Best payroll service for small business 2020

The best payroll service for a small business in 2020 often came down to Gusto, lauded for its user-friendly interface, comprehensive features, and competitive pricing, making it a strong contender for businesses looking to streamline their payroll processes. While other services like ADP Run and QuickBooks Payroll offered robust solutions, Gusto frequently stood out due to its emphasis on simplicity and integrated HR functionalities, proving incredibly valuable for busy small business owners navigating the complexities of employee compensation and compliance. Choosing the right payroll service is a critical decision, directly impacting your business’s financial health and employee satisfaction. It’s not just about paying employees. it’s about accuracy, compliance with ever-changing tax laws, and integrating seamlessly with other business operations.

Payroll services are a critical component of running any business, ensuring your employees are paid accurately and on time, while also handling the often-complex world of tax filings and compliance.

For small businesses, navigating these waters can be particularly challenging without dedicated HR and finance teams.

The right service can free up invaluable time, minimize costly errors, and keep your business on the right side of the IRS.

In 2020, the market offered a range of solutions, each with its unique strengths and weaknesses, catering to different business sizes, industries, and specific needs.

Understanding the Small Business Payroll Landscape in 2020

In 2020, the small business payroll market was a dynamic environment, with providers constantly enhancing their offerings to meet diverse needs. It wasn’t just about cutting checks.

It was about managing taxes, benefits, and compliance seamlessly.

Small businesses, often with limited resources, sought solutions that were both affordable and robust.

The key considerations often revolved around ease of use, cost-effectiveness, and the scope of features offered, from basic payroll processing to comprehensive HR support.

The Evolution of Payroll Solutions

Historically, payroll was a manual, painstaking process. Employer tax liabilities calculator

In 2020, it had evolved into a largely automated, cloud-based operation.

• From Manual to Automated: Businesses moved from spreadsheets and manual calculations to sophisticated software that handled everything from gross pay to net pay, including deductions and withholdings. This shift dramatically reduced human error and saved countless hours.
• Cloud-Based Accessibility: The rise of cloud computing meant small business owners could access their payroll information anytime, anywhere, on any device. This offered unparalleled flexibility, especially for remote teams or businesses with multiple locations.
• Integrated Solutions: Many payroll services began integrating with other business software, such as accounting platforms e.g., QuickBooks, Xero and time-tracking systems, creating a more cohesive operational ecosystem. This integration was crucial for data consistency and efficiency.
• Compliance Focus: With ever-changing federal and state tax laws, payroll services took on the burden of compliance, calculating and filing payroll taxes, and ensuring businesses avoided penalties. This became a major selling point for small business owners who lacked dedicated legal or tax expertise.

Key Pain Points for Small Businesses

Small businesses faced unique challenges when it came to payroll, and the best services in 2020 directly addressed these pain points.

• Time Consumption: Manual payroll processing can be incredibly time-consuming, diverting owners from core business activities. A 2019 survey by the National Small Business Association NSBA found that 27% of small businesses spend more than 5 hours per month on payroll activities, with many spending far more.
• Compliance Complexity: Navigating federal, state, and local tax laws, including FICA, FUTA, SUTA, and various state income taxes, was a significant hurdle. Incorrect or late tax filings often resulted in penalties, which could be substantial for small businesses.
• Cost Management: While necessary, payroll services represented an ongoing expense. Small businesses needed cost-effective solutions that didn’t compromise on essential features. Many sought services that offered clear, transparent pricing without hidden fees.
• Accuracy Concerns: Errors in payroll can lead to disgruntled employees, legal issues, and financial setbacks. Ensuring accurate calculations for hours worked, overtime, deductions, and benefits was paramount.
• Data Security: Handling sensitive employee financial information required robust security measures. Small businesses needed assurance that their data was protected from breaches and unauthorized access.

Top Contenders for Small Business Payroll in 2020

In 2020, several payroll services emerged as strong contenders for small businesses, each offering a distinct set of features and pricing structures.

While Gusto often took the top spot, other services like ADP Run, QuickBooks Payroll, and Paychex Flex provided robust alternatives catering to different specific needs and business sizes.

Gusto: The User-Friendly Champion

Gusto consistently ranked high in 2020 for its intuitive interface, comprehensive features, and excellent customer support, making it a favorite for many small businesses, especially those new to automated payroll. Workful pay calculator

• Key Features:
  • Full-Service Payroll: Gusto handled all payroll calculations, tax filings federal, state, and local, and year-end forms W-2s, 1099s.
  • Employee Self-Service: Employees could access pay stubs, W-2s, and manage personal information independently, reducing administrative burden on the employer.
  • Automated Onboarding: Streamlined the process of bringing new hires into the system, including state new hire reporting.
  • Benefit Integration: Offered integrated health insurance, 401k, and workers’ compensation options directly through the platform, simplifying benefits administration.
  • HR Tools: Even at its base plans, Gusto provided HR resources like offer letters, HR compliance checklists, and a resource center. Higher tiers offered dedicated HR advisors.
  • Multiple Pay Schedules: Supported weekly, bi-weekly, semi-monthly, and monthly pay schedules, catering to various business needs.
• Pricing 2020:
  • Core Plan: Approximately $39/month base fee + $6/employee per month. Ideal for basic payroll and essential HR functions.
  • Complete Plan: Around $39/month base fee + $12/employee per month. Added time tracking, project tracking, and more robust HR features.
  • Concierge Plan: Approximately $149/month base fee + $12/employee per month. Included dedicated HR advisors and enhanced support.
• Why it Stood Out: Gusto’s combination of ease of use, strong automation, and integrated HR tools made it incredibly appealing. It was designed for the modern small business owner who needed simplicity without sacrificing functionality. The platform’s clean design and straightforward setup process meant even those unfamiliar with payroll software could get up and running quickly. A 2020 review by PCMag gave Gusto an “Excellent” rating, highlighting its “unrivaled payroll processing features.”

ADP Run: The Enterprise Power in a Small Business Package

ADP is a giant in the payroll industry, and ADP Run was its tailored solution for small to medium-sized businesses.

It offered robust features and scalability, appealing to businesses that anticipated growth or needed more comprehensive HR support.

*   Comprehensive Payroll: Handled all payroll calculations, tax filing, and direct deposit.
*   HR Integration: Strong HR capabilities, including HR forms, background checks, HR training, and compliance resources. Higher tiers offered HR handbooks and legal assistance.
*   Time Tracking: Integrated time and attendance solutions to simplify hourly employee payroll.
*   Benefit Administration: Assisted with health insurance, retirement plans, and workers' compensation.
*   Reporting: Extensive reporting features for payroll, tax, and HR data.
*   Scalability: Designed to grow with the business, making it suitable for companies planning to expand their workforce.

• Pricing 2020: ADP’s pricing was notoriously less transparent, often requiring a direct quote. Estimates suggested a base fee starting around $50-$100/month plus $4-$10/employee per month, depending on the plan and services chosen.
• Why it Stood Out: ADP Run’s primary strength was its comprehensive suite of features and the backing of a large, established company. For businesses that needed robust HR support alongside payroll, or those planning significant growth, ADP’s extensive experience and resources were a major draw. In 2020, ADP processed payroll for approximately 1 in 6 Americans, underscoring its significant market presence and reliability.

QuickBooks Payroll: Seamless Accounting Integration

For small businesses already using QuickBooks for their accounting, QuickBooks Payroll formerly QuickBooks Online Payroll was a natural and often preferred choice due to its unparalleled integration with QuickBooks accounting software.

*   Direct Integration with QuickBooks: This was its strongest selling point. Payroll data flowed seamlessly into QuickBooks accounts, eliminating manual data entry and reconciliation.
*   Full-Service Payroll: Handled tax calculations, filings, and year-end forms.
*   Automated Payroll Runs: Allowed for automatic payroll processing once set up.
*   Time Tracking Integration: Offered integration with QuickBooks Time formerly TSheets for accurate hourly payroll.
*   Basic HR Tools: Provided basic HR functions like new hire reporting and some compliance assistance.
*   Core Plan: Around $45/month base fee + $4/employee per month. Basic payroll and tax filing.
*   Premium Plan: Approximately $75/month base fee + $8/employee per month. Added HR support, expert review, and time tracking.
*   Elite Plan: Around $125/month base fee + $10/employee per month. Included a personal HR advisor and project tracking.

• Why it Stood Out: The seamless integration with QuickBooks accounting software was a must for many small businesses. It ensured that payroll expenses were accurately categorized and reflected in financial statements without extra effort. Data from Intuit in 2020 showed that QuickBooks Online served over 5.6 million subscribers globally, indicating a vast ecosystem for its integrated payroll service.

Paychex Flex: Scalable Options for Growing Businesses

Paychex Flex, like ADP, offered a wide range of services, from basic payroll to comprehensive HR solutions, making it suitable for small businesses looking for a scalable partner.

*   Flexible Payroll Options: Offered various payroll processing methods, including online, mobile, and even dedicated payroll specialists.
*   HR Services: Provided a range of HR support, from basic compliance to employee benefits administration, HR consulting, and recruiting services.
*   Time & Attendance: Integrated time clocks and software for accurate hourly tracking.
*   Retirement Services: Offered various retirement plan options, including 401k plans.
*   Reporting and Analytics: Robust reporting tools to gain insights into payroll and HR data.

• Pricing 2020: Similar to ADP, Paychex pricing was often custom-quoted. Estimates suggested a base fee ranging from $40-$60/month plus $2-$6/employee per month for basic plans, with higher tiers costing significantly more.
• Why it Stood Out: Paychex Flex appealed to businesses that needed a provider with extensive experience and the ability to offer highly customized solutions. Its strength lay in its broad range of services, allowing businesses to pick and choose what they needed and scale up as they grew. As of 2020, Paychex served over 680,000 payroll clients, demonstrating its significant reach and experience in the market.

Crucial Features to Evaluate in a Payroll Service

When selecting a payroll service in 2020, small business owners needed to look beyond the basic ability to pay employees. Workful hourly

A truly effective service offered a suite of features that addressed compliance, efficiency, and employee satisfaction.

Automated Tax Filing and Compliance

This is perhaps the most critical feature, alleviating a significant burden and risk for small businesses.

• Federal Tax Filings: The service should automatically calculate, withhold, and remit federal taxes like FICA Social Security and Medicare, federal income tax, and FUTA Federal Unemployment Tax Act.
• State and Local Tax Filings: Crucially, it must handle state income taxes, state unemployment taxes SUTA, and any applicable local taxes, which can vary widely by jurisdiction. Errors in state tax filings are a common source of penalties for small businesses, making automated compliance a must-have.
• New Hire Reporting: Automatic reporting of new hires to state agencies is a legal requirement in most states.
• Year-End Forms W-2s and 1099s: The service should generate and distribute W-2s for employees and 1099s for independent contractors, as well as file these forms with the IRS.
• Compliance Updates: The best services automatically update their systems to reflect changes in tax laws and regulations, ensuring your business remains compliant without constant monitoring.

Direct Deposit and Payment Options

While paper checks were still an option, direct deposit was the industry standard for efficiency and convenience.

• Direct Deposit: Offers employees secure, timely access to their funds. Most services allow employees to split deposits across multiple bank accounts.
• Payment Flexibility: Beyond direct deposit, some services offered options for printing checks or even pay cards for unbanked employees, though direct deposit was strongly preferred for its efficiency.
• Off-Cycle Payroll: The ability to run off-cycle payrolls for bonuses, commissions, or corrections was important for flexibility.

Employee Self-Service Portal

Empowering employees to manage their own information reduces administrative tasks for the employer.

• Access to Pay Stubs: Employees can view and print their pay stubs at any time.
• W-2 and 1099 Access: Easy access to year-end tax documents.
• Personal Information Updates: Employees can update their addresses, bank information, and withholdings directly, subject to employer approval for sensitive data.
• Time-Off Requests: Some portals allowed employees to request and track paid time off PTO or sick leave. This feature alone could save hours for small business owners managing manual time-off requests.

Reporting and Analytics

Robust reporting provides valuable insights into payroll costs, labor distribution, and tax liabilities. Payroll system services

• Payroll Reports: Detailed reports on gross pay, net pay, deductions, tax withholdings, and year-to-date totals.
• Tax Reports: Summaries of tax liabilities and payments made.
• Customizable Reports: The ability to generate custom reports based on specific needs, such as department-specific payroll costs or overtime trends.
• General Ledger Reports: Integration with accounting software to automatically categorize payroll expenses.

Integration with Other Software

Seamless integration with other business tools creates a more efficient workflow.

• Accounting Software: Integration with platforms like QuickBooks, Xero, or FreshBooks is crucial for accurate financial record-keeping and simplifies reconciliation. According to a 2019 survey, 48% of small businesses use accounting software, making this integration highly desirable.
• Time Tracking Software: Linking with time tracking solutions e.g., When I Work, TSheets automates the transfer of hours worked directly into payroll, reducing manual entry errors for hourly employees.
• HR and Benefits Platforms: Integration with HR platforms or benefit providers streamlines employee management and benefits administration.

Cost Considerations: Breaking Down Payroll Service Pricing

Understanding the pricing structures of payroll services in 2020 was crucial for small businesses operating on tight budgets.

While exact figures varied, most services employed a combination of base fees and per-employee charges.

Transparency in pricing was a significant factor, as hidden fees could quickly inflate costs.

Base Fees vs. Per-Employee Charges

Most payroll services utilized a two-tiered pricing model. Workful help line

• Base Fee Monthly: This is a fixed monthly charge that covers the core service, regardless of the number of employees. For small businesses, this typically ranged from $30 to $150 per month in 2020, depending on the provider and the plan tier. This fee often covered the platform’s infrastructure, tax filing capabilities, and basic support.
• Per-Employee Fee Monthly: This is an additional charge for each active employee paid through the system. In 2020, these fees generally ranged from $4 to $15 per employee per month. The cost per employee usually decreased slightly with higher-tier plans or a larger number of employees, reflecting volume discounts.

Example Calculation Hypothetical:

• Service A: $40 base fee + $6/employee per month
• For a business with 5 employees: $40 + 5 * $6 = $40 + $30 = $70 per month
• For a business with 15 employees: $40 + 15 * $6 = $40 + $90 = $130 per month

Tiered Pricing Models

Many providers offered multiple service tiers, each with increasing features and, consequently, higher costs.

• Basic/Core Plan: Typically includes fundamental payroll processing, tax filing, and direct deposit. Ideal for businesses with simple needs.
• Plus/Premium Plan: Adds features like time tracking integration, more robust HR tools, and advanced reporting.
• Full-Service/Elite/Concierge Plan: Offers comprehensive HR support, dedicated advisors, benefit administration, and more advanced features. This tier was significantly more expensive but could be cost-effective for businesses that would otherwise need to hire dedicated HR staff.

Hidden Costs and What to Watch For

While many services aimed for transparent pricing, some potential hidden costs could emerge.

• Setup Fees: Some providers, especially older or more traditional ones, might charge a one-time setup fee. In 2020, many cloud-based services were moving away from these to attract small businesses.
• Year-End Form Fees: While most services included W-2 and 1099 generation, some might charge extra for mailing physical copies or for additional runs if corrections were needed.
• Additional Services: Features like workers’ compensation administration, 401k integration, background checks, or garnishment services might be add-ons not included in the base per-employee fee. Always clarify what’s included.
• Off-Cycle Payroll Fees: Running payroll outside your regular schedule e.g., for bonuses could incur an additional charge with some providers.
• Bank Fees: While rare, some services might pass on small fees for direct deposit transactions, especially if you opt for next-day rather than standard 2-4 day processing.
• Penalty Protection: While top services offer tax filing accuracy guarantees, some might charge extra for “penalty protection” that covers any fines incurred due to their error.

Negotiation: For larger small businesses or those committing to longer contracts, negotiation might have been possible with some providers, especially traditional ones like ADP or Paychex. Always inquire about potential discounts.

Onboarding and Ongoing Support: The User Experience

The best payroll service isn’t just about features and price. Hr pay solutions

It’s also about the user experience, particularly during setup and when issues arise.

For small business owners who wear many hats, a smooth onboarding process and reliable customer support were invaluable in 2020.

Streamlined Onboarding Process

Getting started with a new payroll system can be daunting, especially when dealing with sensitive employee and tax data.

A streamlined onboarding process minimizes friction and ensures accuracy from day one.

• Data Migration: The service should provide clear instructions or even assist with migrating existing employee data, past payroll history, and tax information from previous systems or spreadsheets.
• Guided Setup Wizards: Interactive wizards that walk users through company setup, employee details, pay schedules, and initial tax settings were a common feature in top services.
• New Hire Onboarding Tools: The ability to quickly and compliantly add new employees, including gathering W-4s, I-9s, and direct deposit information, was a significant time-saver. Services like Gusto excel here, providing templates for offer letters and even filing new hire reports with the state.
• Training Resources: Access to clear tutorials, video guides, and documentation was essential for users to learn the system at their own pace.

Customer Support Channels and Quality

When a problem arises, timely and effective support can be the difference between a minor hiccup and a major headache. Human resource management payroll system

• Multiple Channels: Top services offered a variety of support channels:
  • Phone Support: Crucial for urgent issues, often with specific hours of operation.
  • Email Support: Good for less urgent, detailed inquiries.
  • Live Chat: Increasingly popular for quick questions and real-time assistance. Data from a 2019 Zendesk report indicated that 69% of customers expect to resolve most issues via live chat.
  • Knowledge Base/FAQs: A comprehensive, searchable database of common questions and troubleshooting guides.
• Response Times: Fast response times were paramount. For payroll, delays could impact employee pay or tax filings. Services often advertised their typical response times or average wait times for phone support.
• Expertise of Support Staff: Support staff should be knowledgeable about payroll, tax regulations, and the software itself. Being able to connect with certified payroll professionals CPP or HR experts for complex issues was a significant plus.
• Dedicated Account Managers: Higher-tier plans, especially with ADP and Paychex, often included a dedicated account manager who understood the client’s specific business needs, providing a more personalized support experience.

User Interface and Ease of Use

An intuitive user interface reduces the learning curve and minimizes errors.

• Dashboard Clarity: A clean, easy-to-navigate dashboard that provides an at-a-glance view of upcoming payrolls, pending tasks, and important alerts.
• Logical Workflow: The process of running payroll should be logical and straightforward, with clear steps and prompts.
• Accessibility: Mobile app support for managing payroll on the go was increasingly important in 2020, especially for busy small business owners.
• Reporting Usability: Reports should be easy to generate, understand, and export.

A 2020 review by Forbes Advisor noted Gusto’s “exceptionally user-friendly interface” as a primary reason for its high ranking among small business payroll services. This emphasis on user experience significantly contributed to overall satisfaction and efficiency.

Security and Data Protection in Payroll Services

When dealing with sensitive financial and personal employee data, security is not just a feature. it’s a fundamental requirement.

Small businesses entrusting their payroll to a third party in 2020 needed assurance that their data was rigorously protected.

Encryption and Data Transmission

Protecting data both at rest and in transit was paramount. Workful health plans

• SSL/TLS Encryption: All communications between the user’s browser and the payroll service’s servers should be encrypted using strong Secure Sockets Layer SSL or Transport Layer Security TLS protocols. This prevents eavesdropping and ensures data integrity during transmission. Look for “https://” in the URL and a padlock icon.
• Data Encryption at Rest: Sensitive data stored on the service’s servers e.g., employee bank accounts, Social Security Numbers should be encrypted. This provides an additional layer of security in case of a data breach, making the data unreadable to unauthorized parties.
• Secure Data Centers: Payroll providers should utilize highly secure data centers with physical security measures e.g., biometric access controls, 24/7 surveillance and redundant power supplies.

Access Control and Authentication

Robust measures to ensure only authorized individuals can access sensitive payroll information.

• Multi-Factor Authentication MFA: This was becoming an industry standard and should be a mandatory feature. MFA requires users to provide two or more verification factors to gain access e.g., password + a code sent to a mobile device. A 2019 Verizon Data Breach Investigations Report highlighted that over 80% of hacking-related breaches involved stolen credentials, making MFA a critical defense.
• Role-Based Access Control RBAC: Allows employers to assign different levels of access based on job roles. For example, a payroll clerk might have access to run payroll but not change company-level settings, while a manager might only view their team’s pay stubs.
• Audit Trails: The system should log all activities, showing who accessed what data and when. This is crucial for accountability and forensic analysis in case of a security incident.

Compliance and Certifications

Reputable payroll services adhere to industry-specific security standards and regulations.

• SOC 1 and SOC 2 Reports: These independent audit reports Service Organization Control provide assurance about the security, availability, processing integrity, confidentiality, and privacy of the service provider’s systems. A SOC 2 Type 2 report, specifically, provides an in-depth assessment over a period of time.
• PCI DSS Compliance: While primarily for credit card processing, any payroll service that processes direct debits or credit card payments for fees should adhere to Payment Card Industry Data Security Standard PCI DSS requirements.
• GDPR and CCPA Readiness if applicable: For businesses with employees or operations in regions subject to General Data Protection Regulation GDPR or California Consumer Privacy Act CCPA, the payroll service should demonstrate compliance with these data privacy regulations.
• Regular Security Audits: Payroll providers should conduct regular internal and external security audits and penetration testing to identify and address vulnerabilities proactively.

Disaster Recovery and Business Continuity

Even with the best security, unforeseen events can occur.

A robust disaster recovery plan ensures continuity.

• Data Backups: Regular, encrypted backups of all payroll data are essential, stored off-site and with geographical redundancy.
• Disaster Recovery Plan: A documented plan for restoring service and data in the event of a major outage, natural disaster, or cyberattack. This minimizes downtime and data loss.
• Uptime Guarantees: While not always explicit, reputable services aim for high uptime e.g., 99.9% availability, indicating a reliable infrastructure.

In 2020, small businesses were increasingly aware of cyber threats. Workful time

Choosing a payroll service that prioritized security with multi-layered defenses was a non-negotiable aspect of responsible business operation.

Considerations for Specific Small Business Needs

While a “best” payroll service often tops the charts, the ideal choice for a small business in 2020 was highly dependent on its specific characteristics.

Factors like the number of employees, industry, and whether independent contractors were involved heavily influenced the decision.

Very Small Businesses 1-5 Employees

For solopreneurs or micro-businesses, simplicity and cost-effectiveness were paramount.

• Focus: Easy setup, low monthly cost, and minimal features beyond essential payroll and tax filing.
• Recommended Services 2020:
  • Gusto Core Plan: Its user-friendliness and relatively low cost for few employees made it an excellent choice. The ability to handle both W-2 employees and 1099 contractors with ease was a big plus.
  • QuickBooks Payroll Core Plan: If already using QuickBooks for accounting, this was the most seamless option, eliminating data re-entry.
  • Patriot Payroll Basic Plan: Known for its affordability, Patriot offered full-service payroll for small teams at a very competitive price point.
• Key Needs: Automated tax payments, direct deposit, and reliable customer support without overwhelming complexity. Many businesses in this size range started with manual methods or generic accounting software before realizing the value of dedicated payroll.

Growing Small Businesses 6-50 Employees

These businesses often needed more robust HR features and scalability without the full complexity of enterprise solutions. Best payroll outsourcing companies

• Focus: Scalability, integrated HR tools, time tracking integration, and competitive benefit administration options.
  • Gusto Complete or Concierge Plan: As businesses grew, Gusto’s higher tiers offered increasingly sophisticated HR features, time tracking, and even dedicated HR advisors.
  • ADP Run Select or Essential Plan: For businesses needing comprehensive HR support and expecting significant growth, ADP’s extensive HR resources and scalability were attractive.
  • Paychex Flex Flex Select/Pro: Similar to ADP, Paychex offered a wider array of HR and benefit services that could be added as the business expanded.

Businesses with Independent Contractors 1099s

Managing both W-2 employees and 1099 contractors efficiently was a common requirement.

• Focus: A service that streamlines 1099 payment and year-end filing alongside W-2 payroll, often at a lower cost for contractors.
  • Gusto: Excellent for managing both W-2 and 1099 payments, automatically generating and filing 1099-NEC forms at year-end. Pricing for contractors was typically lower e.g., $6/contractor only, no base fee for just contractors.
  • Wave Payroll for very small contractor-only businesses: Wave offered a low-cost solution for paying contractors, particularly appealing to businesses already using Wave Accounting.
• Key Needs: Automatic calculation and filing of 1099-NEC forms, easy contractor onboarding, and clear differentiation between employee and contractor payments.

Businesses in Specific Industries e.g., Restaurants, Retail

Certain industries have unique payroll challenges, such as tips, shift work, and high employee turnover.

• Focus: Strong time tracking integration, tip reporting capabilities, and the ability to handle complex scheduling and varying pay rates.
  • ADP Run & Paychex Flex: These larger providers often had industry-specific modules or expertise for managing complex payroll scenarios common in hospitality and retail.
  • Gusto with time tracking add-ons: While more generalist, Gusto’s integration with popular time tracking apps made it a viable option for managing hourly workers and tips.
  • Restaurant-specific POS systems: Some integrated POS systems e.g., Toast, Square for Restaurants offered their own payroll add-ons tailored to the industry.
• Key Needs: Accurate tip declaration and taxation, overtime calculations for varied schedules, and streamlined onboarding for potentially high turnover rates.

Choosing the right payroll service in 2020 was an investment in operational efficiency.

It wasn’t about finding a one-size-fits-all solution, but rather identifying the service that best aligned with the business’s current structure, growth trajectory, and specific challenges.

Making the Final Decision: A Step-by-Step Approach

Selecting the best payroll service in 2020 was a significant decision for any small business. Workful payroll reports

It required a methodical approach, weighing various factors to ensure the chosen solution aligned perfectly with the business’s current and future needs.

1. Assess Your Current Needs and Future Growth

Before into providers, take stock of your internal requirements.

• Number of Employees and contractors: This is the primary driver of cost and feature requirements. Will this number change significantly in the next 1-3 years?
• Employee Types: Do you have salaried, hourly, or independent contractors? Do you pay commissions, bonuses, or tips?
• Pay Frequency: Weekly, bi-weekly, semi-monthly, or monthly? Do you need flexibility for off-cycle runs?
• Time Tracking: How do employees track their hours? Do you need an integrated solution or will your existing system suffice?
• Benefits: Do you offer health insurance, 401k, or other benefits that need to be integrated with payroll deductions?
• HR Needs: Beyond payroll, what HR support do you require? e.g., onboarding, compliance, handbook creation, performance management.
• Integration: What accounting software QuickBooks, Xero, etc. or other business tools do you use that need to sync with payroll?
• Budget: What is your realistic monthly budget for payroll services? A common rule of thumb for small businesses is to allocate 2-5% of their total payroll costs to payroll administration, but this can vary widely based on complexity and services chosen.

2. Research and Shortlist Top Contenders

Based on your needs, identify 2-4 services that seem like a good fit.

• Read Reviews: Look at reputable review sites Capterra, G2, PCMag, Forbes Advisor that provide unbiased assessments and user feedback. Pay attention to reviews from businesses similar in size and industry to yours.
• Check Pricing Transparency: Visit their websites and try to get clear pricing for your number of employees. Be wary of services that only offer custom quotes initially, though for larger services like ADP or Paychex, this is common.
• Feature Comparison: Create a simple spreadsheet to compare the key features of each shortlisted service against your assessed needs. Prioritize “must-have” features over “nice-to-have” ones.
• Security: Verify their security protocols MFA, encryption, compliance certifications.

3. Request Demos and Trials

Nothing beats hands-on experience or a personalized walkthrough.

• Schedule Demos: For complex services like ADP or Paychex, request a personalized demo to see how the system handles your specific scenarios.
• Utilize Free Trials: If available, sign up for free trials Gusto often offered a free first month or limited trial. This allows you to test the user interface, run a dummy payroll, and evaluate ease of use.
• Test Key Workflows: During the trial, try to perform your most common payroll tasks:
  • Adding a new employee.
  • Running a regular payroll.
  • Generating a key report.
  • Accessing employee self-service.

4. Evaluate Customer Support

Experience their support before you commit. In house payroll systems

• Contact Support During Trial: If you have a trial, reach out to their customer support with a few questions even hypothetical ones. Evaluate response times, helpfulness, and the knowledge of their staff.
• Check Support Hours: Ensure their support hours align with your business’s operational hours, especially if you anticipate needing help during a payroll run.

5. Consider the Total Cost of Ownership

Look beyond the stated monthly fees.

• Setup Fees: Are there any upfront costs?
• Add-on Features: Will you need to pay extra for essential features later?
• Year-End Fees: Are W-2/1099 filings included, or is there an extra charge?
• Penalty Protection: Does the service offer guarantees against tax penalties caused by their errors?
• Opportunity Cost: Consider the value of your time saved and the reduction in potential errors. A slightly more expensive service might be cheaper in the long run if it prevents costly mistakes or frees up significant time.

By systematically working through these steps, small business owners in 2020 could confidently choose a payroll service that not only met their immediate needs but also supported their long-term growth and compliance.

Frequently Asked Questions

What is the best payroll service for a small business in 2020?

The best payroll service for a small business in 2020 was often Gusto, widely praised for its user-friendly interface, comprehensive features, and competitive pricing, particularly for businesses with fewer employees.

What factors should I consider when choosing a payroll service?

You should consider the number of employees, types of employees W-2 vs. 1099, payroll frequency, required HR features, integration with existing accounting software like QuickBooks, cost, customer support quality, and security measures.

How much does payroll service cost for a small business?

In 2020, payroll services typically cost a base monthly fee ranging from $30 to $150, plus an additional per-employee fee of $4 to $15 per month. The total cost depended on the provider, plan tier, and number of employees. Payroll outsourcing software

Does QuickBooks Payroll integrate with QuickBooks accounting software?

Yes, QuickBooks Payroll is designed for seamless and direct integration with QuickBooks Online and Desktop accounting software, making it a popular choice for businesses already using QuickBooks for their finances.

Is ADP Run good for very small businesses?

Yes, ADP Run is specifically designed for small to medium-sized businesses and can be a good option for very small businesses looking for robust HR support and scalability, though it might be more feature-rich and potentially pricier than basic alternatives.

Do payroll services handle tax filings?

Yes, almost all full-service payroll providers handle the calculation, withholding, filing, and remittance of federal, state, and local payroll taxes on your behalf. This is a primary benefit.

What is the difference between W-2 and 1099 employees for payroll services?

W-2 employees are traditional employees whose taxes are withheld from their pay, and you are responsible for their payroll taxes.

1099 employees independent contractors are paid without tax withholding, and they are responsible for their own taxes. Online payroll service providers

Payroll services can often manage payments for both.

Can payroll services manage employee benefits like 401ks?

Many payroll services, especially higher-tier plans from providers like Gusto, ADP, and Paychex, offer integrated benefit administration, allowing you to manage health insurance, 401ks, and other deductions directly through the platform.

What is employee self-service in a payroll system?

Employee self-service allows employees to securely access their pay stubs, W-2s, update personal information, and sometimes manage time-off requests online, reducing administrative tasks for the employer.

How important is customer support for a payroll service?

Customer support is crucial.

You need responsive, knowledgeable support for questions about payroll runs, tax issues, or technical glitches. Workful tax calculator

Look for providers offering multiple contact channels phone, chat, email and clear response times.

Are payroll services secure?

Reputable payroll services prioritize security, employing measures like multi-factor authentication MFA, SSL/TLS encryption, data encryption at rest, secure data centers, and regular security audits. Always verify a provider’s security protocols.

Can I switch payroll services easily?

Yes, switching is generally feasible.

Top services often provide tools or assistance for migrating your existing employee data, payroll history, and tax information, though it requires careful planning to ensure a smooth transition.

Do payroll services help with new hire reporting?

Yes, most payroll services automate new hire reporting to relevant state agencies, which is a legal requirement in most jurisdictions, helping businesses stay compliant.

What are some common hidden fees to watch out for?

Watch out for potential hidden fees such as setup fees, extra charges for year-end forms W-2s/1099s, fees for off-cycle payroll runs, or additional charges for certain HR features not included in your chosen plan. Always ask for a detailed breakdown.

Can a payroll service handle tips for restaurant employees?

Yes, many payroll services, particularly those catering to industries like hospitality, can manage and accurately report tips for restaurant employees, ensuring compliance with IRS regulations.

Do I still need an accountant if I use a payroll service?

While a payroll service handles the operational aspects of paying employees and filing payroll taxes, you still typically need an accountant for broader financial planning, tax strategy, and preparing your overall business tax returns.

What is automated tax filing?

Automated tax filing means the payroll service automatically calculates, deducts, and submits your payroll taxes federal, state, and local to the appropriate government agencies on your behalf, reducing the risk of errors and penalties.

Can I run payroll from my phone?

Many modern payroll services offer mobile apps or mobile-responsive websites that allow you to manage and run payroll, approve timesheets, and view reports from your smartphone or tablet, offering great flexibility.

What if I only have independent contractors and no W-2 employees?

If you only pay independent contractors, many payroll services offer specific plans or features for 1099 payments, which are typically less expensive than full W-2 payroll services, and they handle the year-end 1099-NEC filing.

How long does it take to set up a new payroll service?

Setup time varies by service and complexity.

For a small business with basic needs, it could be as quick as a few hours to a day.

For more complex setups or businesses migrating historical data, it might take several days or even a week to ensure all data is accurate and integrated.

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