Payroll Options for Small Businesses

May 18th 2023

Confused about how to pay your employees? You’re not alone. Calculating federal and state tax withholding amounts, along with other potential types of withholdings, such as retirement or health insurance, for example, which need to be deducted from an employee’s paycheck, can be confusing.

Yet despite the complexity of payroll calculations, 58% of small business owners do their own payroll, according to the National Small Business Association. Only 42% of small businesses rely on outside payroll support.

Processing your own payroll is fine if you’re comfortable with all the calculations, but there are other alternatives, namely:

• Hiring an accountant
• Using an online payroll system
• Paying a payroll processor

Of course, each option costs more than doing the work yourself, as with most things, but handing this off to a professional can save you time. The National Small Business Association also reported that small business owners spend hours on this task, with 43% spending more than 3 to 10 hours monthly on payroll. Turning this work over to a pro may also reduce your liability if the numbers you crunch are wrong.

The following are the advantages and disadvantages of outsourcing payroll to someone else, to technology, or to a payroll provider.

Hiring an accountant

Many small business accountants can process your payroll for you, providing paychecks for employees and a summary of how much you need to set aside for tax withholding each pay period. If you’re in regular contact with your business accountant or if yours offers a bundle of services, this might be the most painless option for you.

Realize, however, that it’s likely you’ll pay more for a professional accountant to handle this task, and that, depending on the size of the firm, the accountant may delegate that task to someone on their staff (which you may not care about as long as the payroll is run in a timely fashion and withholding is paid by the deadline).

Using an online payroll system

If you prefer to personally handle processing your company’s payroll but want some technological support, an online system may be your best choice. With a company like Gusto, Workful, or Intuit Quickbooks, you enter the relevant financial details online and the system calculates your obligation. Most can take care of all your filings, too.

Some platforms specialize in easy payroll processing for small businesses while others offer payroll and other services, such as time tracking. Some include invoices, to aid in collecting what you’re owed from clients, and others include hourly time-tracking. Make sure you select the service that provides what you need, without extras you don’t need but will still pay for.

Paying a payroll processor

And if your company has more than a few employees or you want something closer to a full-service employee benefits system, a traditional payroll provider such as ADP, Paychex, or OnPay may be your best bet. These providers offer more hand-holding when it comes to payroll processing, as well as related services, such as HR and employee benefits services. These can be especially useful for fast-growing ventures or those that anticipate adding more employees in the near future.

When it comes to payroll, there is no one-size-fits-all for small businesses. Decide how much time you want to spend on this necessary but potentially complex task and what it might be worth to delegate it. By comparing prices from several options, you should be able to zero in on a payroll provider that does what you need and charges a fair fee.