How Much Does Payroll Cost for Small Businesses?

Payroll Cost for Small Business

Payroll costs contribute to a company’s overall expenses by encompassing not only the direct cost of employee wages but also,

  • Payroll processing
  • Tax filings
  • Compliance
  • Potential penalties

Small business owners often face challenges setting up a payroll system, particularly if accounting isn’t their strength. It can lead to errors, late payments, or compliance issues.

There are some factors that influence the choice of the right payroll system for a business, such as;

  • The size of the business
  • Payroll frequency
  • Required features
  • Budget constraints

Accurate payroll is important because incorrect tax filings can lead to penalties, fines, and legal implications for the business. Thus, it impacts its financial stability and reputation.

The typical cost of outsourcing payroll varies. However, it generally ranges from $200 to $250 per employee per year. Outsourcing can be more cost-effective and efficient compared to in-house management, considering the potential risks and time involved.

Moreover, larger businesses and those operating in multiple states often incur higher expenses due to complexity and compliance requirements. Therefore, it impacts the bottom line and financial health of the business.

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What is Payroll Cost?
Payroll cost means all the money a business spends to pay its workers. This includes their regular pay, bonuses, benefits, and taxes taken from their paychecks.

Furthermore, it also encompasses contributions made by the employer towards taxes like Social Security and Medicare

Different Types of Payroll Expenses

Payroll Cost for Small Business

Let us discuss the different types of payroll expenses the majority of businesses experience.

1. Direct Payroll Costs

Direct payroll costs is the money a company spends on paying its employees directly, like regular pay, bonuses, and overtime. These costs comprise the biggest part of a company’s payroll expenses.

It’s important to pay employees well to attract and keep good workers. Managing payroll costs accurately is also important to keep the company’s finances stable and follow the rules about pay.

Companies can use payroll software like Buddy Punch or hire outside help to handle payroll tasks to make this easier. 

Here are some examples of direct payroll costs.

1. Hourly Wages

Employees are paid based on the number of hours they work. Pay rates depend on their job, how long they’ve been working, and what’s normal in their industry.

To figure out how much they get paid for each hour, you multiply the number of hours they worked by their hourly rate.

Hourly wages include more than just the base pay. They also cover things like extra pay for working extra hours, bonuses, and rewards.

2. Salaries

Salary is the money businesses pay their workers. It’s a big part of what they spend on paying people for their work.

However, when small business owners figure out how much to pay, they need to consider things like;

  • How much workers are paid per hour?
  • Whether they work extra hours?
  • Whether they get any extra money like bonuses?
  • And whether any money needs to be taken out for taxes or benefits?

3. Employee Benefits

Employee benefits include everything extra employees get besides their base pay, like healthcare, retirement plans, and perks. 

Offering good benefits can help businesses attract and keep top workers. But, these benefits also cost money, adding to the total payroll expenses. 

Experts advise small businesses to plan and budget for these costs carefully. Moreover, understanding what different employees want is also important so that employers can customize benefit packages effectively.

4. Bonuses

Giving bonuses to employees is a common way to reward great work, lift spirits, and encourage better productivity. 

These bonuses are part of the company’s payroll budget because they directly affect it. Bonuses come in different forms, such as rewarding good performance, giving extra pay during holidays, or being a perk for joining the company.

Bonuses can motivate employees and improve results, but it’s important for small businesses to budget smartly to avoid money problems or surprises.

2. Indirect Payroll Costs

Indirect payroll costs are expenses that are not directly associated with employee wages but are still sustained by the business as a result of having employees. 

These costs can include expenses such as;

  • Payroll processing fees
  • Taxes
  • Benefits administration
  • Potential penalties for non-compliance. 

Even if you don’t see them right away, hidden payroll costs can really damage a company’s earnings. Moreover, not obeying tax and labor rules can lead to fines and legal fees, making those hidden costs even worse.

1. Payroll Taxes

These taxes are what the employer has to pay for Social Security and Medicare. It’s 7.65% of the employees’ pay.

Also, businesses need to pay federal and state unemployment taxes, which change depending on their location.

2. Administrative Costs

Administrative costs are the expenses of managing payroll and not paying employees directly. 

They include:

  • Paying salaries to payroll administrators or managers
  • Buying software for payroll
  • Any extra costs for keeping payroll systems running
  • Training employees on payroll
  • Solving payroll problems
  • Making sure taxes are done correctly

Even though these costs aren’t directly about paying employees, they’re still important. They help make sure payroll is done right.

What Is Included In Payroll Cost?

Payroll Cost

Payroll costs cover several things. 

This includes direct expenses like paying employees their wages, bonuses, and commissions. 

Additionally, employers have to pay taxes like Social Security, Medicare, and federal and state unemployment taxes. There might be other charges from payroll services. For instance, handling benefits for employees, setting up direct deposit, making sure the system is secure, and printing and sending out paper checks. 

If a business uses payroll cards, they’ll have to pay for making and keeping up the cards, and might also have to pay if the cards aren’t used, for using ATMs, or if there’s not enough money in the account.

In addition to these expenses, businesses also need to consider the costs associated with new hires. This includes expenses like workers’ compensation, additional services, and tax withholdings. 

Ensuring compliance with the IRS regulations and state requirements is crucial. 

Employers may also need to consider additional costs such as garnishments, which can vary depending on the business needs. This comprehensive approach requires the expertise of a CPA and efficient human resources management to handle payroll effectively and ensure all necessary payments are made accurately and on time, per pay period.

What Are The Average Costs Of Payroll?

The average cost of payroll has three main elements. Let us discuss them one by one.

1. Average Cost Of Employees

employee payroll

The cost of employees goes beyond just their salaries. It includes things like benefits, taxes, and other expenses. 

Small businesses need to understand and control these costs to stay financially healthy. Therefore, when figuring out the average cost of employees, consider things like health insurance, retirement plans, and payroll taxes. These extra expenses can really affect your budget.

In order to find out the real average cost of employees, add-on all the expenses for each staff member. This means not just their pay but also things like training, office space, and utilities. By doing this accurately, businesses can make smart choices about hiring and money.

Using technology can help make payroll easier, reduce paperwork, and maybe save money. 

Automated payroll systems like Buddy Punch can handle calculations, taxes, and following rules, saving businesses time and resources.

2. Average Cost Of In-House Payroll

In-house payroll costs cover paying staff dedicated to payroll work or the time current employees spend on payroll tasks.

Additionally, businesses need to invest in payroll systems like Buddy Punch to make the process smoother and more accurate. Teaching staff to use these systems well also adds to the overall cost.

Besides, there are hidden costs with in-house payroll, like possible errors. If not fixed quickly, these mistakes can lead to fines or legal trouble.

Therefore, while doing payroll in-house might seem cheaper initially, the total costs can become quite high over time. Small businesses should consider carefully whether to handle payroll internally or hire a specialized service.

3. Average Cost Of Payroll Services

As discussed above, the cost of payroll services for small businesses usually ranges from $200 to $250 per employee each year. This cost can change based on factors like the size of your business, the number of employees you have, and the level of service you need.

Consequently, outsourcing payroll can be surprisingly affordable because it saves you time and resources.

Most payroll service providers have different pricing plans. Some charge a monthly base fee plus an extra fee for each employee, while others charge per pay cycle. However, some might give discounts if you pay annually.

When you think about the cost of outsourcing payroll, don’t just think about the base fee. Consider any extra services you need, like tax filing, HR integration, or special reports.

Common Payroll Methods to Consider for Your Small Business Payroll

There are four methods through which you can optimize the payroll costs of your business.

1. Automated Payroll Software

Consider using automated payroll software for your small business. This technology helps with payroll tasks like calculations, tax filing, and paying employees. It saves time and reduces mistakes compared to manual methods.

The software calculates wages and taxes based on laws. 

Additionally, it automatically creates pay stubs, tax forms, and payroll reports. Moreover, it can work with other business systems, like accounting and HR software, to share information without repeating data entry.

Furthermore, employees can use the software to view their pay stubs, update personal info, and set up direct deposit. Moreover, the software also keeps payroll data secure by using encryption and access controls.

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2. Payroll Outsourcing

Consider hiring a payroll service to make your small business run smoother. 

Outsourcing payroll means letting another company handle paying your employees. They’ll figure out how much to pay, take out taxes, and send the money. Consequently, small businesses can focus on their core objectives.

Payroll services use special software and experienced people to make sure everything is done right and follows the tax laws. This reduces mistakes and keeps you from getting fined.

Additionally, they might charge you based on how many employees you have or how often you pay them.

Outsourcing also means your payroll data is more secure. Good payroll services have strong security to protect your employees’ info, making you less likely to have data breaches or identity theft.

3. Online Payroll Providers

These services use internet-based platforms that allow you to manage payroll from anywhere. With online payroll, you can easily calculate employee pay, deductions, and taxes using a simple interface.

One big plus of online payroll is its accessibility. You can use it whether you’re in the office, at home, or on the move. Hence, it is great for small business owners who are always busy scaling up their companies.

Online payroll services often have automation features that calculate taxes and offer direct deposit.

Moreover, online payroll services use strong security measures to protect employee information and follow data protection rules.

Plus, they usually have customer support to help with problems or questions, from setting up your account to fixing payroll issues.

4. In-House Payroll

With in-house payroll, you do all payroll tasks within your company instead of hiring an outside company. 

It means you calculate how much to pay people, deduct taxes, and give out paychecks or make direct deposits. You need staff who are knowledgeable about payroll rules and taxes.

Doing payroll in-house lets you control everything and make it fit your company’s needs. You can keep employee info private and safe. But it takes a lot of time and money. You need to keep training your staff and invest in good payroll software.

Even though it’s hard, many small businesses choose in-house payroll to stay independent and save money. If you go this route, make sure you have the right skills and tools. 

Best Software to Manage Payroll Costs for Small Businesses

Here is a list of top software you can utilize for payroll execution.

1. Buddy Punch

Businesses of all sizes and across diverse industries trust Buddy Punch, which is revolutionizing payroll management.

Buddy Punch presents a wide range of features crafted to streamline payroll processing specifically customized for small businesses.

From automated time tracking to seamless payroll integration, Buddy Punch ensures accuracy and efficiency in every step of the payroll process. 

Moreover, with its user-friendly interface, businesses can easily manage payroll from anywhere, anytime, with just a few clicks.

But what sets Buddy Punch apart from manual and other payroll solutions? The answer lies in its unmatched efficiency and convenience. 

Unlike manual payroll methods, which are prone to errors and time-consuming, Buddy Punch automates the entire payroll process, saving businesses countless hours of tedious administrative work. 

By utilizing Buddy Punch, you don’t need paperwork. It enables you to direct your attention towards the expansion of your business.

Let us discuss some of Buddy Punch’s prominent features.

1. Payroll Anytime, Anywhere

Buddy Punch can manage your payroll anytime, anywhere. This all-in-one solution simplifies time tracking and payroll processing, making it hassle-free and compliant. You don’t need third-party integration apps to streamline your payroll (most of the time).

Buddy Punch automates everything, from employee time tracking to payroll calculations, reducing manual tracking and errors. With just a few clicks, you can review work hours, sync employee time, and submit payroll for your team.

Moreover, with features like employee self-service and direct deposit, your team can access pay stubs and get paid quickly. Furthermore, you can comply with local, state, and federal tax laws with automatic tax filings and expert support. 

2. Track All Expenses

With Buddy Punch, you can track all your expenses seamlessly. It’s all-in-one solution simplifies time tracking and payroll processing.

Buddy Punch offers expense tracking for every situation, ensuring you know exactly where your money is going.

Furthermore, it integrates with popular accounting and payroll software like QuickBooks and Gusto, so syncing data across platforms is quick.

3. Payroll Reports

With Buddy Punch, you can easily generate payroll reports that provide valuable insights into your employees’ hours, overtime, and paid time off. 

Robert Fox: Export to Excel for Payroll

Moreover, you can export these reports in various formats, such as Excel, CSV, or PDF.

4. Employee Time Tracking

Buddy Punch offers a comprehensive solution that simplifies time tracking and payroll management. From automated payroll processing to real-time attendance tracking, Buddy Punch has everything you need to ensure accuracy and efficiency in your payroll operations.

With features like GPS tracking, mobile time tracking, and geofencing, Buddy Punch provides real-time insights into your employees’ hours and locations, enhancing accountability and preventing time theft.

Assign all punches inside the geofence to: Location or Department

There is no need for manual time tracking or paper timesheets. With Buddy Punch, you can easily track employee hours, monitor overtime, and manage time-off requests with just a few clicks.

5. Integration With Other Software

This versatile payroll solution effortlessly integrates with a wide range of popular business tools, enhancing functionality and streamlining your operations. 

With just a few clicks, you can connect Buddy Punch with accounting programs like QuickBooks and Excel, as well as payroll vendors such as Paychex and ADP. Moreover, its API enables customization and connection with over 1000 websites and apps via Zapier.

But the benefits continue beyond there. Integrating Buddy Punch eliminates manual data entry errors and reduces the time spent running multiple apps separately. It also provides employees with a convenient way to enter and approve time-tracking data. 

How to Pay Your Employees Quickly With Buddy Punch?

Paying your employees quickly with Buddy Punch is very simple. Here’s a step-by-step guide to get it done efficiently:

  1. Log in to Your Buddy Punch Account: Access your Buddy Punch account using your credentials.
  2. Navigate to Payroll: Once logged in, navigate to the payroll section of the dashboard. 
  3. Review Employee Work Hours: Review your employees’ work hours in the payroll dashboard to ensure they are accurate and up-to-date.
  4. Sync Employee Time: Sync your employees’ recorded time with the payroll system to account for all recorded hours in the payroll process.
  5. Tax Filings: Buddy Punch also handles payroll tax filings, relieving you of the burden of complying with tax laws. The software automatically files taxes in accordance with the latest legislation, covering local, state, and federal taxes.
  6. Review Important Data: Take a moment to review important payroll data. Double-check employee details, work hours, and any other relevant information for accuracy.
  7. Submit Payroll: Once you’ve reviewed and verified all necessary information, it’s time to submit the payroll. This action initiates the process of paying your employees.
  8. Confirm Submission: Confirm the submission of the payroll to finalize the process. 
  9. Direct Deposit: Enjoy paperless paydays by utilizing direct deposit. This feature allows employees to receive their pay directly into their bank accounts on payday, providing quick access to funds.
  10. Expert Support: Should you encounter any issues or have questions during the process, Buddy Punch offers expert support. Reach out via email or chat for assistance from real people who are ready to help.

Following these simple steps, you can pay your employees quickly and accurately using Buddy Punch. 

Buddy Punch’s Online Reviews

As of the writing date, Buddy Punch has 4.8 out of 5 stars and 976 reviews on Capterra.

Buddy Punch Review 17 May 2024 Capterra

Below, we’ll list just a few reviews that speak to Buddy Punch’s ease of use and great customer support service. (Click here to explore the full list of reviews.)

“We needed a new solution for timekeeping and Buddy Punch came through! Onboarding and integration was so easy. Once I figured out all the setting options, it’s really easy to customize exactly what you need. Employees love using it because it’s so straightforward to use.”

Click here to read full review

“Overall this platform has been a time saver and wonderful addition to our payroll and time management. Staff can clearly see their hours and submit for approval after they review. It allows for accuracy and transparency.”

Click here to read full review

“BuddyPunch has been very helpful and I am glad my organization made the switch from our previous tracker to BuddyPunch. As mentioned earlier, the ease of use of BuddyPunch is what separates it from a lot of competitors.”

Click here to read full review

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If you feel that Buddy Punch might be the right fit for your business, sign up for a 14 day free trial (no credit card needed). You can also book a one-on-one demo, or view a pre-recorded demo video.

2. Gusto

Gusto is a leading payroll and HR software for small businesses. It streamlines essential tasks like payroll processing, HR management, and employee benefits administration. With Gusto, businesses can effortlessly handle their payroll needs, saving time and reducing errors.

Here are 10 key features Gusto offers for small businesses:

  1. Automated payroll processing
  2. Integration with time tracking systems
  3. Compliance alerts and assistance
  4. State tax registration in all 50 states
  5. Affordable employee benefits administration
  6. Job and applicant tracking
  7. Customizable onboarding checklists
  8. Time tracking capabilities
  9. Performance management tools
  10. Insights and reporting functionalities

Currently, Gusto has 4.7 out of 5 stars on Capterra.

Here’s what one of the users of this tool had to say about its performance.

Amanda V. found Gusto outstanding. She praised its user-friendly nature, emphasizing its ease of setup for contractors and clear tracking features. Amanda appreciated the electronic issuance of 1099s at year-end. While she noted initial payroll delays, she highlighted the option for next-day processing after a few months.”

3. Paychex Flex

Paychex Flex is a comprehensive tool designed to streamline payroll management for small businesses. It offers a range of features customized to meet the specific needs of small businesses, providing an all-in-one solution for payroll processing, HR management, and employee benefits administration. 

Here are 10 key features it offers:

  1. Automated payroll processing
  2. Time and attendance tracking
  3. Employee onboarding and offboarding
  4. Tax filing and compliance support
  5. Customizable reporting and analytics
  6. Integration with accounting software
  7. Employee self-service portal
  8. Mobile app for on-the-go access
  9. Retirement savings plan administration
  10. Health insurance and benefits enrollment.

As of the writing date, Paychex Flex has 4.1 out of 5 stars on Capterra.

Here’s what one of the users of this tool had to say about its performance.

ER B. found Paychex Flex exceptional. He praised its ease of use, customer service, features, and value for money. He found it easy to set up and maintain, with exceptional support. Though some complex tasks required support, Paychex Flex consistently delivered.”

4. On Pay

OnPay is a streamlined payroll and HR solution tailored for small businesses, offering an array of features to simplify workforce management. 

Here are 10 key features it provides:

  1. Payroll processing
  2. HR management tools
  3. Benefits administration
  4. Fast and precise service
  5. Easy setup and data migration
  6. VIP support from payroll experts
  7. Transparent pricing with no hidden fees
  8. Expert online advice and resources
  9. Integration with popular business software like QuickBooks and Xero
  10. Accessibility across devices with cutting-edge technology.

As of now, On Pay has 4.8 out of 5 stars on Capterra.

Here’s what one of the users of this tool had to say about its performance.

Lisa C., finds OnPay to be a “Great tool that is affordable and easy to use.” She particularly appreciates its user-friendly interface, mentioning, “I do not have a payroll background and I was able to figure out how to process payroll without getting frustrated.” She also highlights the instant and knowledgeable support provided through the chat functionality.”

5. JustWorks

Justworks is a comprehensive HR and payroll solution designed for small businesses, offering a range of tools to streamline workforce management. 

Here are 10 key features it provides as Payroll Cost for Small Business:

  1. Payroll processing
  2. Human support
  3. Benefits access
  4. Compliance handling
  5. Integrated time tracking
  6. Global payroll capabilities
  7. Multi-state compliance support
  8. Flexible payroll options
  9. High-touch customer support
  10. User-friendly platform.

Currently, Justworks has 4.6 out of 5 stars on Capterra.

Here’s what one of the users of this tool had to say about its performance.

Jasmine C., an Assistant in the consumer services sector, praises Justworks across all aspects. She describes her experience as the best and appreciates its detailed functionality. Jasmine particularly values the app’s ability to track employee time off requests seamlessly. Despite being a recent user, she hasn’t encountered any issues and has only positive remarks about Justworks.”

Can You Do Your Business’s Payroll Yourself?

Handling payroll yourself can be tempting, especially for small businesses looking to save costs. However, it’s important to weigh the benefits against the potential pitfalls. 

While managing payroll in-house may seem straightforward, it requires significant time, effort, and expertise. From calculating wages and deductions to staying up-to-date with changing tax laws, the responsibilities can quickly become overwhelming. 

Moreover, errors in payroll can lead to fines, penalties, and disgruntled employees.

Fortunately, technology has made payroll management more accessible than ever. Automated payroll software simplifies the process, reducing the likelihood of errors and saving valuable time. With user-friendly interfaces and built-in compliance features, these tools empower small businesses to handle payroll efficiently and accurately. 

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Different Factors That Impact Payroll Costs

Here is the table explaining the factors that highly impact payroll costs.

No of EmployeesThe more employees a business has, the higher the payroll expenses due to increased processing and administrative tasks. As a business grows and hires more staff, payroll costs tend to escalate accordingly.
Payroll FrequencyPayroll frequency is weekly, bi-weekly, semi-monthly, or monthly. Businesses that process payroll more frequently may incur higher expenses due to increased administrative workload and processing fees per pay cycle. 
The No of StatesRunning a business in different states adds cost. Each state has its own tax rules, reporting needs, and rules to follow. Businesses might need extra help handling payroll in multiple states. Such as special software and people who know the rules well to make sure everything is done right.
Direct Deposit CostDirect deposit to employees means setup fees, transaction fees per payment, and ongoing maintenance expenses. However, direct deposit makes payroll processing easier and more convenient for employees.
Tax Filing CostTax filing costs depend on the complicated tax rules, the number of different places you have to file taxes for, and the amount of tax work your business has to do. Hiring tax professionals or using tax software might cost you extra money. 
End-of-Year ProcessingAt the end of the year, businesses might have to pay extra to sort out W-2 and 1099 forms. Some payroll companies include this in their regular charges, but others charge an additional fee. 
Software Subscription CostThe price of payroll software varies depending on a business’s needs. You can pay monthly or annually. Extra services or special deals might also increase the cost. 
Adds On Service CostPayroll companies might also help with things like managing your employees, tracking their time, and handling benefits. But these extras can raise your payroll costs. While they can make your business run smoother and help you follow the rules, they might cost you more on top of the basic payroll fee. 

How to Reduce Payroll Cost?

reduce payroll costs

To reduce payroll costs, start by handling all payroll tasks internally to save on service fees. 

Ensure competence or hire a dedicated payroll expert, and utilize reliable payroll software for calculations and tax management. 

  • Stay updated with tax laws to avoid fines and establish efficient payroll routines to prevent errors. 
  • Compare prices, features, and services from multiple providers, and negotiate discounts or special deals. 
  • Scrutinize quotes for hidden fees or unexpected costs. 
  • Assess your current payroll system to streamline processes and eliminate unnecessary expenses. 
  • Automate repetitive tasks like time tracking and payroll processing to save time and reduce errors. 
  • Consider outsourcing certain tasks or hiring part-time employees to reduce expenses. 
  • Analyze employee workloads and productivity levels to optimize staffing. 
  • Negotiate better rates with vendors or switch to more cost-effective payroll service providers. 
  • Implement flexible work setups, such as remote work or flexible scheduling, to lower overhead expenses. 
  • Train employees to use the system correctly and input data accurately. 
  • Centralize all payroll tasks under a dedicated department or person to avoid mix-ups, and establish strict rules and checks to prevent errors. 

How Is Payroll Cost Structured?

Small businesses may follow various payroll cost pricing structures. Let’s discuss them one-by-one. 

1. Per Employee

Here’s how the calculation of per-employee payroll works. Businesses pay a fixed fee for each employee on top of a base fee that covers the payroll software and services they use. 

This method is transparent and scalable, meaning businesses only pay for the number of employees they actually have. The average yearly cost per employee is between $200 and $250, depending on the service and features. For instance, a payroll service might charge $20 to $120 per month as a base fee plus $1 to $5 for each employee.

Using a per-employee fee structure helps small businesses budget effectively because they can predict costs based on their current workforce. As the business grows and hires more people, payroll costs scale up accordingly. 

2. Per Month

Payroll costs for small businesses are usually simple. You pay a set fee each month, plus a little extra for each employee. It helps small business owners manage their money better. 

The monthly fee covers basic services like software and support. The more employees you have, the more you pay. For example, the monthly fee could be between $20 and $120, and you might pay an extra $1 to $5 for each employee. 

Therefore, businesses only pay for what they need and for the number of people they employ. Some companies offer different plans with different features, so businesses can pick what works for them.

3. Fixed Pricing

With fixed payroll pricing, you pay the same amount every month, no matter how often you run payroll or how many employees you have. 

Usually, these plans charge a set fee for a certain number of employees or services, making it easier to plan your budget. 

However, some plans might limit the number of employees covered. Therefore, fixed pricing is often a good deal for small businesses with steady payroll needs. 

This model makes expenses predictable, which helps you manage your money and resources better. Plus, fixed pricing plans usually include important features like tax filing services and direct deposit, so you don’t have to pay extra for them.  It’s a dependable and clear option for those who want stability and simplicity in handling payroll expenses.

4. Annual Fee

Annual fees involve giving a set amount to a payroll service once a year on top of charges for each employee. 

This setup helps businesses know what to expect in expenses and might save money compared to paying monthly. Yearly fees usually range from $1,000 to $6,000 annually, depending on business size and the number of employees.

Moreover, paying upfront for the whole year might get you discounts or deals from the payroll service. This could save a lot of money over time, especially for small businesses trying to be efficient and cut down on administrative costs. 

5. Software Fee

Companies that choose payroll software get a tool that makes paying employees easier and more accurate. 

It usually costs about $40 per month or $500 per year, which is cheaper than hiring a full-time payroll software.

Moreover, using this software means you can handle payroll yourself, so you don’t need to hire extra people. However, remember, the cost per employee can change depending on how many people you have.

Small businesses can save a lot on paying bookkeepers or accountants by picking payroll software. For instance, a bookkeeper might cost around $40,000 a year, but the software does a similar job for way less.

Also, using payroll software means you can hire fewer HR staff because the software does it automatically and is cheaper.

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Difference Between In-House Payroll and In-House Payroll Via Payroll Software

AspectIn-House PayrollIn-House Payroll via Payroll Software
ManagementDone entirely within the companyAutomated with payroll software
ControlTotal control, responsible for mistakesLess control, built-in checks for accuracy
EfficiencyTime-consuming, requires expertiseQuicker, more efficient, fewer mistakes
Tax ComplianceMust track complex tax lawsAutomated tax calculations and compliance
CostPotential additional staff or training costsMonthly/yearly software fee, potential long-term savings
Decision FactorsBudget, comfort with technologyBudget, control preference, technological comfort

Frequently Asked Questions (FAQs)

Do payroll services get 1099?

Yes, payroll services typically handle Form 1099 for independent contractors. While payroll services primarily focus on processing W-2s for employees, they can also assist with 1099s for contractors. 

These services ensure accurate and timely payroll runs, reducing the risk of payroll errors. Many businesses opt for a PEO (Professional Employer Organization) for full-service HR support, including payroll processing and assistance with tax forms like 1099s.

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