Best Payroll Software

Let’s be honest: running payroll is probably the most stressful part of being a business owner. It’s complicated, the deadlines are terrifying, and a single mistake can lead to an unhappy team or a scary letter from the IRS.

A common question we hear is, “Can’t my accountant just handle this?” Our advice, based on years of experience with payroll systems, is simple: keep your accountant for high-level tax strategy, but move your day-to-day payroll processing to a dedicated payroll management system.

Why? Because the payroll services cost is low, and the ROI in time and peace of mind is massive. If you’re a large, 100+ employee company, you might want to outsource everything to a PEO (Professional Employer Organization). But for almost every other SMB, the best payroll software is the perfect tool for growth.

Key Takeaways

• What It Is: Payroll software is a tool that automates the entire, complex process of paying your team. It’s a payroll processing program that handles wage calculations, tax withholding, filing tax forms, and making direct deposits.
• Who It’s For: Any small or mid-sized business (SMB) that has hired its first employee. If you’re still using spreadsheets, a payroll system is your single most important upgrade for saving time and staying compliant.
• Quick Wins: The biggest wins are immediate. You’ll save hours on every pay run, slash your risk of costly IRS penalties, and give your employees a secure portal to see their own pay stubs and W-2s.
• What to Look For: The best payroll services are easy to use, file your taxes for you (“full-service”), connect to your accounting software, and can grow with your business.

What is Payroll Software, Anyway?

Think of payroll software as a smart, hyper-efficient assistant who is also a tax expert.

It’s a digital solution (almost all are cloud-based now) that automates and manages every task related to paying your employees and contractors. This payroll processing program is designed for you, the business owner, so you don’t have to be a tax pro to run payroll perfectly.

A good payroll system handles all of this for you:

• Calculates Pay: Figures out gross wages, overtime, and any deductions for things like health insurance or 401(k) contributions.
• Withholds Taxes: Automatically calculates and withholds the exact right amount for all federal, state, and local taxes.
• Pays Your Team: Sends direct deposits to your employees’ bank accounts (and can pay your 1099 contractors, too).
• Pays & Files Taxes: This is the most important part. A “full-service” payroll service pays the taxes it withheld to the IRS and all state/local agencies for you. It also files all your quarterly (Form 941) and annual (W-2/1099) forms automatically.

Why Everyone is Using Cloud Payroll Systems

The payroll software market is growing, but the real story is the huge shift away from old-school desktop software. The “old way” meant installing a program on one computer in your office. The “new way” is a secure website you can log into from anywhere.

Demand for modern payroll services is rising for two simple reasons:

1. Compliance is a Nightmare: There are over 10,000 tax jurisdictions in the U.S. Tax laws change constantly. A good payroll management system updates all these rules for you in the background. You don’t have to do a thing.
2. Remote Work is Normal: The rise of remote teams means a simple, one-state payroll can turn into a complex, five-state tax-filing headache. Modern company payroll services are built to handle this multi-state problem easily.

When Do You Need to Buy a Payroll Program?

You need a dedicated payroll program sooner than you think. The main trigger is hiring your first W-2 employee. That’s the moment your tax and filing responsibilities officially begin.

Other critical triggers to find a payroll service provider include:

• You hire an employee who lives or works in a second state.
• You pay a mix of 1099 contractors and W-2 employees and need to track both.
• You want to start offering benefits (like health insurance or a 401(k)) and need to manage the pre-tax deductions.
• Your team is growing, and you need to connect a time-tracking tool without entering hours by hand.

You have definitely outgrown your spreadsheet if you:

• Spend more than 30 minutes running a simple payroll.
• Live in fear of missing a quarterly tax filing deadline.
• Have ever made a math mistake and had to cut a “correction” check.
• Can’t easily answer, “What’s my total labor cost for the last six months?”

What to Look For: Must-Haves vs. Nice-to-Haves

When you’re comparing payroll service companies, it’s easy to get lost in features. For a small business, the foundation is what matters.

Must-Have Features:

• Full-Service Automated Tax Filing: The payroll system must calculate, pay, and file all your federal, state, and local payroll taxes. This is non-negotiable. If it doesn’t do this, it’s just a calculator, not a solution.
• Direct Deposit: Employees expect this. The payroll software should handle it for free.
• W-2/1099 Generation: At year-end, it must create and send these forms to your team and file them with the IRS.
• Employee Self-Service Portal: A secure website where employees can see their pay stubs, update their bank info, and get their W-2s. This saves you countless hours.
• Accounting Integration: A built-in connection to your accounting software (like QuickBooks or Xero).

Nice-to-Have Features:

• New-hire reporting (automates reporting to the state).
• Garnishment processing.
• Tip pooling and reporting (critical for restaurants).
• Job costing (assigning labor hours to specific projects).
• A good mobile app for you and your employees.

Your ‘Before You Shop’ Checklist:

Before you demo any payroll programs, have these answers ready:

• Headcount: How many W-2 employees? How many 1099 contractors?
• Locations: In which states do your employees live and work?
• Pay Schedules: Weekly, bi-weekly, semi-monthly?
• Benefits: What do you offer? (Health, 401(k), HSA, etc.)
• Current Tools: What accounting, time-tracking, or HR tools do you use?

What Problems Does a Payroll Service Actually Solve?

The core job of the best payroll software is to eliminate your biggest headaches and risks.

1. It Saves You a Ton of Time

Manually running payroll processing is a time sink. But the bigger problem is the error rate. Studies show that HR teams can spend five or more hours per month just fixing payroll errors. At an average cost of over $200 per error, this is a massive hidden expense. Payroll software with integrated time tracking and automated calculations makes those errors disappear.

2. It Keeps You Out of Trouble with the IRS

This is the big one. The IRS doesn’t play. If you’re even one day late on a tax deposit, you pay a penalty. The “Failure to Deposit” penalty is tiered:

• 1-5 days late: 2% of the unpaid tax
• 6-15 days late: 5% of the unpaid tax
• 16+ days late: 10% of the unpaid tax

You’ve probably heard the stat that “40% of SMBs pay an IRS payroll penalty each year.” The average penalty is almost $850. Modern payroll services with automated tax filing make this a non-issue. The payroll provider takes on the liability for making sure it’s on time.

A Deeper Look at Top Payroll Software Features

• Automatic Tax Filing (The Big One): Look for “full-service” or “autopilot” payroll. This means the payroll system pulls the funds, pays the agencies, and files the forms automatically. You should get an email confirmation for every tax form filed.
• Time, Attendance, and Scheduling: How do employee hours get into the payroll system? The best payroll systems have this built-in or a seamless, two-way connection with popular time-tracking apps. This is essential for getting overtime right.
• Benefits and Deductions: Your payroll software should be your “source of truth.” When you add a health plan, you enter the deduction amount once, and the software automatically takes the correct pre-tax or post-tax amount from every paycheck.
• Compliance Updates: This is the hidden magic of modern company payroll services. When your state’s unemployment tax rate changes, the software updates itself automatically. You don’t have to watch for these changes at all.
• Analytics and Reporting: At a minimum, you need a “Payroll Register” (a summary of each pay run) and “Tax Liability” report. Good payroll systems also offer reports on labor cost by department, location, or project.

Why Your Payroll System Must Connect to Your Other Tools

A payroll management system that doesn’t talk to your other tools is just creating more work for you. Think “garbage in, garbage out.” If you have to manually re-type numbers from one program to another, you’re going to make mistakes.

• Accounting (Essential): This is the most important integration. Your payroll system must sync with your accounting software. When you run payroll, all the journal entries (wages, taxes, benefits) should post to your general ledger automatically.
• HRIS/Time/Point-of-Sale (POS): For restaurants and retail, this is a must. Your payroll system must sync all employee hours and tips directly from your POS or time-tracking tool. This stops you from spending hours manually entering data.
• Expense and Benefits: Connecting to expense tools for reimbursements or to your benefits broker ensures all deductions are 100% accurate.

Understanding the Types of Payroll Providers

The market for payroll providers is crowded. When searching for the best payroll services, you’ll typically find a few categories in any list of payroll companies:

• All-in-One Category Leaders: These are often the top payroll companies that have expanded into a full, modern HR, benefits, and payroll suite. They are known for being easy to use and having a great interface, making them a favorite for tech-savvy SMBs.
• Simple Pricing Leaders: These payroll services win on transparency and support. They often offer a single, flat-rate plan that includes everything (like multi-state filing and W-2s) for one price. Users constantly praise their expert-level customer support.
• Scalable Platform Leaders: These providers are more than just payroll companies; they are “workforce management” platforms. They are built for fast-growing, tech-forward companies that want to unify payroll, HR, and IT (like app access and device management) into one dashboard.
• Legacy Compliance Giants: These are the long-standing, established names in the payroll industry. Their payroll processing companies are built on a foundation of deep compliance and tax expertise. They are a rock-solid choice for established businesses with complex, multi-state tax needs.

Note: User sentiment and rankings change. We recommend SMBs always review live, current data on top payroll software before making a final purchase.

How Much Do Payroll Services Cost?

Payroll services pricing can be confusing, but most payroll service providers use a simple model:

A Monthly Base Fee + A Per-Employee, Per-Month (PEPM) Fee

This is the standard for payroll services cost. For example, a plan might be $40/month + $6/per employee. If you have 5 employees, your cost would be $40 + ($6 x 5) = $70 per month.

However, you must watch for hidden fees that bloat your total cost:

• Year-end fees: Some payroll service providers charge extra to process and file your W-2s and 1099s.
• Multi-state fees: Many charge an extra monthly fee per state after your first one.
• Implementation fees: Is setup free, or is there a one-time charge?
• Support fees: Is helpful phone support included, or is that a “premium” tier?

When budgeting, always ask any payroll provider for a full quote that includes these potential add-ons.

Is My Data Safe with a Payroll Service Provider?

This is a question we get all the time. The answer is yes. Modern cloud payroll providers are far safer than a program on your office desktop.

Think of it this way: which is safer? Your office PC (vulnerable to theft, fire, or a hard drive crash) or a digital Fort Knox? These payroll service companies use enterprise-grade security:

• Data Encryption: Your data is encrypted at rest and in transit.
• Compliance: They have SOC 2 Type 2 or ISO 27001 certification. This is a super-strict, independent audit of their security.
• Access Controls: You can set up role-based access. Your manager can approve hours, but they can’t see what the CEO makes.
• Audit Logs: The system keeps a permanent record of who did what and when.

The ‘Why’: A Professional Payroll Service Handles the Hard Stuff

This is the most important reason you use a professional payroll service. You’re not just buying a calculator; you’re buying peace of mind.

• Tax Basics: You are responsible for withholding and paying federal income tax, Social Security, and Medicare (FICA), and federal unemployment (FUTA). On top of that, you have state unemployment (SUI) and state/local withholding. A payroll service provider manages all of this for you.
• Multi-State Nexus: When you hire an employee in a new state, you must register with that state’s Department of Revenue and unemployment agency. Good payroll software will guide you through this registration.
• Worker Misclassification: This is a huge audit risk. You can’t just pay someone as a 1099 contractor to avoid taxes. Using a payroll management system helps you clearly separate your W-2 (employee) and 1099 (contractor) payments and file the correct forms for both.

Is a Payroll Service Worth the Money? (The ROI)

How do you justify the monthly payroll services cost? Let’s do the math.

1. Time Saved: If you spend 5 hours a month on manual payroll processing and fixing errors, you’re wasting time. At a modest $50/hour value for your time, that’s $250/month. The payroll software (costing ~$100/month for 10 employees) pays for itself 2.5x over.
2. Penalty Avoidance: The average IRS penalty is over $850. A single penalty—which the payroll service would have prevented—can pay for an entire year of your subscription.
3. Cleaner Books: The automatic connection to your accounting software saves your bookkeeper or accountant time, which saves you money on their bill.

How to Switch to a New Payroll System

Switching your payroll system is easiest at the start of a new quarter or year, but you can do it anytime.

1. Prep: Gather your payroll calendar, pay policies (PTO, holidays), all state tax and unemployment ID numbers, and your prior-year payroll reports. If switching mid-year, you must have your year-to-date (YTD) payroll data.
2. Data Import: Most payroll providers will help you with this. You’ll upload an employee census (names, addresses, SSNs, pay rates, W-4 info) and all YTD data.
3. Parallel Run (Do not skip this!): Run your old payroll system and your new one at the same time for one full pay cycle. Compare the pay stubs. The net pay, taxes, and deductions must be identical.
4. Go-Live: Once you confirm the parallel run is perfect, you run your first “live” payroll on the new payroll system and turn off your old service.

Best Payroll Services for Different Industries

• Restaurants and Cafés: Your #1 feature is POS integration. You need a payroll service that syncs tips, hours, and job codes from your POS. Tip pooling and FICA tax credit automation are huge bonuses.
• Professional Services (Agencies, Law Firms): Your key needs are job costing and reimbursement. You need to tag payroll expenses to specific projects or clients.
• Construction and Field Teams: You have unique needs. You need certified payroll (for government jobs) and prevailing wage support. A rugged mobile time-tracking app is also essential.
• Multi-State Tech Startups: Your focus is scalability. You need a cloud-native platform that makes hiring in a new state easy and can handle equity/stock option tax implications.

How to Choose From the Top Payroll Providers

• IF you have <20 employees and value simple pricing and great support... shortlist the all-in-one, flat-rate payroll providers.
• IF you use a major cloud accounting platform… you must demo that platform’s integrated payroll for its seamless sync.
• IF you are a modern business that wants payroll, benefits, and onboarding in one easy-to-use platform… shortlist the “all-in-one” HR platforms.
• IF you are a fast-growing tech company and want to unify HR, Payroll, and IT… shortlist the scalable “workforce management” platforms.
• IF you are an established business (30+ employees) and value deep compliance and stability… get quotes from the top payroll companies with a legacy in tax processing.

Common Mistakes When Switching Payroll Companies (And How to Avoid Them)

From our experience with payroll software, we’ve seen these mistakes derail a new payroll setup more than once. Switching payroll service companies can be easy if you avoid these.

1. Bad Data (Garbage In, Garbage Out): If your PTO balances are wrong in your spreadsheet, they’ll be wrong in the new system. Do a full audit of your data before you import it.
2. Missing State Tax IDs: You must be registered with a state’s tax and unemployment agencies before you can pay an employee there. Get these IDs first.
3. Wrong SUI Rate: Your State Unemployment (SUI) rate is unique to your business. Using a “default” rate will result in an incorrect tax filing and a penalty.
4. Skipping the Parallel Run: This is the most dangerous mistake. You will miss a deduction or a setting. The parallel run is your free, zero-risk opportunity to find it. Do not skip this step.

Frequently Asked Questions About Payroll Software & Services

1. What’s the best payroll software for a very small business?

The best payroll software for a very small business (1-10 employees) is typically one with simple, transparent pricing (a low base fee + a per-employee fee) that includes full-service tax filing and direct deposit at no extra cost.

2. How much do payroll services cost?

Payroll services pricing generally consists of a monthly base fee (ranging from $40 to $100) plus a per-employee, per-month fee (ranging from $6 to $12). The total payroll services cost depends on your headcount, the number of states you’re in, and any add-ons (like benefits or advanced HR tools).

3. What’s the difference between payroll software and a payroll service?

Today, these terms are used interchangeably. “Payroll software” refers to the tool you log into, while “payroll service” refers to the full-service package that includes that software plus the automated tax payments and filings. You should always look for a “full-service” solution.

4. Can I do payroll myself for free?

You can try, but it’s extremely risky and time-consuming. You would be 100% responsible for calculating all taxes, meeting every IRS deposit deadline, and filing all quarterly and annual forms correctly. A single mistake can lead to penalties that cost far more than a year of a payroll service.

5. What’s the difference between payroll software and a PEO?

Payroll software is a DIY tool: you manage your employees, and the software automates the calculations and filings. You are the “Employer of Record.” A PEO (Professional Employer Organization) is an outsourcing service where you “co-employ” your team. The PEO becomes the Employer of Record for tax purposes and manages your payroll, benefits, and HR compliance for you.

6. Can payroll programs file all my federal, state, and local taxes?

Yes. All “full-service” payroll programs are built to do this. This is their main value. They will automatically calculate, withhold, pay, and file all relevant payroll taxes on your behalf.

7. How hard is it to switch payroll providers?

It’s easier than you think, especially if you use an implementation plan. The hardest part is gathering your data (like year-to-date pay stubs if switching mid-year). Most payroll service providers have setup wizards and support teams to walk you through the process, which can take as little as an hour.

8. What’s the easiest payroll software to use?

“Easiest” often means a modern, cloud-based interface, a guided “autopilot” feature for running payroll, and a clean employee self-service portal. Look for payroll systems that are praised for their user experience (UX) and intuitive design in user reviews.

9. Can I pay 1099 contractors with payroll software?

Yes. Most of the best payroll software platforms are built to handle both W-2 employees and 1099 contractors. You can pay contractors via direct deposit and, most importantly, the software will generate and file the required Form 1099-NEC for them.

10. How do I choose between the top payroll companies?

Start by defining your needs. Are you a simple, 5-person, single-state shop? A flat-rate, all-in-one provider is best. Are you a 40-person, 15-state remote company? You need a provider with a robust, scalable multi-state compliance engine. Read reviews, compare payroll services pricing, and always do a live demo.