Online Payroll Guide: Everything You Need to Know About Payroll Services Payroll services keep your employees paid and your company compliant with regulations — the kind of work that manual processes can't quite cover.

Any business with employees — even just one employee — needs payroll software. These services keep your team paid and your company compliant with regulations. Many of these platforms also offer services beyond payment and regulatory compliance.

Below, learn all about this software and how you should use it.

What is payroll software?

Payroll software is digital technology that businesses of all sizes use to calculate and pay employee wages and salaries in full and on time. Concurrently, this software calculates, withholds, and files the appropriate federal, state, and local taxes, keeping your business compliant with regulations. Many payroll services also report your new hires to your state's labor department, relieving you of another compliance burden.

Additionally, payroll software often comes with tools for managing your team's paid time off (PTO) and administering employee health insurance and retirement benefits. Some payroll providers are professional employer organizations (PEOs) that fully replace an in-house HR department. Others may be tied to powerful accounting software that syncs your books and payroll records all at once.

Payroll services vs. payroll software.

Technically, payroll services and payroll software are two different things. Payroll software is solely the infrastructure for processing payroll once you've entered employee hours and wages, whereas payroll services fully calculate and execute your payroll. However, increasingly often, all payroll vendors offer payroll services, not just software. As such, the terms "payroll software" and "payroll services" are now almost always used interchangeably.

Who needs payroll software?

There are plenty of businesses in a wide range of circumstances that can benefit from payroll software. Here are examples that illustrate payroll software's versatility and necessity:

• Small agencies: Suppose an agency that started as a sole proprietorship has hired its first three full-time employees. This agency's cash on hand to pay salaries isn't abundant, but the agency makes up for this with a generous PTO policy. Payroll software ensures timely, full employee payments and employer payroll tax filing while enabling the employer's implementation and administration of its PTO policy. The employees get their earnings as well as the infrastructure to take vacation, sick, and personal days.
• Large businesses: Picture a company with thousands, tens of thousands, or even hundreds of thousands of employees. That's quite a lot of people for whom to calculate and deliver accurate payments, not to mention properly file payroll taxes. Not even the best mathematicians can handle this burden by hand, but payroll software covers it in just minutes.
• Contractor-only businesses: Some companies might hire only independent contractors or freelancers, with no in-house employees. These companies need payroll software too. With this software, contractor-only businesses can conveniently issue payments whenever a project is complete and auto-generate 1099 tax forms. Contractor self-service is also a major plus of this software — it's how contractors can update their contact and payment information without any employer burden.
• Businesses implementing benefits for the first time: It can be a major time-suck and head-scratcher to navigate health insurance marketplaces and sort through employee retirement plan options. Many payroll providers offer these benefits alongside their payroll services; in fact, some providers double as insurance brokers. This combination of driving team payments and connecting employees with benefits is quite powerful, justifying the sometimes high cost of payroll software.
• Construction firms: Consider a small construction firm that hires 10 full-time employees and regularly relies on the same independent contractors for on-site work. The firm pays salaries semimonthly to its employees and hourly wages weekly to its contractors while withholding taxes from only the former group. The math behind these payments can quickly get tricky, especially with two sets of pay schedules and taxation requirements. Payroll software can handle it all.

Of course, this list isn't exhaustive. If anything, all businesses, no matter their size, industry, or employee quantity or types, should implement payroll software.

How much does payroll software cost?

Many payroll software providers charge a flat fee per month, plus an additional fee per employee. For example, Gusto charges $40 per month, plus $6 per employee per month. If you have 20 employees, Gusto would cost $4,800 per month ($40 * 20 * $6 = $4,800). This price tag may seem hefty, but it reflects payroll software's extensive power and offerings. You save countless hours calculating wages and taxes, plus you get PTO management, employee benefits, new-hire state reporting, and HR services.

Of course, this high price can be a concern for some businesses no matter how much the included features justify the costs. This is why some payroll vendors offer only fully customized pricing. These vendors may be more open to negotiation, potentially saving your team money. Additionally, some vendors charge only per employee per month with no base fee, though the flat fee minimally impacts pricing for large teams.

Rare is the payroll software platform that charges setup or implementation fees. In fact, provider-assisted setup often comes with the service. That said, with some payroll services, employee benefits are paid add-ons, and occasionally, PTO management is too. You'll get the best bang for your buck with a service that includes these features, alongside state new-hire reporting, across all pricing packages.

What are the benefits of payroll software?

Payroll software saves you incalculable amounts of time, money, and effort, especially when it comes to your most tedious, error-prone business administration tasks. This is especially true as your company begins paying more employees or contractors. Some of payroll software's biggest benefits include:

• Timely payments in the right amounts: To calculate wages by hand, you'd have to diligently, manually track each employee's hours as well as their days off. You'd then have to be 100% confident in each employee's hourly wage or per-paycheck salary equivalents. From there, you'd have to do some basic multiplication, but you'd have to do it a bunch of times, which is tedious and error-prone. Payroll software does this all for you every payday, which is beneficial for small and especially large teams.
• Streamlined tax filing and compliance: As payroll software calculates your team's payments, it does the same for your company's corresponding tax withholdings. It then files these taxes on your behalf, with withholding amounts automatically determined based on federal, state, and local regulations. You'll never again have to keep track of tax rate changes and regulations. Additionally, many payroll services fully handle your state new-hire reporting.
• Automated paid time off management: Many payroll software platforms give you the power to approve or deny employee time off requests in as little as one click. You can also set paid time off policies and track accruals within these platforms. Some services go a step further and block time-off policies that don't comply with your state's regulations.
• Cost-effective employee benefits administration: Paying for, implementing, and administering health insurance, retirement plans, and other employee benefits can be highly costly and burdensome. You can often access these benefits through payroll services for lower costs than separately managing payroll and benefits. Payroll services typically administer these benefits for you as well, with some also acting as insurance brokers.
• Simple direct deposit: Many employees don't want to go through the process of signing and depositing a check, and many employers don't want to spend time cutting checks. Payroll services can deposit payments directly into recipients' bank accounts, thereby circumventing this whole process. This process can take four days from start to finish or be completed within well within 24 hours.

What are the types of payroll software?

There are technically a handful of types of payroll software, though the differences between some are minor, and other types are quite uncommon.

Cloud-based payroll software.

This type of payroll service is by far more common than its counterpart, on-premises payroll software. With cloud-based software, your payroll service stores and secures your data on servers that it manages. This way, you can access your payroll data from anywhere at any time without setting up your own in-house IT infrastructure.

On-premises payroll software.

Prior to the advent of cloud computing, on-premises payroll software dominated. This type of software existed entirely within one or several desktop computers, with an on-site server required for hosting multi-computer systems. However, given today's omnipresence of cloud computing, on-premises payroll software has become exceedingly rare, especially for small businesses. Cloud-based payroll software is simply much less burdensome for most employers.

PEO payroll services.

Some payroll services are part of a PEO provider's suite of offerings. These payroll services come alongside a full set of PEO services that eliminate your need to hire and manage an in-house HR department. You get far more than payroll management with these services, justifying their higher costs.

Accounting payroll services.

A small handful of payroll services also double as full-scope accounting software platforms. These platforms offer payroll management and bookkeeping features side by side. The tax management features that come with both of these types of platforms go hand in hand.

What are the key features to look for in payroll software?

All top-quality payroll software should include certain key features, and the very best come with other strong tools as well. The below list of features starts with the most important, but all are valuable.

Unlimited payroll processing.

Your payroll software should impose no limits on how often, and for how many employees and contractors, you can run payroll. You should also have access to the full selection of pay schedules, ranging from weekly to monthly. The ability to run several of these schedules for different employee and contractor groups is paramount. Full, timely, accurate automated payments should be a guarantee.

Payroll tax management and compliance.

Your payroll service should automatically calculate and file your payroll taxes on all full-time and part-time employee payments. (Contractor payments involve no tax burden for your business.) This way, your company remains compliant with state, local, and federal tax laws. Look for payroll vendors that regularly update their software to align with the latest legislation, as tax rules and brackets can change.

State new-hire reporting.

Your business is almost certainly required to report new hires to your state. This process can be tedious and prevent you from focusing on core business tasks, and many payroll services will handle it for you. The result is legal compliance alongside invaluable time savings.

Direct deposit.

The ability to pay employees directly via bank account deposits is core to efficient, effective payroll. Your team gets their money when they need it, and your employee payments quickly leave your bank account as cash, leading to more accurate bookkeeping. Plus, you won't have to spend time cutting checks, nor will employees have to spend time signing and depositing them.

PTO management.

You can often implement and manage paid time off policies through your payroll software. This service makes perfect sense within a payroll platform. You'll approve or deny time off right where you'll alter pay accordingly if necessary. Though not fully required for payroll software success, this feature is high on the list of nice-to-haves.

Employee benefits.

Another high-ranking nice-to-have, employee benefits services within payroll software can be a cost-effective way to access these oft-demanded perks. Many payroll services can provide your team with health insurance, retirement plans, and other benefits while administering these benefits as well.

Employee self-service.

It's easier for your internal processes if employees and contractors can access their pay stubs and edit their information without going through you. An employee self-service hub within your payroll software saves everyone time and ensures nothing falls through the cracks.

Mobile app.

Managing payroll on the go — or, for employees, reviewing pay records and updating information on the move — is often easier via a dedicated mobile app. Of course, all this is often possible via mobile web browsers. However, mobile apps typically offer a superior user experience.

HR or PEO services.

At some companies, it's the HR department's responsibility to manage payroll, so payroll vendors often offer HR or PEO services. These services can streamline common needs such as regulatory compliance as well as important but not universally required needs such as harassment prevention training. Consider the extent of HR services you get with your payroll software, whether you truly need them, and whether paying more would justify these features.

Multistate and global payroll.

For businesses currently operating in multiple states or countries (or interested in doing so), cross-border payroll is a must. This extent of payroll service is typically available through vendors known for strong HR services since regulatory compliance becomes more complex with cross-border operations. Get full clarity from any services you're considering on the extent to which they cover payroll and compliance across state and country lines.

Accounting.

In many cases, businesses use separate accounting and payroll platforms and integrate them. However, some payroll systems are also accounting platforms, and getting both through the same vendor can substantially streamline your operations. When choosing a payroll provider, consider whether its software platform offers built-in accounting tools. It may save you money and time spent on training your team on how to use the software.

What factors should you consider when choosing payroll software?

Features are just one aspect to keep in mind when comparing payroll vendors. Below is a nearly exhaustive list of factors to consider as you make your decision.

Costs.

It's one thing to find a payroll solution you perceive to be uniquely powerful. It's another thing to be able to afford it. Keeping your business in the black should always supersede going for the strongest software. After all, a business in the red can't really afford to pay its employees, which is the point of payroll software in the first place.

Free trials and demos.

Whenever possible, sign up for a free trial of any software you're considering, payroll or otherwise. This way, you can test the software for yourself without any commitment. There's no better way to see if a platform's cost justifies its features and if it's user-friendly.

While not all platforms offer free trials, some provide free guided demos. These are a good substitute for. You'll see more of what's inside the platform, but via the vendor's perspective, not your own.

Usability.

Top-notch payroll software, no matter its features, makes it easy to navigate the platform and execute tasks. This is true both on desktop and mobile web browsers, even if your platform of choice lacks a dedicated mobile app.

Features.

Only once you've established that you can afford and easily use a platform should you consider its features. Look at the platforms you've narrowed your list down to, then compare your notes on how easy they are to navigate and use. Put the most user-friendly platforms at the top of your list.

Integrations.

High-quality payroll services fully integrate with dozens to hundreds or thousands of other platforms, particularly accounting and HR software vendors. This way, the data you input into one platform syncs across all the others, leading to much more unified, efficient processes.

Setup and implementation.

The vast majority of payroll software is a breeze to get up and running. It's even easier, though, if you choose a vendor that includes guided or assisted setup and implementation in your pricing package.

That said, some platforms that require a lengthy setup period take their time because implementing such powerful software is a complex process. If such a vendor's offerings suit your needs especially well, having the patience to get through the setup will be worthwhile.

Customer support.

Around-the-clock access to customer support is important for payroll software, though not as crucial as with customer-facing software such as POS systems. As such, payroll software that offers 24/7 support is somewhat rarer than with customer-facing systems but far from nonexistent. Strive for this extent of support, but accept platforms that offer weekday phone support during typical Eastern Time and Pacific Time business hours.

Customer reviews.

Suppose a platform is hitting all your marks based on your researching the vendor's website and testing its software. That's nearly ideal, but it's not yet a full understanding of what your platform will and won't achieve. Reviews from the platform's actual current and previous customers fill that gap.

Browse the websites of Trustpilot and the Better Business Bureau to read customer reviews, but take negative commentary with a grain of salt. Customers who had a negative experience are more likely to leave a review in frustration than happy customers. There are likely so many positive customer experiences you won't read about on the internet.

What are the top payroll software vendors?

The top payroll software vendors are OnPay, ADP, Papaya Global, Paycor, Gusto, Paychex, Rippling, QuickBooks Payroll, Square Payroll, and Justworks. Here are short summaries each.

• OnPay: This highly user-friendly platform's customer service stands a notch above the rest, with only one pricing plan for all users. You also get more payroll software features, including HR services, than is typical among similarly priced platforms.
• ADP: This prestigious name in payroll and HR services operates in 20 countries and 140 international markets. Although its implementation process is often lengthy, its assisted onboarding services are among the best out there.
• Papaya Global: You can use Papaya Global in almost all the countries in the world, making it a great choice for multinational companies. No matter how many locations your business operates in, your labor cost data and employee time off records will be consolidated and easy to understand within this platform.
• Paycor: Employees often love Paycor given the platform's robust self-service portal for requesting time off, reviewing pay stubs, and updating information. Best of all, this portal is accessible via mobile app and desktop, which isn't the case for all payroll software providers.
• Gusto: Even within its lowest-priced package, Gusto gives you an impressive assortment of HR services, including employee benefits and regulatory compliance. Plus, few payroll services offer time-off request approvals and denials as simple as Gusto's one-click process.
• Paychex: Given its staff of in-house compliance experts and full automation of payroll tax filing and compliance, Paychex is ideal for larger companies. You can also use Paychex to run just about any pay schedule.
• Rippling: User-friendliness is the core of the Rippling experience. From its 90-second payroll runs to its automatic delegation of key employee tasks, Rippling takes almost all the hassle out of paying your team.
• QuickBooks Payroll: The core accounting services that have earned QuickBooks its stellar reputation within the business world also come with QuickBooks Payroll. So too do employee benefits and same-day or next-day direct deposit, making this platform more than powerful enough to justify its comparatively high costs.
• Square Payroll: For comprehensive payroll tax management, Square Payroll stands out since it covers your state tax obligations, not just your federal requirements. Square Payroll also offers a platform for solely contractor payments, and this service ranks among the least expensive payroll solutions.
• Justworks: This platform is a PEO, not just a payroll provider, so it offers a comparatively exceptional depth and breadth of employee benefits. As a PEO, Justworks also has the infrastructure to offer 24/7 customer support to all users, a rarity among payroll providers. To top it all off, Justworks' pricing is uniquely transparent and reasonable among PEO companies.

To learn more about these vendors, read our detailed overviews of the best payroll software.