Managing payroll is one of those responsibilities that comes with real weight. It’s not just an administrative task; it’s a legal obligation, and mistakes can be expensive. Business owners are responsible for withholding, depositing and paying employment taxes correctly, and errors can trigger penalties from the Internal Revenue Service (IRS).
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That’s where payroll software comes in. The right platform can automate calculations, reduce errors and take a major task off your plate, freeing up time to focus on running and growing your business. This guide walks through how to choose the best payroll software for your needs and what to look for when comparing payroll providers.
What is a payroll provider?
A payroll provider is a third-party company that helps businesses manage payroll tasks, including paying employees, handling tax withholdings and staying compliant with labor laws. The best online payroll services are designed to simplify and automate core payroll functions, such as:
If you use one of the best HR software platforms for payroll, your provider may also handle employee benefits management and administration.
Perhaps most importantly, a payroll provider helps remove much of the guesswork around compliance. Payroll rules can be complex, especially for small businesses, and staying current with tax requirements takes time and attention.
“Investing in payroll software eliminates compliance issues, specifically if the payroll processing tool is up to date with the latest payroll tax changes,” said Stacy Kildal, founder of Kildal Services LLC and a QuickBooks ProAdvisor. “Overall, payroll software makes setup faster by eliminating the need to do the research as well as ensuring compliance with state tax requirements.”
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PEO payroll service is another option for small businesses that need more comprehensive support. In a PEO arrangement, the provider becomes a co-employer, sharing certain employer responsibilities and liabilities with your company.
Payroll services vs. online payroll software
If you want help running payroll, you have two main options: work with a full-service payroll provider or use online payroll software yourself. The best choice depends on how involved you want to be and how much support you need.
- Full-service payroll providers: With a full-service provider, you hand off most payroll responsibilities to a third party. After you choose a plan, the provider processes payroll on your behalf and files the required payroll taxes. Many providers also offer access to a dedicated account manager, which can be helpful if your payroll needs are complex or you prefer personalized support.
- Do-it-yourself payroll software: Online payroll software is designed for businesses that want more control over the payroll process. These platforms automate calculations, organize employee forms and manage tax filings, recordkeeping and other required documents while still leaving payroll execution in your hands. Although some limited free options exist, most payroll software providers charge a subscription fee based on features and employee count.
How to choose a payroll service provider
Choosing a payroll service provider is an important decision that affects both your finances and your employees’ experience. When finding the right solution for your business, consider the following eight steps and best practices.
1. Define your business’s payroll needs.
Every business is different, and your payroll system should reflect that. Before comparing providers, think through a few key factors:
- Company size: Do you need payroll for five employees or 500? Some providers are built for large enterprises and come with advanced features (and higher costs) that smaller businesses may not need. Look for a provider that regularly works with businesses of your size.
- Worker types: Many businesses employ a mix of hourly, salaried and contract workers. Make sure any payroll provider you’re considering can handle that complexity without workarounds.
- Work locations: If you have employees in multiple states or even internationally, payroll can get complicated quickly. Remote work plans have added new layers to state tax rules, so it’s important to choose a provider that can manage multi-state and cross-border payroll.
- Benefits and deductions: If you offer health insurance, retirement contributions or other employee benefits, confirm that your payroll service can support those deductions and contributions.
- Integrations: Payroll rarely works in isolation. Consider whether your provider integrates smoothly with the HR or accounting software you already use.
Some payroll software includes
employee self-service features, allowing workers to view pay stubs, access tax forms and track time off on their own. This can significantly reduce administrative work for business owners and
HR departments.
2. Decide on a payroll service budget.
Before you start comparing providers, set a payroll budget that reflects your team size and the features you actually need. While lower-cost options can be appealing, they may come with limited functionality or weaker customer support. The goal is to find the right balance between price and value.
Payroll service costs vary based on several factors, including the following:
- Monthly fees: Some payroll services offer free trials or limited free plans, but most charge a monthly fee. Base pricing usually falls between $40 and $150 per month, plus $5 to $15 per employee.
- Pricing models: Payroll providers usually follow one of these pricing structures:
- Software-as-a-service (SaaS): This is the most common pricing model. Providers charge a monthly subscription fee, usually with an added per-employee cost. Higher-priced plans include more features and support.
- Flat subscription: Some providers charge a flat monthly fee that covers payroll for any number of employees, which can be helpful as your team grows.
- Perpetual license: This option is less common today and involves a one-time software purchase instead of monthly fees. While it avoids subscriptions, the upfront cost is higher and updates or support may be limited.
3. Evaluate each payroll platform’s feature options.
Once you’ve defined your needs and set a budget, you can start narrowing your list to payroll platforms that fit both. Payroll features vary widely, so focus on the tools that will make the biggest difference for how your business operates day to day.
Common payroll features include the following:
- Payroll processing and management: At its core, payroll software is designed to calculate and process payroll accurately and on time, using each employee’s preferred payment method.
- Direct deposit: While some employees still prefer paper checks, most expect direct deposit. Many payroll platforms also offer same-day or next-day options.
- Tax filing services: Payroll software can automatically calculate payroll taxes and file required forms, such as W-2s and 1099s, saving time and reducing errors.
- Compensation administration: Beyond basic payroll, some platforms can manage workers’ compensation, pay adjustments and employee bonuses.
- Reporting: Payroll reporting tools give business owners insight into payroll costs, taxes, wages and other key data.
At a minimum, choose a payroll service that supports direct deposit and handles payroll taxes, including filing required tax documents. Automation should also be a priority, especially if it reduces manual work. If your business relies on specific HR or accounting software, confirm that the payroll platform integrates with those tools.
Payroll cards are a popular
direct deposit alternative for employees without bank accounts. Employers load wages onto the card, giving workers quick access to their pay without requiring direct deposit.
4. Compare and contrast your top payroll options.
By this stage, you should have a shortlist of payroll providers that fit your budget and offer the features your business needs. To narrow it down further, spend some time reading customer reviews and comparing real-world experiences.
Look for patterns in the feedback. Repeated comments about poor customer service, slow response times or difficult setup processes are worth paying attention to. It’s also helpful to ask other business owners which payroll providers they use and what their experience has been like.
As you compare options, confirm that each provider offers the type of support you prefer. For example, if phone support or after-hours email or chat is important to you, make sure those options are available.
5. Ensure your payroll provider is secure and compliant.
Payroll comes with real legal responsibility, which is why compliance is one of the biggest reasons businesses turn to payroll services in the first place. A reliable provider helps you stay aligned with labor laws, tax rules and paycheck recordkeeping requirements, without forcing you to track every change yourself.
Because regulations shift over time, your payroll provider should regularly update its software to reflect new or revised tax laws. It should also handle wage and hour requirements accurately, including overtime calculations, so you’re not exposed to unnecessary risk.
Security matters just as much. Payroll systems store sensitive employee and financial information, so any provider you consider should offer strong safeguards, such as data encryption, multifactor authentication and secure data storage.
Do a quick online search to see whether a payroll provider has been involved in past
data breaches. It's also worth asking directly what protections or guarantees are in place if a breach were ever to occur.
6. Ensure your payroll provider can scale with your business.
If you plan to grow, your payroll provider should be able to grow with you. Even though many cloud-based payroll platforms are designed to scale, it’s still worth confirming that they can handle more complex needs as your business evolves.
Look ahead to what growth might mean for your company, whether it’s adding employees, opening a new location or introducing new pay structures, and make sure your provider can support those changes without requiring a switch later on.
7. Take advantage of payroll service free trials.
Once you’ve narrowed your list to a few top contenders, take time to test them through a free trial. Many payroll providers offer 14-day or 30-day trials, giving you a chance to explore the platform, run sample payroll and see how intuitive it feels.
This is also a good time to request a live demo. A guided walkthrough lets you see how the system works in real-world scenarios and gives you the opportunity to ask questions about workflows specific to your business. Between a trial and a demo, you should have a much clearer sense of whether a payroll service is the right fit before committing.
8. Decide on your payroll service.
No payroll solution is perfect, but choosing one that closely matches your needs and budget will put you in a strong position. At this point, focus on the provider that feels like the best overall fit, not just on paper, but in how it works for your business day to day.
If your chosen payroll service offers implementation support, take advantage of it. Help with setup, employee data entry and payroll scheduling can make the transition smoother and reduce early mistakes.
Many payroll providers support
paperless payroll, allowing you to process payroll electronically while saving time and reducing administrative costs.
Questions to consider when choosing a payroll service
Before committing to a payroll provider or software platform, it helps to ask a few practical questions. These answers can reveal how well a service will support your business today and as you grow.
- How often are tax tables updated? Payroll compliance depends on staying current with changing tax laws. Look for a provider that regularly updates its software to reflect new federal, state and local requirements.
- Does the software support businesses in my industry? While not a requirement, experience in your industry can be a plus. Providers familiar with your sector may better understand common payroll needs or compliance considerations.
- Can the software integrate with our employee benefits? Payroll works best when it connects seamlessly with benefits like health insurance or 401(k) retirement plans. Strong integrations can save time and reduce manual work.
- How will the software handle growth? As your business scales, your payroll needs will likely change. Make sure the platform can support additional employees, locations or pay structures without forcing a switch later.
- What security measures protect our payroll data? Payroll systems store sensitive employee and financial information. Confirm the provider uses strong safeguards to keep your data secure.
If you expect to run payroll on the go, check whether your top payroll options offer a fully functional, easy-to-use mobile app.
Pros and cons of using payroll software
Like most business tools, payroll software comes with both advantages and trade-offs. The right choice depends on your company’s size, complexity and how hands-on you want to be with payroll.
Pros
- Payroll software saves time. One of the biggest benefits of payroll software is the time it saves compared to managing payroll manually. Small business owners who handle payroll themselves can spend up to 18 hours a month calculating deductions, paying employees and managing tax filings. Payroll software can reduce that workload to just a few hours each month.
- Payroll software helps reduce errors. Automating payroll lowers the risk of manual mistakes that can delay pay or create compliance issues. That matters more than ever: The 2025 PayrollOrg “Getting Paid in America” survey found that more than 77 percent of Americans would struggle to meet their financial obligations if their paycheck were delayed by just one week.
- Payroll software improves data security. Reputable payroll platforms use security measures to protect sensitive employee information, such as Social Security numbers, bank details, addresses and birth dates, from unauthorized access.
- Payroll software can save money. For many small businesses, payroll software is a more affordable option than hiring a CPA or outsourcing payroll entirely, especially for routine payroll tasks.
Cons
- Payroll software requires setup and training. Learning a new payroll system (and training others to use it) can take time, particularly if the platform has a wide range of features. When tax rules and financial data are involved, some learning curve is unavoidable.
- Payroll software costs more than doing payroll manually. Although payroll software is often less expensive than hiring a full-service provider, it still comes with ongoing costs. Most platforms charge monthly or annual fees, and some add costs for upgrades or additional features.
- Payroll software may not fit every business perfectly. Most payroll platforms are designed to work for a wide range of businesses. If your company has highly complex payroll needs or unique compliance requirements, off-the-shelf software may not cover every scenario without customization or extra support.
Mark Fairlie contributed to this article. Source interviews were conducted for a previous version of this article.
