The Most Important Things to Consider When Choosing a Payroll Provider

Let’s be honest—most payroll companies seem like they’re doing the same thing. That’s why it’s super overwhelming to figure out which company to go with. Not to mention that the payroll industry itself (and the support services it provides) has been rapidly transforming. According to Business News Daily, some trends to watch are:

• The need for faster payroll processing like real-time or on-demand payments are forcing payroll providers to quickly adapt so compliance, operational, and accounting procedures can keep up at the same pace.
• An increasing number of companies are shifting their payroll processes to cloud-based services, which can be more cost-effective for small businesses, too.
• The impact of the rise of artificial intelligence (AI) on payroll from how it assists with non-urgent requests to aspects of payroll that will still require a human touch.
• The growing need to integrate HR with payroll. This becomes more and more critical for being compliant with complicated labor laws and tax responsibilities, such as when considering how work has shifted from corporate offices to home offices with remote and hybrid employment situations, as well as how businesses are using independent contractors and contingent workers more often.

So beyond looking at the latest technology, price tag, basic features, additional services, and the unique needs of your business, what else can make a payroll service stand out as the right fit for you?

Over the years, I’ve helped many small business owners weigh the pros and cons of providers to find their perfect payroll software. (Note: Payroll service providers aren’t professional employer organizations, aka PEOs. Both can process payroll, but the former—covered in this article—is a vendor whereas businesses enter into co-employment agreements with the latter.) In my years of research, I’ve looked at a lot of providers and seen the good, the bad, and the ugly. After reviewing nearly every provider out there, I’ve learned that there are several things that can make or break your payroll experience.

Small business payroll provider research guide

Use this worksheet to help you put together your criteria to assess what payroll provider would be the right fit for your small business.

Now let’s walk through the four sections of the guide, which are the most important things to ask yourself when choosing a payroll provider. Then make your own list of your current and future payroll needs, and check off the needs that the provider meets. Once you make your choice and onboard your provider, you’ll get to focus on all the rad parts of being a business owner and make running payroll the least of your worries.

1. Easy to use

Some payroll platforms look like they haven’t been updated since 2004. Think small, barely readable text, menus nested within menus, and the saddest, drabbiest gray you’ve ever seen. Imagine logging into that twice a month.

But for real, it’s important that the platform you choose is user-friendly. Once upon a time, I had a client whose payroll software was so difficult to navigate that we had to call tech support just to find a basic report. It took an hour to find what we were looking for—and he had to pay me for that time!

The bottom line is if you’re going to use a payroll service on an ongoing basis, it should be as easy as possible. That means it needs to have:

• An intuitive menu structure
• Legible text
• Clearly labeled buttons that tell you what to do (and what will happen when you press them)
• Colors that don’t make you feel like you’re going to the most boring convention ever
• A mobile-friendly site so you can run payroll wherever
• And most importantly, a simple payroll process

The process should be so simple and intuitive that you have no question that you’re running payroll correctly. As a client once said to me: “I love that I can log in and run payroll in five minutes. The first time I did it, I knew exactly what to fill in, what all the boxes meant, and it was easy enough that I didn’t worry about screwing it up.” That, my friends, is an easy payroll experience.

2. Made for small business owners

Some payroll companies are geared towards accountants, and the language within the platform reflects that with jargon and other technical language you’ve never heard before. After your first payroll run, you can feel so overwhelmed that you never want to do it again.

The more confused you are about processing payroll, the more likely you are to make a mistake. Small businesses make common payroll mistakes across these seven categories:

• Payroll taxes
• Classifying employees vs. contractors
• Exempt vs. nonexempt employees
• Payroll schedule
• Gross vs. net payroll
• Providing pay stubs as required
• Paperwork and records

Payroll mistakes aren’t easy to fix, which means you’ll either spend way too much time fixing it yourself or you’ll need to hire someone. Both of these are a drain on your resources.

Even if you’re planning to hire a bookkeeper, you still need to be able to access your payroll data so you know what’s going on. No business owner should be completely helpless when it comes to accessing their financial information.

Other essentials a small business owner requires in a software solution that offers the best payroll services for their particular needs:

• Exemplary customer support, so your inquiries are responded to and reconciled quickly
• Software integrations, because a payroll system that seamlessly connects with your other applications and tech stack as a whole to fully meet your business needs can create efficiencies that streamline typically time-consuming processes
• Employee self-service tools, perhaps even a mobile app for ease of use
• Tax compliance with tax laws to stay on the good side of the Internal Revenue Service (IRS) by submitting and sharing tax forms, along with handling payroll tax filings
• Time-tracking and attendance functionality, including tracking paid time off (PTO)
• Automation, because the less you or your employees have to do manually, the more time you all can spend on business and operational strategy

3. Grows with your business

Any time you invest in financial software, choose the option that will grow with your business. This means looking for the features you need right now and the features you’ll need one, three, and five years down the road (even if you’re not there yet).

Before shopping for a payroll provider, make a list of your current full-service payroll needs. This is everything you need your payroll company to do right now. Most likely, your current list includes:

• File state and federal payroll reports and taxes
• File and send employees their W-2s
• Direct deposit and check processing
• Pay 1099 contractors and file 1099s
• Off-cycle payroll runs
• Additional tax withholdings
• Add bonuses or commissions to a worker’s pay

Then, create your payroll wishlist one year from now, three years from now, and five years from now. Do you eventually want to offer any of these benefits?

• Vacation and sick leave
• Health benefits
• Retirement plans
• Life and disability insurance
• Donation matching
• Commuter benefits

Ideally, a provider will give you the payroll options for add-on services as your business expands. This gives you the flexibility to grow at your own pace and not pay for services you’re not using. In fact, the Deloitte Global Payroll Benchmarking Survey, with respondents from more than 750 organizations across small and large companies with a few hundred employees to several hundred thousand employees, found that 91 percent have only one payroll system. The same report revealed that not only do 73 percent of respondents outsource some aspect of payroll, but 58 percent of them have been with their payroll provider for more than five years.

The payroll solutions for your unique needs could involve going beyond distributing employee paychecks and payroll management. They may consist of setting up a workers’ compensation policy or receiving human resources support in the form of managing employee benefits administration, onboarding full-time hires, or outsourcing to contractors vs. using an in-house team.

If that’s the case, then see what companies like Gusto offer. This detailed overview showcases the best options available across several providers, helping you make the right choice with confidence.

4. Cost

You’re probably thinking, “Why is cost the last thing on the list? Isn’t that the most important consideration?” And the answer is not as much as you might think.

Price does matter, but what’s more important is investing in software that you know how to use, feel good using, and that will grow with your business. It’s worth it to pay more for something that meets these requirements versus going with the cheapest option that is excruciating to use.

When researching payroll service fees, look at the:

• Base fee: What is the minimum amount you’ll be billed?
• Pricing structure: Are you billed per payroll run or through a monthly flat fee? And if it’s per payroll run, how much will that cost you based on your payroll schedule?
• Cost per employee: How much does it cost to add a new hire to payroll?
• Cost per contractor: How much does it cost to add a new contractor to payroll?
• Additional service fees: Cross-reference your current needs list. Is everything on this list included in the service fee? If not, what are the additional fees?

Some payroll providers also charge a one-time setup fee. Check what this fee includes and if the setup fee will offset your internal costs, like paying someone to migrate your data.

Are you fully committed to this payroll provider? If not, and there’s a setup fee, tread carefully. It would be a bummer to pay a setup fee and realize months later that you hate the experience and want to switch.

Switching payroll providers

Using these above four considerations as a guide will not only take the confusion out of choosing a payroll provider, it will also help you make a decision you’ll stick with, whether you’re selecting one for the first time or aren’t satisfied with your current online payroll software.

Before you invest in a payroll company, request a demo. (Many times, it’s already posted on the website.) Focus on the companies that are built for businesses of a similar size as your own. Then ask yourself:

• Could you navigate the backend and go through all the steps on your own?
• Do you understand all the terminology that’s used, or do they provide easy explanations?
• Is the system too robust for the size of your business? Are there features that don’t apply to a team of your size?
• How is customer service handled? How quick to reply? Is there a live chat function? (This feature is super useful if it’s your first time using payroll software.)
• Are self-service features like help articles or a knowledge base with robust documentation readily available?

When you’re ready to make a switch to a new payroll service provider, follow this step-by-step guide that covers:

1. Clarifying what your new payroll provider handles
2. Sunsetting your current payroll provider
3. Prepping for your new provider
4. Setting up your new account
5. Officially shutting off service with your old payroll provider
6. Setting your first pay date and notifying your employees of the switch
7. Double-checking all the details