You might think that running payroll on your own is saving you money.
But is it?
Stay with me.
Managing payroll in-house takes up a lot of time and resources. It’s a tedious process, it’s error-prone, and it’s difficult to get it right.
The average cost of payroll errors is $850 per year. You might cost yourself more money than you spend hiring an outsourced payroll service!
Maybe you’ve balked at the cost of payroll services in the past, but without doing the proper math, you might be leaving money on the table and causing yourself unnecessary stress.
This article looks at the true cost of payroll processing fees and the variables that affect what you’ll pay as a small business. Go into any potential relationship with the confidence that you know what you’re paying for.
Payroll Processing Fees: Is Outsourcing Worth it?
When you’re a small business owner, you might think that doing things yourself saves money. Why pay someone when you can do it yourself, right?
Although payroll is the lifeblood of your business, running payroll is a task you can easily outsource. Think of the time and resources you’ll get back if you don’t need to pore over tax compliance updates and regulations.
Could you use that time more efficiently?
Let’s break this down further. What higher-value work could you do if your payroll provider took care of the following tasks?
- Calculating and recording employee pay, including any bonuses, commissions, and deductions
- Preparing and issuing paychecks or direct deposit payments
- Preparing and filing required payroll tax forms and reports
- Managing employee time tracking and attendance records
- Maintaining employee benefit plans and 401(k) accounts
- Providing support and assistance to employees with payroll-related questions or issues.
On top of saving time, you’ll also reduce labor and overhead costs, such as investing in payroll software and training.
Still not convinced? Let’s determine if outsourcing payroll is cost-effective for your business.
Factors That Impact Payroll Processing Fees
If you’ve done your research, you’ll have noticed it’s difficult to find the answer to “How much will payroll cost?” Processing fees vary widely, depending on various factors.
- Number of employees: The more employees you have, the more time and resources it takes to process payroll.
- Frequency of payroll: What’s your payroll schedule? Do you process payroll weekly? You may pay higher fees than a company that processes payroll biweekly or monthly.
- Types of services included: A payroll provider that offers additional services, such as HR support or employee onboarding, may charge higher fees than a provider that only offers basic payroll processing.
- Complexity of payroll: A company with multiple locations or many employee benefit plans may pay higher fees due to the additional time and resources required to process payroll.
- Support and customer service: Payroll providers may offer different levels of support and customer service. A provider that offers 24/7 support may charge higher fees than a provider that only offers limited support during business hours
The common thread here is differing levels of service. Stellar client support should be a given, yet some providers make you sign up for more expensive plans just to receive the support you need.
Choosing a provider on price alone can be a mistake if you receive subpar service.
The Average Cost of Payroll Processing
You want an exact dollar amount here. We want to give it to you. However, it can be challenging to provide an exact figure that will remain accurate across industries and businesses.
Why is it so difficult to find a definitive answer? Because, as with most things, it depends.
Processing fees should be easy to understand and correlate with your needs.
You should only pay for the services you need. If you’re paying for add-ons and HR services you don’t want or need, you’re throwing money down the drain.
That said, a rough estimate for payroll processing is between $30 to $200 per month for a base account. In addition to a base account fee, payroll processing is usually charged an average of $10 to $25 per month per employee.
Pro tip: Request quotes from different payroll providers and compare their fees. Be sure to review the services included in each quote carefully. Look for any additional fees that may apply to get an accurate comparison of costs.
Are There Hidden Fees Associated With Running Payroll?
“Hidden” might be a strong word. But how many times have you signed up for something only to discover you didn’t read the small print? Not every provider will give you full-service payroll without additional costs.
- Setup fees: These may be charged to cover the initial setup of your payroll system and the transfer of employee data.
- Method of payment: Some payroll providers may charge different fees depending on the method of payment that you choose. For example, you may pay higher costs for direct deposit payments compared to paper checks.
- Filing fees: Some payroll service providers charge for filing payroll tax returns and other required paperwork.
Related: Worry-free payroll solutions.
Is it Cheaper to Run Payroll Myself?
Despite all the insights we’ve given so far, we’re not against owners running payroll for their small businesses.
Perhaps you only employ one or two other people. Maybe you don’t anticipate growth anytime soon. You can always reach out for advice. But is it the best solution?
No, if you consider the following:
- Time: Even with one or two employees, processing payroll is time-consuming. Especially if you’re unfamiliar with the process. Using a payroll service can free up time to focus on other aspects of your business.
- Expertise: Payroll laws and regulations can be complex, and failing to comply with them can result in costly fines and penalties. Payroll service providers have the expertise to ensure that your payroll is processed accurately and complies with all relevant laws.
- Convenience: Payroll services handle all aspects of payroll, including tax withholding and filing, direct deposit, and employee pay stubs. This can be a convenient option for busy small business owners.
How to Choose the Right Payroll Processing Provider
You know the potential costs of running payroll yourself and the benefits of outsourcing. So how do you choose a provider?
Price
Research thoroughly. Price alone doesn’t mean much.
Look for over-packaging. You might not need all the bells and whistles. Only pay for what you need. Simplified pricing is best. Also be wary of discounts.
An upfront discount is tempting, but the actual price of processing payroll may be far higher.
That new customer deal isn’t so attractive once the discount expires.
Reputation
The cost of poor payroll processing can be catastrophic. Ensure you understand a potential provider’s policies and procedures for handling errors and mistakes.
Reputable payroll providers will have systems and processes in place to minimize the risk of errors.
They will take steps to correct any mistakes that occur promptly and efficiently.
Ask about the provider’s track record for accuracy and reliability, and consider seeking references or reviews from other clients.
Experience
Does the provider have experience running payroll in your industry?
For example, a payroll provider with experience in the healthcare industry may be familiar with the specific requirements for calculating and reporting employee benefits.
We recommend small businesses work with local providers over nationwide or global providers. The support larger, nationwide providers offer to small business owners is often frustrating or nonexistent.
Payroll Processing Fees: Choose a Provider With Confidence
The last thing you want is to sign a contract with a provider and end up paying hidden fees and getting substandard service. The whole point of outsourcing payroll is to lower your workload, not add more stress.
And doing it on your own could incur even more headaches and stress.
Outsourcing makes the most sense, and with this guide, you know the questions to ask potential providers to ensure you’re getting the best service at the right price.
Payroll services should give you peace of mind, complete with reps who hear your needs and guarantee help along the way. Got a question? Have it answered the same day by local experts.
Need to connect with a Workers’ Comp specialist? We have trusted partners to put you in touch with.
We won’t upsell you. We won’t bundle in services you don’t need. We provide payroll tailored to your unique needs.
Want to know more about how we simplify payroll and connect you with local experts who can help you optimize your business operations? Check out The Connected Guide to Small Business Payroll and arm yourself with the essential knowledge you need.
