, the services include quite a bit. Besides getting the benefit of having all the complicated calculations completed for you and the checks printed, you are also (probably) getting the checks deposited or distributed, along with the tax withholding calculations, reporting to the IRS, and the W-2 filing.

The fees for these services are usually considered affordable — even for a small business on a budget. The best way to find a good deal is to shop around. One well-known payroll service provider offers a complete payroll package that starts at about $80 per month. This package includes unlimited payrolls each month, direct deposit, new hire reporting, error-detection technology, guaranteed error-free paycheck and payroll taxes, and more.

Ways to Save

As the saying goes, “a penny saved is a penny earned,” and there are ways to save money when outsourcing payroll. The obvious tip is to shop around. Take the time to find out what services are available and what the going rates are. You should note the package deals as well as any set up costs or per employee or check fees. Always read the fine print because in some cases, there can be hidden fees.

Take a careful assessment of the needs of your business. It may be that you do not want or need a full package deal.

Comparison shopping doesn’t always mean you should look for the lowest price available. While saving money is a good thing, if saving money up front costs you money in the end, say in the way of penalties to the IRS, then you really haven’t saved anything!

Comparison shopping includes investigating the service provider’s reputation. Do some research into what past and existing clients have to say about the company. Google the company’s name and any related terms.

This will bring up customer reviews and other information that can help you make an informed decision about the provider.

Look for a company that has a proven track record; preferably a name you recognize. Check into things like customer service. Find out if the company has a disaster recovery plan. Although it’s not likely that you will ever have to be concerned about a disastrous situation shutting things down, it is important to know that a recovery plan is in place.

Ideally the payroll company will offer a free trial. This gives you an opportunity to test the waters.

Final Thoughts

Unless you’re an expert, payroll is not considered fun. In fact, doing it yourself is time-consuming, and it can lead to lots of frustration and worry. In the end, payroll mistakes can be extremely costly — especially those pertaining to taxes. But hiring in-house staff is an expensive choice and probably the least efficient option available.

That leaves outsourcing. Payroll companies are experts at providing payroll services. They are efficient and surprisingly affordable. Using these services can save businesses time and money, and it’s a way to provide a sort of shield against penalties for late fees with the IRS.

It’s difficult to say what a fair price for payroll services is. In most cases, the provider will offer a package deal that includes the “basic” service, plus a fee per employee or check. That’s why it is so important to pay attention to the details before signing a contract. Although this option is affordable, the fees can catch you off-guard.

Outsourcing payroll is a wise choice, but only after determining the needs of your business and carefully choosing a payroll service company that offers a package or services accordingly. You will save money, have more time, and experience less stress!


Debbie Allen is a content writer, blogger, and Internet marketer who enjoys writing on a variety of topics. She has a special interest in topics related to small business management, including issues associated with payroll, like finding the right payroll service provider. In addition, Debbie likes to write about online marketing strategies, reputation management, and issues related to lifestyle.

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