Payroll Services Buyer's Guide - part 1

This short guide was created to help you understand the basics of payroll services and how to find the best payroll service for you. We do not offer any payroll services ourselves, so you can be assured that all of the information in this guide is independent and unbiased.

In this guide

Important features and functions of payroll services

Each Payroll Service Bureau has its own unique set of services and expertise, but here are some of the common features that you should be aware of as you're considering how to find the right Payroll Service Bureau for your business:

Software vs. Online - payroll services can either be provided as a software program installed on your computer or as a hosted application available on the Internet. Each has its advantages and it usually comes down to a personal preference. Online payroll is convenient because it can be accessed anywhere at any time and there are no hardware or software maintenance requirements. In addition, you can easily give access to business partners such as your accountant.

Tax Filing Assistance - some payroll services are designed to calculate the proper tax deductions (as well as other deductions such as retirement programs, sick and vacation days, holidays, and so on) and generate paychecks and nothing more. Other payroll services also help on the back end with the planning and scheduling of certain (but not necessarily all) tax filings and payments to the proper tax authorities. Many Payroll Service Bureaus will offer a basic package and a deluxe package to provide these functions.

Tax Filing Methods - for those payroll service bureaus that assist with tax filings, there are two main ways that they will help you file your required taxes. The first is through email messages and reports that remind you about upcoming deadlines. The second takes this to another level and actually schedules and processes payments to the IRS electronically. Most service bureaus that pay your taxes will collect incremental taxes as each payroll is processed and hold onto these funds in a tax trust account prior to distribution.

Software Integration - if you utilize a payroll service in conjunction with a small business software package, you can export the payroll information into your accounting program so that you don't have to manually enter it again.

Geographic Coverage - if you have employees in more than one state, you'll need to pay particular attention to the multi-state functionality of the payroll service bureau you choose. Many payroll service bureaus have limitations on how they can handle multi-state situations.

Number of employees - in addition to limitations on how they handle employees in more than one state, many payroll service bureaus have limitations on how many employees that can handle. Also, many payroll service bureaus limit the number of company locations that can be handled.

Employee Payment Methods - the heart of any payroll service is the ability to calculate and generate paychecks. Some of the most common paycheck options include:

  • The payroll service bureau generates a pay stub, and your company manually writes a paper check based on the amount.
  • The payroll service bureau prints paychecks on pre-printed check stock.
  • The payroll service bureau prints paychecks on blank check stock.
  • The payroll service bureau electronically transfers the paycheck amount to the employee's bank account; pay stubs are delivered to employees.

Reporting - all payroll service bureaus offer some level of reporting. Some offer pre-defined reports and others include the ability to create customized reports. A nice feature in any payroll service is the ability to download information into an Excel format so that you can further customize your reports. In addition, many businesses like to share payroll reports with their accountants; this can be done online, through printed payroll reports, or via Excel.

Time and Attendance - although not usually part of the core payroll service, many payroll service bureaus offer time and attendance tracking tools. These services can vary, but typically include an electronic clock with badges and a bar code reader and the associated tracking software that feeds into the main payroll system.

Support - when considering any payroll service, make sure to find out what sort of customer support you will have access to. Look for payroll service bureaus that have extensive FAQ sections and/or help guides, have a friendly interface, and several options to contact customer service (via email, chat, phone, etc.). Find out what hours customer service is open and how long the response time is. Also find out if you will be assigned a dedicated account rep or will be supported by a team of support personnel.

Other Features - there are many other features that can be found in various payroll services, and they include such things as the ability to handle garnishments, pay contractors in addition to employees, and so on. Some of these additional features might be worthwhile for your business, but some might be more marketing fluff than added value. As you do your research to find the payroll service bureau that's right for you, you'll have to weigh whether or not any additional bells and whistles are worth paying for.