How to Choose a Payroll Service for Your Business

Regardless of which payroll service you choose, the size of your business matters. You will run across payroll companies that claim they can handle payroll for any size company, from one employee to 100,000. And while this is true for some, it doesn’t mean they’re right for you. In fact, with the big providers, you may end up paying for services you don’t need and won’t use.

Some general guidelines are:

• 0–5 employees: A basic payroll service may be enough if everyone works in one state and has a straightforward pay arrangement. However, even very small businesses must follow applicable tax, wage, reporting, and workers’ compensation requirements. If an accountant, bank, or bookkeeper handles payroll, confirm exactly which filings and compliance tasks are included. It also helps to understand how payroll works so you can review their work and provide accurate information.
• 6–49 employees: Look for software that can accommodate additional employees, pay types, locations, and tax requirements as your business grows. A free or low-cost platform may work for a business with simple payroll needs, but check its limits on tax filing, multistate payroll, customer support, integrations, and contractor payments. Your business remains responsible for complying with applicable federal, state, and local payroll laws.
• 50–100 employees: At this size, payroll often becomes more closely connected with benefits, leave, onboarding, time tracking, and compliance reporting. Certain federal requirements may also apply once an employer reaches 50 employees, although eligibility rules vary. An all-in-one HR and payroll platform can help centralize these processes. See our HR payroll system guide for recommended options.
• 100+ employees: Prioritize scalability, reporting, integrations, internal controls, and predictable pricing. Per-employee fees can add up quickly, so calculate the total annual cost at your current and projected headcount. A human resources information system (HRIS) may also be valuable for managing payroll data alongside benefits, employee records, reporting, and other HR processes.

Where your employees work affects payroll taxes, registration requirements, wage and hour rules, and required leave policies. Consider every location where you have employees, including remote workers:

• Employees work in one state: Payroll is generally simpler because you are managing one set of state requirements. Most payroll services can handle this arrangement, but confirm that the provider supports any applicable local taxes and filing requirements.
• Employees work in multiple states: Choose a provider that supports multistate payroll, including tax registration, withholding, unemployment insurance, and state and local filings. Ask whether multistate processing is included in the base plan or costs extra.
• Employees work in other countries: International payroll involves country-specific tax, employment, currency, and reporting requirements. Look for a global payroll provider that supports the countries where your workers are based and clearly explains whether it operates through local entities, employer-of-record partners, or contractor payment services. Compare options in our guide to the best global payroll solutions

Next, what kind of compensation you give your employees should be considered when looking at payroll providers. Are they truly employees, or are some considered independent contractors? To know the difference between the two, read our 1099 vs W-2 workers guide.

Most payroll providers can pay part-time and full-time employees, but support for contractors, multiple pay rates, commissions, and different pay schedules varies. Before choosing a provider, confirm that it supports every worker and compensation type your business uses. You should also verify that workers are correctly classified. See our guide to the different employee types for more information.

If your business includes:

• All hourly employees: Look for built-in time tracking or an integration with your existing time and attendance system. The software should transfer approved hours into payroll and support overtime rules, multiple pay rates, shift differentials, and breaks when applicable. See our guide to the best time tracking software for compatible options.
• All salaried employees: Payroll is generally more straightforward when employees receive a fixed salary on the same schedule. However, you should still compare tax-filing services, deductions, paid time off tracking, reporting, and support rather than assuming a basic plan will meet every need.
• Combination of hourly and salaried: Choose a system that supports multiple pay types and schedules within the same account. Confirm that it can handle different payroll frequencies, overtime calculations, bonuses, commissions, and deductions without requiring extensive manual work.
• Only independent contractors: Look for a provider that supports contractor payments and Form 1099 preparation and filing. Some providers offer contractor-only plans, while others charge additional fees per contractor or tax form. Compare the total annual cost and check whether you are charged during months when no contractors are paid. See our top contractor payroll service picks for options.

Start with the payroll functions your business needs now, then account for features you may need as it grows. More comprehensive platforms often cost more, so avoid paying for advanced HR tools or services that your team is unlikely to use.

At a minimum, confirm that the provider can calculate wages, withhold taxes, pay employees, file payroll taxes, and produce required tax forms. Depending on your workforce, you may also need:

• Multiple pay rates and schedules
• Overtime and shift differential calculations
• Bonuses, commissions, tips, and expense reimbursements
• Contractor payments and Form 1099 filing
• Garnishment administration
• Paid time off and leave tracking
• Benefits deductions and administration
• Time tracking, accounting, scheduling, or point-of-sale integrations
• Multistate or international payroll
• Employee self-service and mobile access
• Custom reports and role-based permissions

If employees earn commissions, check whether the payroll system can calculate them or import commission data from another platform. Our guide to the best commission tracking software includes tools that may integrate with your payroll process.

For instance, a business that pays four part-time employees would not need to pay a premium for payroll services that provide top-notch insurance rates. The law doesn’t require benefits until you reach 50 full-time equivalent employees, so in most cases, a very small operation wouldn’t need that option.

Scalability matters as well. If you have 50 employees but expect to reach 150 within a year, confirm that the system can handle your projected headcount, locations, pay schedules, and reporting needs without forcing another migration. Ask how pricing and support change as you add workers or upgrade plans.

Finally, review feedback from businesses with a similar size, industry, and payroll setup. Their experiences can reveal recurring issues with implementation, reliability, customer support, and features that may not be apparent during a sales demonstration.

You may wonder why you would need to have any payroll or HR expertise in your company at all, considering that you’re looking for a new payroll service. The truth is that although you will be paying a company to help do your payroll, your business is still ultimately responsible for any mishaps that may occur—unless you partner with a Professional Employer Organization (PEO), which shares some liability with you.

Opting for DIY payroll software isn’t the best idea if nobody has any payroll or HR knowledge. You may be able to ensure your employees are paid but may not understand how much in taxes to withhold or how or when to report to the IRS and other tax agencies.

Compare payroll providers by total annual cost, not just the advertised monthly price. Pricing commonly includes a monthly base fee plus a per-employee or per-contractor charge, although some providers use flat-rate plans, pricing tiers, or custom quotes.

Account for every required expense, including:

• Base subscription and per-worker fees
• Payroll runs outside the regular schedule
• Multistate or international payroll
• Year-end tax forms and filings
• Benefits administration
• Time tracking, scheduling, and other add-ons
• Implementation, setup, or data migration
• Priority customer support or HR advisory services
• Plan upgrades required to access specific features

Calculate the cost at your current headcount and your projected headcount for the next 12 months. A provider that looks inexpensive today may cost significantly more as you hire employees, enter additional states, or add features. Also confirm whether the provider charges for inactive employees, contractors who are not paid during a given month, or off-cycle payroll runs.

Before signing up, request an itemized quote and note which charges are recurring, usage-based, or one-time. Comparing the full monthly and annual cost across providers will give you a more accurate picture of long-term value.

If you offer or plan to offer employee benefits, check how each payroll provider handles enrollment, deductions, employer contributions, and updates. Some platforms offer benefits administration directly or through a brokerage partner, while others only deduct premiums for plans managed through an outside provider.

An integrated system can reduce manual work by transferring benefit elections and deductions directly into payroll. Without that connection, your team may need to update multiple systems and reconcile deductions whenever an employee enrolls, changes coverage, or leaves the company.

For example, suppose an employee adds a spouse to their health insurance during open enrollment. An integrated payroll and benefits platform can automatically update the employee’s premium deduction for the next eligible payroll. With separate systems, an administrator may need to enter the change manually, confirm its effective date, and check the next paycheck to prevent an incorrect deduction.

When comparing providers, ask:

• Which benefits are available and in which states?
• Can you keep your current broker or insurance plans?
• Are enrollment changes automatically reflected in payroll?
• Does the system manage employer and employee contributions?
• Are benefits administration or brokerage services included or charged separately?
• Who handles enrollment questions, carrier connections, and deduction errors?

Make a list of the business systems that need to exchange data with your payroll software. Common integrations include:

• Accounting software
• Time and attendance systems
• Employee scheduling tools
• Point-of-sale (POS) platforms
• Expense management software
• Benefits administration systems
• HR and applicant tracking software

Native integrations can automatically transfer approved hours, tips, commissions, deductions, and payroll expenses between systems. If a direct integration is unavailable, check whether the payroll platform supports spreadsheet imports and exports or offers an application programming interface (API). Manual file transfers can work for smaller teams, but they require more administrative time and create additional opportunities for data-entry errors.

For example, a restaurant may connect its POS and scheduling software to payroll. At the end of each pay period, the integration can transfer employee hours, reported tips, and applicable pay rates into the payroll system. Without that connection, a manager may need to gather the information from separate reports, reconcile it, and enter it manually before every payroll run.

If you pay hourly employees, you need a reliable way to record their work time. You can collect hours through time sheets, spreadsheets, or a separate time clock, but manual entry becomes harder to manage as your workforce grows. Look for payroll software with built-in time tracking or an integration with your current time and attendance system.

If you decide you’d rather automate this process, time and attendance software would be your best bet. It’ll shift the burden of documenting work hours (via clocking in and out) to the employees, and all you have to do is review and approve them. If the time and attendance system integrates with your payroll software, all information will transfer electronically, such as employee paycheck calculations.

If you offer paid time off or sick leave, look for payroll software that can track accruals, balances, requests, and approved absences. An integrated system can update available balances automatically when employees earn or use leave, reducing paperwork and manual calculation errors.

For example, when a manager approves an employee’s vacation request, the system can deduct the hours from the employee’s balance and send the approved paid time directly to payroll. Confirm that the provider can support your company policies and any applicable federal, state, or local leave requirements.

Online payroll software is a system that you can use to help manage your payroll or some aspects of it—paychecks and payroll taxes (payments and filing)—completely online. The best payroll software provides full-service payroll options; they’ll process your payroll and taxes, with a promise to refund any penalties you incur due to mistakes they make. In addition, you’ll usually have access to a team of professionals that can assist you with setup, compliance questions, and one-off issues. You can find some DIY plan options that will help with calculations, but you’ll have to pay and file taxes on your own.

If you need payroll software recommendations, check out our best payroll software guide for small businesses.

Bookkeepers are the obvious choice for some employers when they already have one keeping their financial records in order. The important thing to consider is the bookkeeper’s level of payroll knowledge. Some are experts in compliance and stay abreast of federal and state payroll laws governing how employees and taxes should be paid; they may offer a guarantee to cover any penalties that arise, but you’ll need to verify. Others are more accustomed to the financial side of payroll, calculations, payments, and maintaining records; these bookkeepers can ensure your employees are paid but may run into some legal snags along the way.

Professional employment organizations (PEOs) are companies that partner with you on employing your workers. While you manage day-to-day operations, the PEO handles payments, taxes, and deductions and makes sure you don’t break any payroll laws. If you’re growing past the mom-and-pop stage and need to make your workplace more attractive with competitive benefit options—like insurance—and more structured processes/policies, a PEO might be a good option.

Although they tend to be more expensive than other options like software or bookkeeping services, you can secure much better rates for employees. PEOs add your employees to a pool that houses all of their clients’ employees, so they can offer large group benefit rates you can’t get otherwise.

Think a PEO might be right for you? Check out our top PEO recommendations.

Local payroll services are companies that process payroll in a physical location that’s near you. Since they’re local, you can usually meet with their payroll experts face to face and might even be assigned one point of contact at no extra cost—some online payroll solutions charge a premium for that level of personalization.

The services they offer differ depending on the company. Still, you should have the option of removing the majority of payroll responsibilities from your plate completely, aside from maybe submitting time sheets (if you’re not using a time and attendance system).

If you decide local payroll services don’t make the cut for your business—they can be more expensive than online providers and don’t usually give as much value for your money, other than the personal experience—take a look at our best payroll services guide for other options.

At this point, you’ve probably got somewhat of an idea as to what will and won’t work for you. If you’re not looking to meet anyone in person or partner with a co-employer, you can cross out bookkeepers and PEOs. Make a list of the providers that are still under consideration.

Workers’ compensation, payroll taxes, and other compliance issues are important areas you will need to keep up with once you start to hire people. If you’re a business owner who just wants compliance done, you will want to strongly consider HR software or payroll software. For example, if you choose a payroll service like Gusto, you can purchase and set up your workers’ comp coverage right from the software.

If you would rather do it yourself to track costs, then you can buy workers’ comp on the private market or through a broker. Just remember, your accountant and your bank most likely won’t guarantee compliance like an HR or payroll software provider would.

Payroll systems store sensitive employee, banking, and tax information. Review the provider’s encryption, access controls, security certifications, breach-response procedures, and data-retention practices. Confirm who can access your information and whether it is shared with third parties.

Review the contract length, renewal terms, cancellation fees, and policies for future price increases. Confirm how long you can access payroll records after cancellation and whether the provider charges to export or transfer your data.

Some payroll platforms use automation or artificial intelligence (AI) to flag unusual payments, answer employee questions, or summarize payroll data. Evaluate these tools based on the time they save and the controls they provide. Ask whether a person must approve payroll changes, how your data is used, and whether it is used to train external AI models.

Customer reviews can reveal problems that may not surface during a sales demonstration. Check several independent review sites and give more weight to recent feedback from businesses in a similar industry, workforce size, and payroll setup. Look for recurring comments about implementation, tax filing, system reliability, customer support, and issue resolution rather than relying only on overall ratings. Expert reviews can provide additional context about features, pricing, and limitations.

After narrowing your list to two or three providers, ask each one for customer references. Ideally, speak with a business that has similar needs, such as multistate payroll, hourly workers, benefits administration, or specific integrations.

Ask references about:

• How long implementation and data migration took
• Which unexpected problems or costs arose
• How quickly the provider corrects payroll or tax-filing errors
• Whether customer support is responsive during payroll deadlines
• How well the service has handled growth or added complexity
• Whether they would choose the same provider again

Treat provider-supplied references as one source of information, since vendors are likely to connect you with satisfied customers. Compare those conversations with independent reviews, contract terms, and your experience during the sales process.

One of the important steps in choosing payroll software is to look at the providers’ reputation. Check their track record and whether they provide reliable services and solutions to their clients.

Payroll software and service providers typically use cloud-based systems that rely on an internet connection to work. If there are system outages or downtimes for maintenance, ask the payroll provider how often this happens and how soon they can get the software up and running again.

Check whether the payroll provider offers other services, such as benefits plan administration and access to HR advisors, that you can get either as a paid add-on or an additional feature if you upgrade to a higher tier.

Having access to online payroll tools that can streamline pay processes is great, but it should not be difficult to learn and use. The interface should be user-friendly and intuitive so you can run payroll with ease.