What Is A Payroll Company?

A payroll company or a payroll service provider (PSP) is a third-party company that specializes in payroll processing and accounting, payroll tax statements, year-end taxes and more.

They ensure their clients’ employees are paid on time and that all of their legal obligations are met promptly.

A payroll service provider can help clients’ workforce meet filing deadlines and deposit requirements, as well as streamline various business operations.

It is important to note that although full-service payroll companies focus on payroll calculations, they go far beyond that. They also handle deposits and withdrawals, new-hire reporting, file federal, state and local taxes and more. 

Businesses hire payroll companies for these reasons:

  • When their payroll policies become too complex or too time-consuming
  • When owners and managers conclude the time spent on payroll is better spent on more important company matters
woman working on a virtual screen clickling Payroll button, in a payroll company
There are more than 300,000 payroll services in US alone

What Do Payroll Companies Do?

Tackling payroll presents a serious challenge to any business, especially when it has to add time, attendance, output and bonuses into the payroll equation.

Payroll service providers take the burden of payroll and all related processes onto themselves by providing services to organizations of all sizes and across industries.

Companies that specialize in business payroll services work closely with their clients to make sure their clients’ employees are paid in time and that employers’ meet their legal obligations.

As a subset of accounting, payroll services focus only on payroll and related human resources (HR) tasks, which allows business leaders to focus on paramount tasks such as growing their business, enhancing their brand and improving their offer/products/services.

Focusing on payroll processes doesn't mean only writing checks or depositing monthly salaries. Payroll companies handle a wide variety of duties including:

  • Monitoring employee’s time, attendance and output
  • Setting up/adjusting deposit accounts
  • Calculating payroll taxes
  • Providing electronic payroll records to both employees and employers
  • Ensuring compliance with all state/federal/country laws that govern payroll processes
  • And more

Some payroll companies also provide HR support services to their clients. These services are more focused to help employees meet their legal and professional obligations to their respective companies. These services may include:

  • New hire reporting
  • PTO/vacation management
  • Time-off tracking
  • Contract/Certification/Training management
  • Job history
  • And more

Why Should You Hire Reliable Payroll Services Providers?

Payroll services can be an extremely complex process for any business, especially after the global pandemic effects such as labor laws changes and growing remote workforce.

If you’re opting for outsourcing to a payroll management company, it’s imperative to understand the benefits of that step.

Here are five proven advantages of hiring business payroll services providers and outsourcing your payroll and accompanying payroll tax processes:

1. Get Organized

Payroll service providers have all the necessary tools and resources to provide effective systems and processes for managing payroll tasks and responsibilities. These include software tools for managing various data, detailed filing systems (electronic and physical), etc.

For these reasons, outsourcing payroll isn’t only cheaper, but more time-efficient.

2. Boost Your Productivity

Leveraging the expertise of a payroll company helps you alleviate the time-consuming process of having your in-house team manage the payrolls.

Outsourcing frees up your employees' time to pursue more important, lead and revenue-generating activities, not to mention that time tracking software drastically boost productivity output.

3. Define And Document Your Processes

Once you outsource payroll processing services you can focus on more crucial aspects of your business.

However, it pays to have a solid awareness of your payroll processes and document them in case there are any pressing issues or questions from your employees and/or stakeholders.

In the era of the remote work revolution, developing and establishing flexible payroll processes is more important than ever before. Having a good foundation and system is a good deterrent if by any chance something unpredictable emerges, not to mention that documenting your processes is invaluable in the event of an audit.

Payroll companies help you eliminate any guesswork of developing an effective payroll process that works both for your business and your workforce.

4. Establish Discipline And Maintain Accountability

No matter how “well-oiled” your business functions are, no company is error-free, especially when it comes to effective payroll management and tax regulations. A business payroll service provider helps you carefully manage expectations about how payroll works.

Once all the payroll rules and guidelines are established and communicated, it’s imperative for employers to ensure management and staff are accountable to the process.

According to the IRS, 40% of small to medium-size businesses pay annual penalties for late or incorrect filings and payments.

Using payroll processing service significantly limits the business’s legal liability as it’s up to the payroll company to ensure all laws are followed to a T.

5. They Are Detail-Oriented

With payroll companies, you don’t have to worry about every detail and hidden obstacle. Since payroll service providers know the ins and outs of their craft, they can help you minimize liability and maximize the payroll process to support business growth.

From proper employee classifications to tax regulations and exceptions to knowing, understanding labor laws and predicting any changes in the road ahead, payroll companies make sure you don’t miss anything important, no matter how minuscule it may seem.

6. Enhance Adaptability

Just as your business grows, or as laws change, payroll company morphs your company’s payroll processing accordingly. Although there are rules and regulations applicable for anyone, no two businesses are the same and payroll is not a one-size-fits-all project.

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How Much Do Payroll Companies Charge For Their Services?

If you’re planning to use an outsourced payroll service, finding the payroll solution specific to your business is essential. While there is such a thing as cheap payroll service, it may not always be the best course of action, as it may cost you more in the long run.

First, you need to assess your budget and understand what kind of system you need and can afford in order to choose a service that meets your business and industry requirements.

Basically, there are two standard cost structures when it comes to business payroll services:

  • Monthly payments
  • Per-payroll payments

Payroll companies usually charge the basic monthly fee package that may range anywhere from $25 to $200, while the employee fees are between $2 and $15 per employee per month. Typically, this includes paycheck processing, direct deposit and basic tax filing.

To determine the exact cost, the payroll company may examine your pay frequency, the number of employees, location, as well as the complexity of the project (payroll tax computations).

For example, small businesses may pay more per employee than big companies since payroll companies customarily offer discounts to larger enterprises.

On the other hand, a per-payroll structure means you pay a fee every time you run payroll (between $10 and $100 per run), plus the aforementioned per-employee fee.

It should be noted that basic packages do not cover certain payroll tax duties. For example, you may pay extra cash for year-end processing.

How To Choose The Best Payroll Service Provider For Your Business

Not all payroll companies offer the same level of service. If you’re aiming to find the right one, there are a few key things to consider before making a final decision.

1. Core Features

Before you make a final choice, you’ll have to determine which features you actually need. Do you simply want to automate payroll processing, or you’re looking for a full-service package?

Many payroll service companies offer tiered plans – from the most basic packages to more advanced ones.

Besides payroll processing and managing tax obligations, payroll companies may offer multiple payment options (direct deposit, paper checks, debit cards), multiple wage rates, PTO management, garnishment payments, detailed payroll reports, etc.

As you review payroll service providers, consider your utmost urgent business needs.

2. Cost

Businesses tend to look for a service that they can afford, so naturally, cheap payroll services are often most favorably looked upon. As mentioned, in addition to the cost, you should consider whether a contract is required and what type of pricing model you can opt for.

The best payroll service providers are generally the ones that save their clients time and effort at cost-effective pricing.

3. Reputation

It goes without saying but look for a provider that has a strong and proven track record and good online reviews.

You’ll feel more secure knowing that the payroll company you partnered with has already dealt with the payroll obstacles you struggle with or worked with companies in your industry.

4. Service Integration

If your company uses accounting software or HR services systems you may want to opt for a payroll service provider whose software is capable of integrating with yours.

This can significantly streamline the whole payroll process and improve its functionality.

5. Ease of use and support

The payroll service and accompanying software shouldn't be too complex to understand. It should have an easy-to-use interface that allows you to run payroll and add employees into the system effortlessly and seamlessly.

6. Tax compliance

Payroll companies are often tasked with tax services; however, tax laws are constantly changing. To avoid potential issues, payroll service providers must stay up-to-date on those laws and react accordingly.

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10 Questions To Ask Payroll Companies Before You Hire Them

When reviewing payroll service providers, it’s prudent to gather as much information as possible about their service, reputation and price. Here are some questions you should ask them before choosing your future partner:

  1. How often are your tax tables updated for compliance?
  2. Do you have other clients in my industry?
  3. How will you handle my business payroll process as the company grows?
  4. If the service makes a mistake, who is liable for those mistakes? How long does it take to fix it?
  5. Are there additional charges for adding or changing employee payroll?
  6. Will the annual fees change or increase after one year?
  7. How often will I receive reports from the service?
  8. Are you able to integrate with our accounting software?
  9. Is there an additional cost to file taxes in multiple states?
  10. How often will I hear from you and who will be our main point of contact?

Takeaways On Payroll Companies

Payroll companies offer a variety of services for business, from improving employee engagement and regulatory compliance to efficient and accurate means of paying them, depositing and filing taxes, maintaining records and more.

Some of the major benefits of partnering with payroll service providers are:

  • They help you get organized
  • They boost business productivity
  • They define and document your processes
  • They establish discipline and maintain accountability
  • And more

When selecting your ideal business payroll services, it’s important to pay attention to provider’s:

  • Core features and services
  • Cost
  • Reputation
  • Service integration
  • Ease of use and support
  • Tax compliance strategy

Best of luck!

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