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How Much Does a Payroll Service Cost?

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Tax laws are complex and constantly changing. According to the Internal Revenue Service, one out of every three employers has been fined for a payroll mistake, with total penalties in the billions of dollars.

Payroll outsourcing prevents such costly errors, and it saves time. Some experts recommend outsourcing your payroll even if you have only one employee, particularly because tax withholdings absolutely have to be accurate.

About Payroll Outsourcing

A payroll service can handle any and all business functions related to payroll, including:

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  • Calculating wages and salary
  • Withholding taxes
  • Issuing checks to employees
  • Reporting wages to the government
  • Managing direct deposit

You can hire a payroll service to perform some of these tasks or all of them.

Outsourcing payroll frees up in-house time to focus on other aspects of the business, and it is usually less expensive than hiring an additional employee with payroll expertise. Outsourcing payroll also tends to result in better compliance with tax laws. There’s peace of mind in knowing that an expert is calculating and submitting your tax payments.

On the downside, payroll services aren’t free. And if you hire the wrong company, you could deal with errors - for which your company is solely responsible.

Cost of a Payroll Service

According to Entrepreneur.com, basic payroll service costs about $.80 to $2 per check, in addition to a base account fee. Additional services such as direct deposit and tax filing can cost $4 to $9 per payroll.

Generally, small- to medium-sized business should expect to pay about $100 per employee, per year to outsource payroll. That includes the full range of services, such as direct deposit and W-2 filing.

Buyer’s Advice

Choosing a payroll service can be difficult. There are so many options, and some companies try to lure you with low introductory offers, only to raise rates a few months later. Here are some tips and tricks to help you choose the best payroll company for your business.

  • Find out who pays for errors. Does the payroll service cover penalties and interest charges for their mistakes, or are you on the hook?
  • Explore client history. Ask the company how long the average client stays with them - the answer is a great indicator of competency. Ask for references, and actually contact them. Focus on finding out how accurate and responsive the service has been.
  • Get a detailed cost breakdown. Find out exactly how much you will be charged per year and what those charges include. Do rates go up after six months or a year? If there are payroll errors, what will it cost to fix them?

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Author: Ashley Smith


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