When you have employees, you are required to have a reputable method for processing payroll, withholding taxes, and maintaining accurate records. There are a few different ways you can run payroll. How much do payroll services cost?
Overview of payroll tasks
Running payroll is a mandatory part of business ownership when you have employees. What all does managing payroll entail?
As a small business employer, you have a few payroll obligations. You need to add new hires to your payroll and keep records organized. You need to collect different new employee forms to run payroll, like Form W-4 and Form I-9.
Each pay period, you need to enter the hours each employee worked. You will need to keep track of any overtime hours worked as well as vacation time.
Once you know how many hours your employees worked during the pay period, you must calculate gross wages. This is not the amount you pay the employee. Gross wages are the base amounts before you take out deductions. First, you need to determine payroll deductions, which include taxes and other withholdings (e.g., insurance premiums).
You are responsible for withholding the correct amount from each employee’s wages for payroll and income taxes. Payroll taxes include Social Security and Medicare taxes. You also pay a matching portion of the tax amounts you withhold from an employee’s pay. You can determine an employee’s federal income tax liability by referring to the information on Form W-4 and using IRS Publication 15.
After withholding taxes and other amounts, you can give your employees their net pay. This is the amount left over after you take out deductions. You can pay employees via direct deposit, check, cash, or even payroll card.
Your responsibilities are not over. You must file payroll forms and deposit the withheld payroll and income tax amounts with the IRS depending on your depositing schedule. And, you need to pay FUTA tax, an employer-only tax for federal unemployment.
Sound overwhelming? Handling payroll can be a lot, especially when you also need to manage your small business. Using a payroll service can alleviate some of the stress that accompanies managing payroll for your small business.
How much do payroll services cost?
Payroll services pricing varies from business to business depending on factors like the number of employees and company needs. There is not a standard payroll services cost, but you can use research to see how much other small businesses pay.
The National Small Business Association’s 2017 Small Business Taxation Survey asked small companies about the cost of payroll services. To get their results, the NSBA polled small business owners in different industries and localities. Small business owners said they spent the following per month on payroll services:
- $1 – $50: 15%
- $51 – $100: 19%
- $101 – $500: 36%
- $501 – $1,000: 16%
- $1,001 – $5,000: 10%
- More than $5,000: 6%
According to the NSBA, one-third of small business owners spend at least $501 per month on payroll services fees.
The average cost for payroll services depends on how you run payroll. There are three ways you can run payroll at your small business: you can hire a professional, manage it by hand, or use software. Your small business payroll services cost will also depend on what you need done.
Hiring a professional
Hiring someone is the most expensive payroll service. When you hire a professional, you don’t need to worry about running payroll. Instead, you hand off all the information and let your professional do the rest.
You can choose to hire an in-house administrator to run payroll, or you can outsource payroll to an accountant. If you hire an in-house administrator, you must add that person to your payroll and pay wages.
With a PEO (professional employer organization), you hand over your employees’ information, giving up control over payroll. The PEO becomes your co-employer, and they manage compensation and taxes on your behalf. PEO services can charge a percentage fee that ranges anywhere from 2% – 11% of wages.
Managing payroll by hand
Running payroll on your own is the least expensive option at first glance. You don’t need to use a payroll service, saving you significant money. But, doing payroll by hand is the most time-consuming method.
Doing your own payroll by hand can also lead to errors. Errors can mean penalties or even legal fees for your small business, which can have a significant effect on your finances.
When you run payroll by hand, the direct costs you need to worry about depend on how you pay employees. If you pay employees via direct deposit, you will have to pay fees. You might need to pay a transaction fee each time you transfer money into an employee’s account. This could range from $1.50 – $1.90 per transaction. You could also face setup fees that range from $50 – $149.
If you pay employees via checks, you need to pay for the cost of check stock. If you print checks, you must also pay for the cost of ink.
Additionally, you will need to create a time and attendance system that lets you keep track of employee hours. And, you will need to withhold and file taxes on your own, which can be time consuming.
How much does payroll cost if you use software? Using software is a good middle ground between hiring a professional and managing payroll by hand, but there is no standard cost.
The cost of payroll services for small business can vary depending on the software provider you use. Some software providers charge per employee or each time you run payroll. For online payroll software, you typically pay a monthly fee. This monthly fee might include free direct deposit, which saves you from the transaction fee each time you run payroll.
Your payroll services cost also depends on the types of features you want in your software. Full-service payroll is more expensive than basic payroll systems because the payroll does more, like filing taxes on your behalf.
How much will you be spending on software, exactly? Download our free guide, “How Much Does Online Payroll Software Cost?” to find out!
Many factors go into small business payroll services cost, so make sure to do some research and shop around before deciding on a software provider. If possible, take advantage of free trials and avoiding signing up for long-term contracts until you are positive the software is the right choice for your business.
Assessing payroll services cost
So, how much will your payroll services for small business cost? Before determining your expenses, remember that the following will affect your payroll services cost:
- Type of payroll service you use
- Number of employees
- Tasks needed
Research your options before deciding on a payroll service.
For easy to use full-service payroll, try Patriot Software. Patriot’s payroll services makes paying employees easier. And, we withhold and remit federal, state, and local payroll taxes on your behalf. Try it for free today!
This is not intended as legal advice; for more information, please click here.