Your small business has many options to run payroll. You could run payroll yourself or you can outsource it. Outsourcing payroll to a payroll software can be a great benefit for your business.
- What it means: Outsourcing payroll typically means using online payroll software (or a third-party payroll provider) to automate calculations, tax filings, and direct deposit.
- Who it helps most: Owners spending 3+ hours per pay run, growing multi-state teams, or anyone worried about tax accuracy and deadlines.
- Typical costs: About $20–$100/month base plus $4–$10 per employee, depending on features and provider. (Patriot’s plans are among the most affordable for small businesses.)
- Benefits: Time savings, fewer costly errors/penalties, and automatic compliance updates.
What does it mean to outsource to online payroll software?
Online payroll software is a program you can use to run payroll yourself without hiring a dedicated payroll employee or fully handing off to a third-party provider. The software runs in the cloud, so you just need a computer with an internet connection.
You’ll enter employee and pay details, and the software handles calculations for gross wages, net pay, taxes, and deductions. Because the provider automates the complex parts, you don’t have to do the math or chase changing tax rules.
Payroll software companies often offer other payroll services so you can outsource even more. For example, you can take advantage of timekeeping and full-service tax filing to automate filings and deposits.
Not sure which “outsourcing” path fits?
- Payroll software (DIY + automation): You stay in control; the system calculates, files, and, on full-service plans, pays taxes.
- Third-party payroll provider: You send the hours; they handle processing and taxes.
- PEO (co-employment): Broader HR/benefits outsourcing for a higher fee.
What can payroll software do for you?
When you outsource to payroll software, you can take many tasks off your hands. Below are some of the things payroll software can do for you:
- Paycheck printing
- Direct deposit payments
- Form W-2 creation and filing
- Gross and net pay calculations
- Tax withholding and contribution calculations
- Benefit deduction calculations
- Time off management
- Tax filing and depositing
- Employee portal software access
- Integrations with accounting tools (e.g., syncing to your general ledger)
The benefits of outsourcing payroll
So why outsource payroll? There are many benefits of outsourcing payroll to software. Check out the benefits below to see why you should consider payroll outsourcing.
You increase your time
When you don’t have to do calculations by hand, manage payroll taxes, and constantly research the newest payroll numbers and news, you’ll free up some time. You can use the time you would normally use on payroll to build and grow your business.
You save money
It might seem cheaper to do payroll by hand, but it’s typically not. It’s easy to make mistakes when you do manual payroll. Payroll mistakes are costly. You can be hit by expensive penalties. When you use payroll software, the program does accurate calculations, files and deposits your taxes, and updates with the latest payroll rates. This helps you avoid any costly errors.
Check out our article to learn more about how to reduce payroll costs.
You use payroll experts
You might lack payroll expertise. You don’t have to worry about your inexperience when you use payroll software. The software company has payroll experts who work on the software’s development. They ensure that the software is accurate and meets your needs.
You stay up to date
Payroll rates and laws are constantly changing. It can be difficult to keep track of what is correct. Before you know it, you’re using the wrong tax rates. The payroll software company will do regular updates, so you never have to worry about running payroll incorrectly.
You remain secure
Payroll involves a lot of sensitive information, including pay rates and Social Security numbers. You must keep all this information safe. Payroll software stores your data on secure servers. This means you don’t have to worry about viruses or hackers. And because your payroll is behind a locked account, employees can’t easily walk off with information.
Potential drawbacks or considerations
- Learning curve: Expect a short setup and onboarding period to configure taxes, deductions, and direct deposit.
- Add-on costs: Time tracking, multi-state filings, or HR features may add to your monthly bill.
- Data entry discipline: You’ll still need to enter accurate hours and employee info (or sync from time tools) to get accurate results.
How much does it cost to outsource payroll?
The cost of outsourcing payroll varies a lot. Each payroll company has its own system for pricing. Your cost could range anywhere from a few to hundreds of dollars per month. Here are things that will affect your payroll outsourcing cost.
Number of employees: The number of employees you have on payroll will affect your payroll processing costs. The more employees you have, the more expensive your payroll will be to run. Some payroll companies, like Patriot Software, will charge you based on the number of employees you have and not on the number of payrolls you run. This is a good option if you want to run your payroll two or more times per month.
Number of payroll runs: The company might format their payroll pricing based on how many payrolls you run. For example, running payroll weekly will cost you more than running payroll semimonthly. If you need to run an extra payroll outside of your normal cycle, it might cost extra.
Tax filing services: Payroll tax services might cost extra. Often payroll companies have a basic payroll service that costs less and a tax filing service that costs more. Typically, the cost of the tax filing services is not much more, so the payroll services cost is worth it if you don’t want to handle tax deposits and filing yourself.
Extra features: Sometimes you need extra payroll features, such as time and attendance. These features come at an additional cost. Like the general payroll software, the cost of the extra features will depend on the payroll software.
Quick reference: Typical pricing ranges
- Base fee: ~$20 – $100/month
- Per-employee fee: ~$4 – $10/employee per month
- Add-ons: Time tracking, HR, or multi-state filings may add to cost
How to choose the right payroll service (quick checklist)
- List must-haves: Direct deposit, W-2/1099 filing, multi-state taxes, time tracking, benefits, or HR tools.
- Calculate total cost: Base + per-employee + add-ons (time, HR, multi-state).
- Confirm compliance: State and local tax coverage and automatic filings and deposits if you want full-service payroll.
- Check integrations: Accounting, timekeeping, and HR systems you already use.
- Evaluate support: Hours, response times, setup help, and knowledge base.
- Try before you buy: Use free trials; run a test payroll and review reports.
FAQs about outsourcing payroll
Using software or a provider to handle payroll calculations, tax filings, and payments instead of processing everything manually. With full-service software, taxes are filed and deposited for you.
Many small businesses pay a base fee ($20–$100/month) plus a per-employee fee ($4–$10). Add-ons like time tracking or multi-state filings can increase cost.
Software automates payroll while you stay in control. A payroll provider processes on your behalf. A PEO is broader HR outsourcing (co-employment) and typically costs more.
Direct deposit, accurate tax calculations/filings, W-2/1099 year-end forms, employee self-service, and time tracking or integrations.
Reputable providers use encryption, secure data centers, and role-based access. Use strong passwords and two-factor authentication for added protection.
If you spend 3+ hours per pay run, have growing headcount or multiple states, or have had tax errors/penalties, outsourcing can save time and reduce risk.
Are you ready to outsource your payroll to an online software? Patriot Software is here to help. You can try our online payroll software for free. We have free setup and support, so it’s easy to get started. Start your trial today.
This article has been updated from its original publication date of September 15, 2017.
This is not intended as legal advice; for more information, please click here.
