Updated: January 31, 2024



What is Payroll?

Payroll refers to the total compensation a company pays employees for their work. Payroll also refers to the process of calculating employees’ net pay and initiating payment to them. Whether you have one employee or 100, you’ll need to process payroll to ensure they get paid correctly and that proper records are kept.

Payroll Processing Stages

Payroll is a process with multiple steps that start before an employee’s first day. The basic steps include:

  • Decide pay cycle. This is the frequency with which you are paying your employees. Most employers choose either a weekly, biweekly or monthly cycle to make payments.

  • Collect employee information and tax documents. These documents include the W-4 form, state tax withholding form and bank account information.

  • Calculate gross pay. Gross pay is the amount employees are owed before taxes.

  • Determine net pay. You will withhold taxes (and any other deductions) from the gross pay and employees will receive the net pay.

  • Initiate payment. If you’re running payroll manually, you’ll cut checks and mail them out with pay stubs. If you are paying through direct deposit, you’ll initiate a transfer. If your payroll is managed through a payroll service such as Gusto, the platform will initiate payment based on a predetermined billing cycle.

  • Pay taxes and keep records of payment. Lastly, you’ll pay federal and state taxes owed and keep a record of all payroll and taxes.

How Does Payroll Service Work?

Though each has a unique design with varied features, most online payroll services work basically the same way. They typically include a cloud-based portal for both employers and employees. Employers—or your accountant, bookkeeper or HR employee—set up benefits and salaries for employees and, on some platforms, contractors.

When you hire a new worker, you can invite them to self-onboard through the employee portal, so you’ll easily gather their W-4 or W-9 form and contact information, and they can sign up for relevant benefits.

Some payroll services offer automated payroll, so you can set worker pay and employees can track their time (if necessary), and the service runs payroll on schedule. The services let workers enter direct deposit information, and you connect a business bank account on the employer end, so payroll runs without you having to print and deliver checks.

If payroll isn’t automated, you have to run it manually on schedule a couple of days before payday, entering worker pay amounts and scheduling paydays.

Many online payroll services include features that help you administer benefits in the same platform, as well as integrations for accounting software. Many offer workers the option to get a payment card, so they can receive money before payday and use the card directly to make purchases.

Some payroll services are part of comprehensive HR platforms that include not only pay and benefits, but also employee development, education and coaching programs.

Payroll Services Cost

Budget is an important consideration for every business purchase decision. Payroll providers typically send monthly invoices, but it’s important to look at the annual costs too.

Besides a fixed monthly cost, online payroll services often charge per transaction or employee payment. This implies that the larger the number of employees, the greater the transaction fee. If you are planning to expand your workforce, carefully consider how your payroll service cost will change while you are growing. Most payroll providers have a tiered payment structure to cater to businesses of different sizes. Evaluate which tier would be least expensive for you in the long run before signing up.

You might need to opt for paid add-ons to ensure you have all the “must have” features in your payroll service. Be mindful of how much they cost. If you can squeeze some “good to have” features as well, do so, but don’t overextend yourself.

To sum up, these are some of the costs you need to look at before you make a final decision:

  • Base subscription fee

  • Setup & support fees

  • Taxes and compliance fees

  • Per-employee fees

  • Add-on fees

Recommended Services

  • Gusto: Gusto is highly rated in the space for small businesses.

  • Paychex: Paychex is a legacy provider in the space, has a complicated platform but is familiar to most CPAs.

  • Quickbooks: Similar to Paychex, it’s a legacy provider and is familiar to most CPAs in the industry.

  • Justworks: Justworks offers pricing transparency, and supports limited states.

  • Rippling: Rippling has a payroll product and a large system of other HRIS products and integrations.

Payroll Providers