If you have employees, you need a reputable system for processing payroll, withholding taxes, and maintaining accurate records. There are a few ways you can run payroll, and each comes with a price tag. So, how much does payroll cost?
Payroll pricing varies from a few dollars to thousands per month. Are you paying too much for payroll? Or, do you need help budgeting for a reliable process?
Read on for everything you need to know about payroll services costs.
How much does payroll cost?
There isn’t a standard payroll services cost. Your payroll fees depend on many factors, like how you run payroll and how many employees you have. But, you can use research to see what other small businesses pay.
The National Small Business Association’s Small Business Taxation Survey asked small companies about the cost of payroll services. To get their results, the NSBA polled small business owners in different industries and localities.
Small business owners said they spent the following per month on payroll services:
- $1 – $50: 13%
- $51 – $100: 22%
- $101 – $500: 42%
- $501 – $1,000: 11%
- $1,001 – $5,000: 8%
- $5,000+: 3%
What do payroll costs include?
There’s a lot that goes into the payroll process. Payroll is a significant expense for many businesses.
Your company’s total payroll costs include:
- Employee wages, salaries, and benefits
- Payroll taxes
- Administrative costs
1. Employee wages, salaries, and benefits
Your largest overall payroll expense is your team’s paychecks. Employee wages, salaries, and benefits may include:
- Base pay
- Overtime pay
- Bonuses and commissions
- Health, dental, and vision insurance
- Retirement plan contributions
2. Payroll taxes
You’re responsible for withholding the correct amount of employment taxes from each employee’s wages.
You must also pay employer taxes, including Social Security and Medicare taxes, federal unemployment tax, and state unemployment tax.
Be sure to calculate the employer tax into your overall payroll costs. They can add up!
3. Administrative costs
This is how much you spend processing payroll, aka your payroll services cost. You might run payroll yourself, hire a payroll professional, or use online payroll to run payroll.
These administrative payroll services costs typically include the cost of:
- Calculating employee wages
- Paying employees with a direct deposit service
- Remitting taxes to the proper agencies
- Filing tax reports with the proper agencies
What impacts the cost of payroll services?
The cost of payroll depends on how you run payroll. Again, you have a few options for running payroll, including:
- Hiring a professional
- Managing payroll by hand
- Using software
1. Hiring a professional
Hiring someone is the most expensive way to run payroll. When you hire a professional, you don’t need to worry about running payroll. Instead, you hand off your employees’ information and let the professional do the rest.
Professionals may charge a percentage of each employee’s wages. The cost of payroll services for small businesses with a professional depends on the number of employees you have and the services you sign up for.
You can outsource to an accountant who offers payroll services or a professional employer organization (PEO).
2. Managing payroll by hand
Running payroll on your own is the least expensive option—at first glance. However, doing payroll by hand without software is the most time-consuming method, and it can lead to expensive errors (e.g., penalties or even legal fees).
If you pay employees via direct deposit, you have to pay fees. You might need to pay a transaction fee each time you transfer money into an employee’s account. This could range from $1.50 – $1.90 per transaction, according to the National Federation of Independent Business. Setup fees may range from $50 – $149.
If you pay employees via checks, you need to pay for the cost of check stock. If you print checks, you must also pay for ink.
Additionally, you must create a time and attendance system that lets you keep track of employee hours. And, you need to withhold and file taxes on your own, which can eat up your time.
3. Using software
Using software is a good middle ground between hiring a professional and managing payroll by hand. You can reduce payroll costs by using software instead of hiring a PEO.
How much does a payroll service cost if you use software?
The cost of payroll services for small business depends on several factors, such as:
- The software provider you use
- How many employees you have
- Features you want in the software
- Whether you use full-service payroll software
Some software providers charge per employee or each time you run payroll. For online payroll software, you typically pay a monthly fee. This monthly fee might include free direct deposit, which saves you from the transaction fee each time you run payroll.
Your payroll service pricing also depends on the features you want in your software. Full-service payroll is more expensive than basic payroll systems because the payroll does more, like filing taxes on your behalf.
Research and shop around before deciding on a software provider. If possible, take advantage of free trials and avoid signing up for long-term contracts.
How much do accountants charge to do payroll?
Each accountant charges different rates. Accountant fees likely depend on factors like your employee headcount and whether your team works across multiple states.
Want to hire an accountant to run your payroll? Set up a consultation and discuss your unique business needs.
Can I do my own payroll?
Yes, you can do your own payroll. Many business owners run payroll using payroll software.
Payroll software can help mitigate calculation errors, save time, and alleviate administrative headaches.
How to calculate your total payroll costs: Example
Your business’s total payroll costs include employee wages, employer taxes, benefits, and the cost of running payroll itself.
Here’s a simple formula to help you calculate your total payroll costs:
Total Payroll Costs = Employee Wages + Benefits + Employer Taxes + Administrative Costs
Let’s say you have one employee who earns $40,000. You spend $8,500 on benefits. Employer taxes total $3,669. You spend $42 per month on payroll software, which totals $504 for the year.
Total Payroll Costs = $40,000 + $8,500 + $3,669 + $504
Total Payroll Costs = $52,673
How to optimize payroll costs
Looking to cut back on your payroll service costs? You can optimize payroll costs with some of the following strategies:
- Use payroll software: Payroll software can save you time and money. Use payroll services to enjoy calculations, tax filings, and tax deposits.
- Compare costs: Shop around to find the best payroll software for small business. When comparing costs, be sure to factor in any extra expenses some providers may charge (e.g., per payroll runs).
- Audit your costs regularly: Feel like your provider keeps raising prices? Don’t be afraid to switch payroll companies.
Assessing payroll services cost: The bottom line
Before determining your expenses, remember that the following affect payroll service rates:
- Type of payroll service you use
- Number of employees
- Tasks needed (e.g., multi-state payroll)
Like anything, research your options before deciding on a payroll service.
How much is Patriot Payroll™?
Patriot Software offers two payroll options:
- Basic Payroll: $17/month plus $4 per worker
- Full Service Payroll: $37/month plus $5 per worker
Patriot’s Full Service Payroll includes federal, state, and local tax filings and deposits.
Sign up for either of Patriot’s payroll products and receive 30 days free, plus 50% off for the three months after! Get started here.
This article has been updated from its original publication date of December 1, 2017.
This is not intended as legal advice; for more information, please click here.