How to select an online payroll service

Payroll is a challenging task for small business owners. Timely and accurate paydays help maintain employee morale. Payroll mistakes cause employees to lose confidence in their employers. 

Let’s go over some of the basics for choosing an online payroll service.  

Is payroll easy to manage yourself? 

Typically, it’s not. It must be compliant with local, state and federal laws that are subject to change. 

If your company has employees in more than one city or state, payroll may become complicated. For instance, if your employee lives in one state and works in another, where do you report their income? 

Local income taxes and fees may also be surprising. Did you know some cities charge employees a flat fee for every week they work? 

Quality payroll services stay current with local, state and federal laws. 

If you don’t work as an accountant, it doesn’t make sense to try to learn every aspect of payroll law. Focus on building your own business and choose a payroll-service firm right for you. Be confident every time you run payroll. 

How do you choose a payroll service? 

  • Assess your payroll needs 
  • Review available payroll-service offerings 
  • Check the references of your top three choices 

Assess your payroll needs 

When you speak with online payroll-processing companies, they will request the following information: 

  • How many employees do you have? 
  • Are your employees full-time, part-time or both (requiring annual W-2 filings)? 
  • Do you hire contractors (requiring annual 1099 filings?)  
  • How often do you pay your employees? 
  • How do you track time worked for hourly employees? Do you have timeclocks? 
  • How do you currently track benefit contributions and PTO? 
  • Do you provide benefits to your employees, such as health, paid-time-off (PTO), and retirement planning? 
  • Are you familiar with processing payroll, or do you have prior experience? 
  • If you have run payroll, did you pay by cash, check or direct deposit? 
  • Do you use currently use payroll software? 
  • Do you have historical payroll data to transfer to a new system? 

Review available payroll-service offerings 

Trusted payroll giant or scrappy startup? 

Review established, trusted payroll services. Compare them to newer companies in the category. Older companies may, or may not, offer access via a tablet or mobile device. New company’s software may not be compatible with older software and hardware. 

Request a demonstration 

Request a hands-on demonstration of payroll software under consideration. Ask to see various input areas like adding new hires, running payroll, and adjusting benefit contributions. 

Try out reporting features too. Reporting features should offer many options for pulling data. 

Limited input or reporting options may not scale with your business. 

Review government reporting capabilities 

Some full-service payroll software offerings manage mandatory government reporting. This type of software can file W2s, 1099s, and new-hire reports. Ask about these capabilities. 

Review tax and fee-payment capabilities 

Can the company automatically pay taxes and make financial contributions to benefit plans? If they offer these services, are they guaranteed? In what sense are they secured? Will they attend IRS or state tax audits with you? 

Where is data stored? 

Security is mission-critical when it comes to payroll, taxes and benefits information. Will you store your data? Will they store it at their facility on their servers? Will a third-party, cloud-based service store your data? 

At each level, how secure will your data be? 

Ask payroll service companies about any previous data breaches. Research this online as well.  

Can you keep your existing payroll history data and access it? 

Talk to anyone with experience transitioning from one business software to another and they’ll tell you about losing data. Software sales reps guarantee seamless transitions, but this is often not the case. Once a new system is up and running, they may not be able to restore lost data. 

If you have current payroll data, list every existing field, and ask to see where it will populate in the new system. Also, ask if that data will be accessible in future reporting, or will you have to pull information manually. 

If it won’t transition smoothly, will you have to keep the old system running or work from printed records? This situation is not ideal. You will need the data when you receive employment verifications, garnishments and wage audits (which you will sooner or later). 

If you have any doubts, include the list of required fields in any sales agreement or scope-of-work (SOW). Make sure it’s in writing. You’ll be glad you did. 

What contingencies do they have for emergencies? 

A natural disaster can occur anywhere, broadband service can be interrupted and a variety of human errors may occur. 

What if you realize, after business hours, that you sent last month’s timecard data for this month’s check run? Is someone available 24/7 to help? Will their 24/7 help be your account rep, ready to intervene, or a chatbot? 

People are waiting, sometimes in desperation, to be paid. Be certain a live person will be available to save the day in a crisis. 

Costs 

Payroll services have a wide variety of options and plans. The size of your business and the complexity of your payroll needs will impact these costs. Most programs have a cost per month or cost per employee. They may also have set up fees. 

Check references

Efficient payroll-service providers save you time and money. They protect you from making costly mistakes. Remember that ignorance of the law does not protect you from legal penalties. 

The company you select should have a good reputation for accuracy and up-to-date software. 

Touch base with your LinkedIn or other professional networking contacts for recommendations. If they have hands-on experience running payroll, they will have strong feelings on this topic. 

Microsoft 365 Team

Microsoft 365 Team

The Microsoft 365 team is focused on sharing resources to help you start, run, and grow your business.
Microsoft 365 Team