Payroll and people
Payroll
Should you run payroll yourself, use payroll software, or hand it to a payroll service?
Six short steps. No email or account.
- Who needs it
- Every business with W-2 employees, including an owner who pays themselves a salary through an S-corp.
- When it matters
- Before the first employee's first payday. Not after.
- Compare first
- Tax filing included and guaranteed
- Matters most when
- growing, mature
Is this the right tool for you?
Paying employees is not just sending money. Every run means withholding the right taxes, paying them over to the right agencies on time, and filing returns at the federal and state level. Mistakes are expensive and slow to unwind, and they tend to surface months later as a notice.
Signs you need it now
- You are working out withholding by hand or from a spreadsheet you built yourself.
- You have received a notice about a late or incorrect tax deposit or filing.
- You have hired, or are about to hire, your first employee in a new state.
- Payday takes you an evening, and you worry every time about getting it wrong.
- Your accountant spends time each quarter reconstructing what payroll actually did.
When another area fits better
- Everyone you pay is an independent contractor, not an employee. Read the paying contractors guide
Recognise two or more of these? Sort out payroll next.
Tell us how your business runs and get a plan that puts payroll in order with everything else: what to set up first, your must-haves and what to compare.
What matters at your size
Working alone
An owner paying only themselves may need payroll depending on how the business is structured; ask your accountant. Otherwise a basic plan that files and pays taxes for you is enough.
A small team
Full-service payroll that calculates, pays and files taxes automatically, with direct deposit and employee self-service for pay stubs and tax forms.
Several teams or locations
Multiple pay rates and schedules, employees in several states, job costing of labor, and a clean link to time tracking, benefits deductions and your accounting system.
How the way you work changes the choice
- Hourly crews: landscaping, cleaning, construction
- Hours change every week and may differ by job or rate. Look for payroll that imports hours from time tracking and can split labor cost by job.
- Shops, restaurants and clinics
- Shift workers, possibly tips, and frequent turnover. Tip handling and quick onboarding of new hires matter more than advanced reporting.
- Salaried office teams
- Pay is predictable, so the value is in accurate tax filing, benefits deductions and easy year-end forms rather than hours handling.
- Staff working in more than one state
- Each state has its own registration, withholding and filing rules. Confirm the provider handles every state you operate in before you sign up.
What to compare
Tax filing included and guaranteed
Filing on your behalf, and covering penalties if they get it wrong, is the core of the product.
States you operate in
Multi-state payroll costs more and some products charge per state.
Contractors as well
If you pay both W-2 and 1099, one system handling both saves real effort.
Time tracking connection
For hourly crews, payroll that reads approved hours removes the worst weekly chore.
Cost and setup effort
- Pricing is usually a base monthly fee plus a charge per person paid, so count contractors and seasonal staff as well as regular employees.
- Setup means registering with state tax agencies, entering employee details and, if you switch mid-year, bringing over year-to-date figures. Switching at the start of a calendar year or quarter is usually simpler; confirm with the new provider.
- Check whether the provider takes responsibility for its own filing errors, and what it charges for extras such as off-cycle runs or year-end corrections.
Trade-offs to weigh
- Software or full service
- Payroll software that files taxes for you suits most small businesses. A payroll service or accountant costs more but takes the whole task, including notices, off your desk.
- Standalone or bundled
- Payroll bundled with HR and benefits saves double entry as you grow, but you may pay for features you do not use yet.
- Doing it yourself
- Running payroll by hand saves a fee but puts every calculation, deposit and filing on you. The penalties for getting it wrong usually outweigh the savings.
When to sort it out
Before the first employee's first payday. Not after.
What has to be in place before the first payday
Paying your first employee is a legal event, not just a transfer. Before it, you generally need an Employer Identification Number, registration with your state for payroll taxes and unemployment insurance, the new hire's tax forms and proof of eligibility to work, and a record of their pay rate. Most states also expect new hires to be reported shortly after they start. Requirements differ by state, so confirm yours before the first pay date rather than after it.
What payroll software actually takes off your plate
The valuable part is not calculating a pay cheque. It is withholding the right taxes, depositing them on time, filing the quarterly and annual returns, and producing year-end forms. Late or missed deposits are where penalties come from, so the question to ask of any service is which filings it makes for you and which it only prepares for you to file.
Ask too what happens when something goes wrong: who corrects a mistaken filing, and whether the service stands behind its own errors.
Employees and contractors are different
A contractor is paid without withholding and, if paid enough in a year, receives a year-end form instead of a W-2. Whether someone is a contractor or an employee depends on how the work is actually done, not on what you call them, and getting it wrong can mean back taxes and penalties. If your crew is a mix, choose payroll that handles both, so contractor payments and their year-end forms sit alongside employee pay rather than in a spreadsheet.
Hourly crews and more than one state
For hourly work, the weak point is getting accurate hours into payroll. A time clock that feeds payroll directly avoids retyping and disputes about overtime. If anyone works or lives in another state, check early: each state brings its own registration and filings, and some services charge per state.
Your next step
Answer six short questions about how your business runs. You get an operating plan: where payroll fits among your priorities, the must-haves to hold every option to, and what to compare when you choose.
Where this comes first
Trades and businesses that usually sort this out early.
- Cleaning
- Landscaping and lawn care
- Electrical
- Pest control
- Specialty trade contracting
- Accounting and tax practice
- Staffing and recruiting
- Dental practice
- Medical and specialist practice
- Veterinary practice
- Salon, spa and barbering
- Restaurant and cafe
- Retail shop
- Auto repair and service
- Trucking and freight
- Manufacturing and production
- Agriculture and field operations
- Childcare and early years
- Software and technology
- Nonprofit and community organisation
Often decided alongside
Other parts of payroll and people.