Should I Use a Payroll Service for my Small Business?

Labor laws are regularly updated, tax requirements keep evolving, and employer contributions and employee benefits are ever-changing. All have a significant impact on payroll management, a challenging task to keep up with for any size business, and especially true if you are a small business owner without adequately trained staff to handle payroll-related needs. This can pose a huge problem for businesses which may wind up in the cross hairs of an IRS audit. In fact, annually, over 30% of all businesses are fined by some regulatory body for either filing the required information late or for incorrect payroll returns. These fines can cost businesses billions of dollars per calendar year, and that doesn’t begin to address the related costs, i.e. accounting, legal fees as well as other indirect damages such as credibility and reputation.

Fortunately, as the saying goes, for every problem, there is likely to be a solution and that is where payroll service providers fill the void. These providers promise to eliminate the difficulties and hassles that lead to mistakes, which eventually could result in fines and penalties. While payroll service providers are obviously helpful and economically viable for large companies, the daunting question remains: do small businesses really need a payroll service? Before we answer that, let’s first analyze the potential benefits and probable challenges before deciding whether or not to seek the assistance of a payroll service provider.

Factors to Consider

Payroll Service Provider Qualifications and Experience

Today, there are hundreds of internet-based companies which claim to offer payroll services. As expected, the majority do not offer quality services or else they have questionable integrity issues. To start, research the providers’ experience, find out how long they have been in the payroll services business, and then check the user reviews they have received thus far. It is advisable to choose a provider who has been around for at least three years because stability and quality is important in selecting a provider. While this background check process may cost a significant amount of resources for a small enterprise, it is worth having a reputable payroll provider that you are confident will be around in the future.

Costs of the Payroll Services Provided

As a small business, you want value for every dollar spent. This means you should select a provider that is capable of offering an improved service at an affordable price. To get this economic value, you must first evaluate the entire cost (and ensure there are no hidden costs) and the quality of the package, and then compare it to that of other service providers. Do not make the mistake of analyzing everything in terms of only cost, as some may appear a real bargain on paper, but the actuality is they offer a poor service. In other words, have a comprehensive price comparison list and select a suitable provider for your business. Remember the old adage—you get what you pay for.

How do you select a suitable provider for your business? Identify your company’s needs and look for a service provider that can meet your requirements at an affordable cost, with no hidden charges. Avoid any company that doesn’t offer a direct and conclusive price structure as they are more likely to surprise you with hidden fees. Other than that, expect prices to vary depending on the package you choose and the number of employees on your payroll. You should also be able to upgrade or downgrade the package as and when your business needs changes.

Options and Features

As a small business, you probably do not need a premium package. It is always advisable to start at the lowest subscription level and upgrade to a higher one later, depending on your experience and business needs. In most cases, small enterprises just need a provider that assures them of basic and accurate payroll accounting services. Regardless of the level, however, the following are critical features that should be a part of any package:

  • Automatic tax calculation and filing.
  • Affordable fees on direct deposits to workers accounts.
  • Accounting capabilities for insurances and other employee related benefits.
  • Swift integration with regulatory agencies.

Customer Service and Support

A provider with a top-notch customer service team is always integral to having a successful payroll system. You will always want to have prompt support from a customer service provider which has sound knowledge and experience resolving payroll challenges and problems That is why it is critical to check the provider reviews and customer service ratings. Beyond that, check their guidelines, such as payroll set up and integration support. Ensure that they provide 24/7 support which should not be limited to only one communication channel, but multiple avenues such as phone, email or online chat. This will give you a clear idea about their customer support capabilities, i.e. seriousness, attitudes, and policies.


We live in an age where data security has become a hot-button issue, as well it should be. Employers and employees alike won’t wish to have their tax and personal information exposed, for any reason, whether it is human error or fraud. Your payroll services provider should be equally as concerned, as the costs for a data breach can be significantly greater than just monetarily. So, research and choose a reputable provider capable of protecting the integrity of your data. You could also ask for recommendations from the providers’ past and present clients so as to avoid untrustworthy service providers that may expose or exploit employees’ information to fraudulent activities.

User Experience

Complex and rigid systems are always challenging to use. Look for a provider that offers simple and easy to use software that allow employees to log in and access information. To ensure this is the case, seek out a service provider that will offer a free trial so that you can test the user experience of a system and choose a suitable package that meets your staff’s abilities and experience. This way, you save time and resources that may have been used in the learning curve.


A small business with financial limitations should always buy a system which offers flexible choices in relation to data storage, report and file printing. It is important to check for a provider that will allow for the flexible and easy integration with your other features, such as time and attendance software systems. This way, you will eliminate duplication and payroll errors, and decrease unnecessary labor costs. It would also allow a company to assess and improve their performance metrics.

Reasons to Use a Payroll Service Provider

Depending on your business needs, there are several reasons your company may choose to engage the services of a of payroll services provider; those reasons could include:

Enhanced Accuracy – The two primary reasons to engage a payroll services provider is first, to ensure that your employees are paid exactly what they are due, and on a timely basis, and second, that your company submits timely and accurate payroll information to the IRS and other regulatory agencies. Both tasks can be challenging, thus raising the need for a payroll services provider which will guarantee accuracy.

Compliance Services – Regulatory guidelines are not limited only to tax laws; there are also multiple employee registration, privacy issues and security regulations to consider. Most payroll service systems now offer access to the legal expertise needed, as part and parcel of their payroll package. They ensure that your business’ payroll activities don’t unintentionally expose the employee’s data, in relation to the legal framework set. This feature can save a small enterprise a significant amount of time and resources and, at the same time, ensure legal compliance with complex payroll and tax regulations.

Lower Payroll Costs – An alternative to hiring a payroll service provider would be to hire, in-house, someone who can capably handle all of the payroll-related tasks. The costs of salary, and related benefits, for that person (or persons, depending on the number of staff) plus consideration for a replacement when that person is ill or on vacation, can mount up considerably. A comparison of the costs for the engagement of a payroll services provider versus the annual costs of an in-house employee can and likely will show quite a disparity.

Productivity and convenience

Engaging a payroll services provider can allow your HR staff, which might otherwise be tasked with payroll-related duties, to concentrate on those other activities which would improve the human resource performance and productivity in your business. As regards convenience, most payroll service providers will allow managers to update their employees’ wages and benefits information, as well as other pertinent data, online, from any location, and at their convenience.

Access to other services

Some providers will offer payroll service packages bundled with other related services such as contract generation and contractor services. Others might come with robust human resource management systems that, if needed, would present a significant cost savings as opposed to buying them separately.

Downside to Engaging a Payroll Services Provider

We would be remiss if we didn’t mention that there are some downsides to using a payroll services provider; some of those downsides include:

Loss of control – Though the minutia of the responsibilities would be controlled by the payroll services provider that you have engaged, most online platforms can still accord you some control as you can input some of employees’ particulars, as and when needed.

Accuracy concerns – A reputable payroll services provider will stand behind their work and guarantee accuracy, but understand that calculation errors or mistakes in filing requirements can and do happen. The ability to log into the payroll system to review or sign off on transactions and to input employee data changes, as needed, can go a long way to ensuring accuracy.

Data security breaches – Ensure the provider you ultimately choose has stringent controls in place to minimize any potential breaches of security.

Unnecessary or hidden costs – While the bundled packages may seem like a great bargain, they really only are if you absolutely need them. Don’t pay for something you don’t or won’t need. Instead, choose customizable services that suit your business needs and capabilities at an affordable cost.

Final Thoughts

We are in a technological revolution where modern human resource systems and services are built on the principles of efficiency and quality. However, these developments may come at a price too dear for most small businesses or startups. Once again, this begs the question: Do small businesses really need payroll services? The simple answer is “yes,” as it is more accurate, as well as cost and time effective than traditional payroll management. However, you must be aware of your business’ needs, the number of employees, and your company’s financial capabilities even before you think about outsourcing payroll activities. You also have a snapshot of possible problems you may encounter if you choose to engage these services. The downside, however, does not take away the real results and positive benefits that other small businesses have enjoyed from a quality payroll service provider.

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