Best Free Payroll Software for 2023

Unlike free payroll software, paid options come with a wider range of solutions and services to further streamline and automate processes. These features include automatic payroll tax table updates, compliance support, and access to benefits plans you can offer employees.

Many paid payroll software also remit and file federal, state, and local taxes for you, while others provide HR consultancy services if you need assistance in managing employee issues.

If you’re looking for an easy-to-use and reasonably priced paid payroll platform that automatically updates payroll tax rates and files taxes (most free payroll software don’t), consider Gusto. It’s an all-in-one payroll and HR solution for small businesses that helps save you time and money by calculating, filing, and paying your payroll taxes automatically. It’s free for up to 30 days.

If you’re looking for a free payroll system, check whether or not the software is really free. Some providers may have employee limits, while others include only basic tools in their free plans. Carefully look through the free software providers’ pricing pages and FAQs, as you may end up having to pay for additional employee seats and add-on solutions or services.

Next, consider your business’ payroll needs and assess if the free software has the essential features you need to compliantly and accurately pay employees. For example, the free software should be able to calculate employee payments, deductions, and taxes. Downloadable reports should also be available so you can use those to comply with tax filing requirements and track payroll data.

Lastly, check user reviews from online software review sites. Find out whether the software providers’ customers are happy with their service and the system in general. User reviews also provide helpful insights about the software’s ease of use, customer support quality, and if there are features that don’t work well or are glitchy.

Running payroll can be a complicated process, as it requires several documents and tools to ensure that you pay employees accurately and on time. The most common requirements that a small business will need include an employer identification number (EIN) and a bank account with sufficient funds to pay employees (either through direct deposits or check payments).

You also need to understand payroll compliance regulations, such as the required tax payments at all levels (federal, state, and local) and the payroll tax forms you need to submit. In addition, knowing common payroll terminologies (such as garnishments, gross and net pay, fringe benefits, and pay periods) will help you avoid potential pay errors.

If you’re new to processing employee payments, you can attend payroll training to familiarize yourself with how to run payroll, including labor laws and state guidelines. You can also hire a payroll accountant to handle your pay runs or invest in a payroll system like TimeTrex, Gusto, and the other providers we mentioned in this guide.

First, check federal and state laws, as some states may have payday schedules for specific types of employees. Next, take a look at the payroll frequencies that best fit your business and workers—the most common options are biweekly, weekly, semimonthly, and monthly.

It is also important to set up a payroll calendar and identify the different pay periods so you know when to start calculating payroll and when employees should expect to receive their pay. For example, hourly workers paid on a biweekly basis will receive their pay every two weeks, whereas employees on a semimonthly payroll will get their salaries every 15th and end of the month.

Paying independent contractors is simpler compared to paying employees because you’re not required to withhold taxes and pay taxes for contract workers. Given that contractors are not your employees, you also don’t have to include them in your company’s benefits plan (such as retirement and health insurance).

In terms of W-2 vs 1099 reporting, you don’t have to file year-end tax forms for independent contractors—they are responsible for paying and filing their own payroll taxes. However, as an employer, you should prepare 1099-NEC forms for your contractors to show how much each worker earned for the calendar year.

Employee payroll, on the other hand, requires you to deduct income taxes, garnishments, Medicare, Social Security, and benefits premiums (if you offer employee benefits), among others. You also have to remit tax payments and submit quarterly and annual tax forms to government agencies.

Getting the cheapest payroll software for small business owners may be one of the criteria that budget-friendly users are looking for, but it’s also important to determine whether it can handle all of your pay processing and basic HR needs.

For small businesses, consider online payroll tools that can calculate overtime, wages, taxes, and deductions (like benefits and insurance premiums). Plus, it should have the capability to generate required reports (such as tax forms) and can help you comply with federal regulations. Providers that can remit payroll taxes and file tax reports for you are preferred, especially if you don’t want to handle tax filings yourself.

For companies that employ hourly staff, look for payroll systems that have time tracking tools to capture employee clock-ins/outs. If it doesn’t have this feature built-in, check if it can connect with a time and attendance solution (like Homebase and Clockify), as this integration allows you to easily import time data into payroll for pay processing. It also removes the need to manually track employee attendance using time sheet templates and then having to input the summarized work hours directly into payroll.

While taking stock of the payroll features you need is essential, it is equally important to consider the size of your company, your budget, and the type of employees you have. Businesses in certain industries may even need specific functionalities, such as tip reporting and commission payments for restaurants and retail shops. Also, choose payroll software that is flexible enough to scale with your business and handle your additional HR needs (like recruiting and performance review tools), especially if you have plans to grow.

Processing employee payments yourself may save you money since you don’t have to pay a software provider or a payroll accountant to handle it—but we only recommended it to business owners who only have a handful of employees. It’s also important that you’re well-versed in how to run payroll and have no problems managing payroll taxes yourself. This includes remitting tax payments and filing the required tax forms to the applicable government agencies.

While the free payroll software on our list are great options, you can manually calculate payroll with a calculator or use Excel to compute all earnings and deductions. There are also online payroll calculators you can use, but you have to input the salary information one employee at a time in order to get each worker’s net pay. Plus, these online calculators can’t store salary data, which means you have to separately track and save all computations and payments for payroll tax processing.