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Payroll Processing


You can get away with being a little disorganized about everything else in your business but payrolls. Handling payrolls could become a major headache both for you and your staff. Therefore, it is best to pay attention to this aspect before anything else while setting up your own business.

Do you need a payroll processing system?

If you're the sole proprietor or in a partnership firm then you don't need to bother about paying yourself/yourselves a salary. However, if you have employee(es) then it is best to have a proper payroll management system in place.

If you just have a few employees, then you may use a software program or an online self-service program to handle payroll processing. But as you grow and hire more employees, you should consider outsourcing the entire payroll processing.

Why proper payroll processing is essential?

Apart from keeping your employees happy and clear about what they are being paid, you need payroll processing for tax filing. If you have a retirement plan for your employees – which you should – then added documentation, contributions, etc. also have to be handled. All this requires proper management of employee salary.

What are the various payroll processing services available?

Payroll services come in different flavors. Broadly they can be categorized into Basic, Enhanced and Assisted.

Basic Service:

This is a type of Self-service Payroll processing, where you just get the software engine to run the payroll. You are responsible for maintaining the information such as the tax rates, salary rates and deductions. You are responsible for running the payroll and disbursing the paycheck to your employees. You are also responsible for all tax filing, maintenance of tax records and sending necessary forms (such as year-end W2’s) to your employees. Naturally, they are the cheapest options amongst all payroll services.

Enhanced Service:

This is one step up from the basic service. You are still responsible for maintaining the rates and filing taxes yourself. However, the system offers assistance in the form of online tax filing, direct deposit of salary into your employee’s account, integration with certain standard accounting software systems, payroll forecasting etc, with additional cost.

Here are a few provides who offer both Basic and Enhanced payroll services.

  • Intuit Online Payroll – Intuit lets you prepare payroll on their online engine. It comes with a QuickBooks Enhanced Payroll system that lets you pay employees, pay taxes, file tax forms with a few clicks and starts at less than $23/month. They also offer QuickBooks Assisted Payroll that lets you access Expert Payroll Assistance, Pay Employees in QuickBooks, ensure no tax penalties and it starts at $69/month.

  • Paycycle - comes with a host of tools that lets to manage your own payroll and file with assistance. Payroll Basic comes with '30 days FREE + 2 more months at $9.99' (for 5 employees and 1 state), then $24.99 per month. Payroll Plus includes 5 employees and 1 state for $42.99 per month.

Assisted Payroll Service:

Many people like to use the Assisted Payroll Services which do all the filing for your business. Here are some popular ones in this category:

  • Paychex – You have to pay approximately $55 per pay period, for one check, checks cut, with filing and direct deposit. It works online and Paychex assigns a specialist to each client.

  • ADP – requires a direct deposit of $72 for each payroll and their website lists all the other services they offer.

  • Compupay – I have been using this company for a year now. They are pretty good. Even though I am a small business, I have been assigned a specialist who responds to my calls and emails usually in less than one business day. I pay about $32/month. They take care of all my tax filing. There is a separate charge for year-end W2 processing though; but it’s not too bad.

Before I outsourced my payroll processing, I was responsible for my tax filings. I missed filing a couple of times and ended up paying penalties. Trust me; outsourcing this process is well worth the investment both in terms of cost and stress.

However, be also aware of the downside, particularly for the assisted payroll service.

  1. Sometimes there are hidden fees that you are not aware of. For example, I got hit by a fee at the year-end for W2 processing which I was not aware of. You can avoid the surprise, and sometimes negotiate down the fee, if you are careful upfront, before signing the contract.

  2. They usually take out the payroll amount and tax dues a few days before, even though the taxes are not due until several days after the payroll date. On one side, it’s good because you know that these payments are set aside; but on the other side it does negatively impact your cash flow.

However, overall this business process is well worth done by someone else, so that you can focus on your clients.


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