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How Much Does a Payroll Service Cost?

We know that budgeting for a payroll service can be overwhelming. No business owner loves the idea of adding additional expenses to their monthly or annual budget. But it’s no secret that managing payroll efficiently and accurately is a necessity for any business. But when it comes to in-house vs. outsourcing payroll, did you know that using an automated payroll service can save your business tens of thousands of dollars a year? Not to mention, tons of time and in-house resources. If you don’t already use one, you might be surprised to learn that your business needs a reliable payroll service. We’re here to help you budget appropriately. Take a look at our cost guide to business payroll services. We’ll cover common cost structures, factors that contribute to the overall cost, additional costs, and areas you can save.

Payroll Service: Typical Cost Structures

1. Per month base fee + per employee (most common)

Most payroll services today charge a monthly base fee, plus an additional fee per employee on your business’s payroll. Essentially, once you sign up for the service, you will pay an ongoing monthly fee to use the software and service. Then, there will be an additional fee per employee. This means that the more employees you have, the more the service will cost your business. 

In 2021, you can expect to pay an average of $20-$120 per month as a base fee for your payroll service, plus an additional $1-$5 per employee. For instance, Paychex, one of the most popular payroll services today, starts at $59 per month + $4 per employee.

Keep in mind that the monthly base fee will vary depending on the payroll provider and pricing plan you choose. Most payroll providers offer multiple pricing tiers with different lists of features per tier.

2. Per pay cycle + per employee

Some payroll providers will charge you per pay cycle, depending on the payday frequency you choose. Common pay cycles available are:

  • Monthly or semi-monthly
  • Weekly or bi-weekly

On average, you can expect to pay an average of $20-$60 per pay cycle if your payroll provider uses this cost structure. For this reason, many businesses save money by processing their payroll less frequently – either semi-monthly or bi-weekly. Keep in mind that oftentimes the provider will also charge your business per employee on each pay cycle. The average cost per employee per pay cycle is $1-$3.

3. Annual fee

It’s worth noting that some payroll services offer discounts when you pay annually rather than monthly. In this scenario, you would pay the payroll provider one time each year as a base fee to use the service. Then, you would pay per employee per month or pay cycle.

On average, you can expect to pay an average of $1,000-$6,000 per year, including per-employee fees. Keep in mind that this price will vary greatly depending on the size of your business and how many employees are on your payroll. Make sure to ask your payroll service provider if they offer any discounts when paying annually!

4. Software fees (no payroll service included)

If you don’t want a full-fledged payroll service, you can also simply buy payroll software instead. When using only payroll software, you will be able to manage your payroll on your own, but you won’t be able to reap the benefits of a complete payroll and tax filing service. Nonetheless, your business can save some money by going this route.

A payroll software will cost around $40 per month or $500 per year. There will also be additional per-employee costs, depending on how many employees are on your payroll. 

What Factors Influence Payroll Service Costs?

You might have noticed that the cost of payroll services listed above are a range rather than a set price. This is because there are several factors that influence cost. When using a payroll service, the cost will vary depending on the size \of your business, your needed features, and the way you process payroll. Take a look at this list of the top factors that influence the cost of payroll services.

  • Total number of employees: How many employees are on your regular payroll cycle? The more employees you have, the more the payroll service will cost your business on an ongoing basis.
  • Payroll schedule and frequency: Are you going to process payroll weekly, bi-weekly, monthly, or semi-monthly? Typically, processing payroll more frequently will cost your business more.
  • Required payroll service features: Each payroll provider has different pricing plans with a variety of different features. There are base-level plans that provide you with basic features, as well as higher level plans that give you more robust features. For instance, if you want to integrate HR operations with your payroll service, these features will usually cost you more.
  • Paper checks vs. direct deposit: Make sure to look into each payroll provider’s cost for issuing paper checks vs. direct deposit. Most services will charge more for issuing paper checks, due to check signing and envelope stuffing costs.
  • Which payroll provider you choose: Of course, each payroll service provider has a different cost structure. We recommend comparing different payroll providers and features to find the best solution for your business. Start by looking into these 7 best payroll providers.

Are there any additional or hidden fees?

When choosing a payroll service, it’s easy to pay attention to their main pricing plans and budget on a monthly or yearly basis. But don’t forget to look into additional fees that you might owe, depending on the payroll plan you choose. These “hidden” fees can add up and cost your business hundreds or thousands a year if you are not careful. Don’t overlook the following common additional payroll service fees:

  1. Set-up and installation: Does the service charge a one-time set-up and installation fee?
  2. Full tax filing: Does the payroll service charge extra for full tax filing features? Note: most payroll services include these features in all of their pricing tiers.
  3. Customer support: Be careful of hidden fees for a full customer support system. Most high-quality payroll providers will include customer support as part of their service.
  4. Check signing: It’s not uncommon for payroll services to charge additional fees for paper check signing. However, make sure to determine how much check signing will cost and add it to your budget to make sure you aren’t overspending.
  5. Reporting: Does the payroll service offer payroll reporting and analytics? This can be a very important part of your payroll process. Check to see whether or not the payroll service offers reporting, and which pricing tier this feature falls under.

What Expenses Do Payroll Services Help You Avoid?

When thinking about how much a payroll service will cost, it’s useful to also look into expenses that payroll services can help you avoid. This will show you just how much you can save by using a payroll service, overall.

1. Paying salaries to bookkeepers or accountants

While using a payroll service is certainly an investment, it’s important to keep in mind that it can save you tons of money when it comes to other payroll-related expenses. For instance, without a payroll service you would likely need to hire a bookkeeper or accountant to manage your payroll and other financial matters. 

While a good bookkeeper can cost your company around $40,000 per year, a good automated payroll service will cost just a few thousands dollars per year. Accountants and CPAs often cost more than bookkeepers. So all in all, by using a payroll service your business can end up saving tens of thousands of dollars. 

2. Adding a larger HR staff 

If your business wants to manage payroll on your own, you will likely need to hire several human resource (HR) employees in order to run your business efficiently. Managing payroll is a full-time job by itself, and there are other HR needs that must get accomplished on an everyday basis. Using a payroll service is like having an extra full-time HR employee at a fraction of the cost! 

Related: Payroll Audit Checklist for HR Teams

3. Facing tax calculation errors and penalties

The truth is, tax errors and penalties end up costing businesses tons of money each year. You can get slapped with expensive fees for filing late, filing incorrectly, improperly calculating taxes, and more. However, these errors could be easily avoided by using a payroll service.

Using an automated payroll service means saving tons of hours and frustration on calculating taxes correctly. Additionally, many payroll services take on liability when it comes to errors and penalties. This means that in the unlikely scenario that there is an error with your taxes, you will not be held responsible or charged.

4. Running into errors in wage garnishments

Wage garnishments can be complicated to calculate properly and are therefore very prone to error. According to ADP, 7% of the U.S. workforce had their wages garnished in some way, such as child support, student debt, or tax levy. If there are errors in your calculation of wage garnishments, you can be subject to penalties and fees. However, payroll services are designed to factor in wage garnishments accurately and with minimal effort.

5. Losing time internally 

The saying, “time is money,” definitely holds true when it comes to payroll needs! As a business owner, you have to pay for time contributed to your business. When you have an employee or contractor managing your payroll and taxes, you will be paying significantly more than having an automated service do the work for you. 

Not to mention, without worrying about managing payroll day-in and day-out, you’ll free up time internally to focus on everyday business matters. That means more time and effort geared towards growing your business!

Ready to compare prices? 360Connect’s free service helps business leaders like you find the best price available for payroll services. We match you with the best payroll provider that fits your business needs and save you up to 30%. It’s that easy!

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Just answer a few questions and get matched to top suppliers near you.
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