Cheapest payroll service for 1 employee

When you’re running a business as a solo entrepreneur, every dollar counts. Finding the cheapest payroll service for 1 employee often boils down to leveraging free or ultra-low-cost options designed for micro-businesses, such as Wave Payroll for accounting integration, SurePayroll for robust features at a competitive price, or Patriot Payroll for affordability and ease of use. The absolute cheapest might even be doing it yourself manually if you only have one employee and the tax laws are straightforward, though this carries significant risk. The goal is to minimize costs while ensuring compliance and accuracy, avoiding costly penalties.

Navigating payroll for a single employee can feel like a complex puzzle, especially when you’re trying to keep overhead low.

Many small business owners, particularly those just starting out or operating as sole proprietors with one helper, might initially consider managing payroll manually to save money.

However, the complexities of federal, state, and local tax laws, along with various deductions and reporting requirements, quickly make this a daunting, time-consuming, and error-prone task.

An incorrect calculation or a missed filing deadline can lead to hefty penalties, which quickly negate any perceived savings.

This is why even with just one employee, investing in a reliable, affordable payroll service becomes a smart, strategic move that protects your business and ensures you stay compliant, freeing up your valuable time to focus on growth and operations.

Understanding Your Payroll Needs as a Solo Employer

When you’re the boss and you’ve got just one employee, it might seem like payroll is a simple task.

But trust me, even for a single individual, there are layers to peel back.

You need to understand what you truly need versus what’s nice to have, especially when “cheapest” is at the top of your priority list. This isn’t just about cutting a check.

It’s about compliance, accuracy, and peace of mind.

Defining “Payroll Service” for a Single Employee

A “payroll service” for a single employee goes beyond just calculating wages. It’s about handling tax withholdings federal, state, local, filing payroll taxes 941, 940, W-2s, managing direct deposit, and sometimes even time tracking or benefits administration. For one employee, you might not need all the bells and whistles, but core compliance is non-negotiable. Best payroll companies for small businesses

• Core Functions:
  • Wage calculation and deductions.
  • Tax withholding and remittance federal and state, sometimes local.
  • Year-end tax forms W-2, W-3.
  • Direct deposit capabilities.
• Optional Features for 1 employee:
  • Time tracking.
  • Benefits administration health insurance, 401k.
  • HR support.

The True Cost of DIY Payroll for One Employee

“DIY” payroll might sound like the cheapest option—it’s free, right? Wrong. The true cost isn’t just the software. it’s the time commitment and, more significantly, the risk of errors and penalties. Even for a single employee, federal and state payroll laws are complex and frequently updated. Missing a deadline or miscalculating a tax can lead to fines that far exceed the cost of an affordable payroll service.

• Time Sink: Manually calculating wages, withholdings, and preparing tax forms can take hours each pay period and at year-end. Your time is money.
• Penalty Risks:
  • IRS Penalties: For late deposits, incorrect filings, or failure to file. These can range from 2% to 15% of the unpaid tax, depending on how late you are.
  • State Penalties: Similar to federal, states also levy fines for non-compliance, often with their own specific rules.
  • Wage and Hour Violations: Misclassifying an employee, not paying minimum wage, or incorrect overtime can lead to lawsuits.
• Opportunity Cost: Every hour spent on manual payroll is an hour not spent on growing your business, serving customers, or developing new products.

According to a study by the National Small Business Association NSBA, over one-third of small businesses report spending more than 40 hours per year on federal tax paperwork alone. Imagine adding state and local requirements to that. For a single employee, this burden is still significant.

Top Contenders for Cheapest Payroll Service for 1 Employee

When it comes to finding the sweet spot between affordability and functionality for just one employee, a few key players consistently rise to the top.

These services understand the unique needs of micro-businesses and solo employers, offering plans that don’t break the bank while still providing the essential compliance features.

1. Wave Payroll: Best for Integrated Accounting Free Accounting + Paid Payroll

Wave is a fantastic option if you’re already using or planning to use their free accounting software. Their payroll service integrates seamlessly, making it incredibly convenient. They offer full-service payroll, meaning they handle tax filings and payments for you. Hr platforms for small businesses

• Pricing:
  • Base Fee: Starts around $20 – $35 per month depending on your state.
  • Per Employee Fee: An additional $6 per employee per month.
  • For 1 employee, you’re looking at approximately $26 – $41 per month.
• Key Features:
  • Direct Deposit: Employees get paid reliably.
  • Tax Service: Wave calculates, files, and pays your federal and state payroll taxes. This is a huge time-saver and compliance safeguard.
  • Year-End Forms: They handle W-2s and W-3s.
  • Accounting Integration: The biggest selling point. All payroll data flows directly into your Wave accounting, simplifying reconciliation and financial reporting.
  • Self-Service Employee Portal: Employees can view pay stubs and W-2s online.
• Pros for 1 Employee:
  • Excellent value if you need integrated accounting.
  • Full-service tax compliance reduces your burden.
  • User-friendly interface.
• Cons for 1 Employee:
  • Not available in all 50 states check availability for your state.
  • Might be overkill if you only need payroll and have no other accounting needs.

2. Patriot Payroll: Value for Money with Strong Features

Patriot Payroll is consistently praised for its competitive pricing and straightforward, easy-to-use platform.

They offer two main plans: a basic “Basic Payroll” plan if you want to handle tax filings yourself, and a “Full Service Payroll” plan where they manage everything.

For compliance and peace of mind, the full-service option is usually recommended, even for one employee.

*   Basic Payroll DIY Taxes: Starts at $17 per month + $4 per employee.
    *   *For 1 employee, this is $21 per month.*
*   Full Service Payroll They File Taxes: Starts at $37 per month + $4 per employee.
    *   *For 1 employee, this is $41 per month.*

• Key Features Full Service:
  • Unlimited Payroll Runs: Pay your employee as often as needed.
  • Direct Deposit & Check Printing: Flexibility in how you pay.
  • Tax Filing & Payment: Patriot handles all federal, state, and local payroll tax filings and payments.
  • Year-End Forms: W-2s and 1099s.
  • Employee Portal: Secure access for employees to their pay stubs and tax forms.
  • Simple Setup: Designed for ease of use, even for non-accountants.
  • One of the most affordable full-service options.
  • Highly user-friendly and intuitive.
  • Excellent customer support.
  • Great for businesses looking for a balance between cost and comprehensive service.
  • Their accounting software is separate and not as robust as dedicated solutions like QuickBooks.

3. SurePayroll by Paychex: Robust Features, Competitive Price

SurePayroll is often seen as a step up in features compared to some budget options, but their pricing for a single employee remains highly competitive.

They offer a comprehensive suite of services backed by Paychex, a payroll industry giant. Adp payroll software

• Pricing: SurePayroll uses custom quotes, but generally, for one employee, you can expect to pay in the range of $40 – $50 per month for full-service payroll. They often run promotions, so it’s worth getting a quote.
  • Full-Service Payroll: Calculates, files, and pays all federal, state, and local payroll taxes.
  • Unlimited Payroll Runs: Pay weekly, bi-weekly, monthly, or as needed.
  • Direct Deposit: Reliable and fast.
  • New Hire Reporting: Automatically handles new hire reporting to state agencies.
  • Tax Guarantee: Offers a tax accuracy guarantee, protecting you from penalties for errors.
  • Workers’ Comp Integration: Can integrate with workers’ compensation policies.
  • Mobile App: Manage payroll on the go.
  • Highly reliable and accurate, backed by a major provider.
  • Excellent tax compliance features and guarantees.
  • Good customer support.
  • Scalable if you plan to hire more employees in the future.
  • Might be slightly more expensive than Patriot or Wave for just one employee, depending on your state.
  • Can have a steeper learning curve for some users.

Essential Features to Look For Even for One Employee

When you’re trying to find the cheapest payroll service for a single employee, it’s easy to get tunnel vision on the price tag alone.

However, sacrificing essential features to save a few dollars can cost you significantly more in the long run through penalties, errors, and wasted time.

Think of it like this: a cheap car that breaks down every week isn’t truly cheap.

Automatic Tax Filing and Payments

This is the non-negotiable, absolute must-have feature for any payroll service, especially if you’re aiming for “set it and forget it” simplicity and compliance. Having the service automatically calculate, file, and remit your federal, state, and local payroll taxes is paramount.

• Why it’s crucial:
  • Compliance: Payroll tax laws are complex and change frequently. The IRS assesses billions in penalties annually for payroll tax errors and late payments. In 2023, the IRS collected over $5.8 billion in business penalties, a significant portion of which is related to employment taxes.
  • Time Savings: Manually calculating and remitting taxes is incredibly time-consuming. You’ll spend hours researching tax rates, filling out forms, and ensuring deadlines are met.
  • Penalty Avoidance: A good payroll service guarantees accuracy and on-time filing, shielding you from costly fines. For example, the penalty for failing to deposit payroll taxes on time can be up to 15% of the unpaid amount, depending on the delay.

Direct Deposit Capabilities

While paying by check might seem old-school, direct deposit is the industry standard for a reason. It’s efficient, secure, and preferred by most employees. Even with one employee, it streamlines the payment process. Payroll provider

• Benefits:
  • Convenience: No more printing checks, signing them, or distributing them.
  • Security: Reduces the risk of lost or stolen checks.
  • Employee Preference: Most employees prefer receiving their pay directly into their bank account. It’s faster and more reliable.
  • Cost-Effective: Over time, the cost of checks, envelopes, and postage adds up. Direct deposit typically costs less per transaction or is included in your base fee.

Year-End Tax Form Generation W-2s, 1099s

At the end of each year, you’re legally required to provide your employee with a W-2 form and file it with the Social Security Administration SSA. If you also use independent contractors, you’ll need to issue 1099-NEC forms. A reliable payroll service will automate this entire process.

• What to look for:
  • Automatic Generation: The service should generate accurate W-2s for your employee based on their payroll data.
  • Electronic Filing: It should file the W-2s with the SSA on your behalf.
  • Employee Access: Ideally, employees should be able to access their W-2s electronically through a secure portal.
  • 1099 Support: If you ever hire a contractor, ensuring the service can also generate and file 1099-NEC forms is a bonus.

User-Friendly Interface and Setup

You’re a solo employer, not a payroll expert. The service you choose should be intuitive, easy to navigate, and straightforward to set up. You shouldn’t need a degree in accounting to run payroll for one person.

• Key indicators of a good interface:
  • Clear Dashboards: Easy to see upcoming payrolls, tax deadlines, and employee information.
  • Guided Setup: Step-by-step instructions for initial setup employee info, tax details.
  • Simple Payroll Runs: The process of running payroll should take just a few clicks.
  • Accessible Support: Easy access to customer service if you get stuck.

Customer Support Quality

Even with the simplest systems, questions or issues can arise. Knowing you have reliable and responsive customer support can save you significant stress.

• Considerations:
  • Availability: Are they available during your business hours? Do they offer weekend support?
  • Channels: Phone, email, live chat, knowledge base.
  • Expertise: Can they answer specific payroll tax questions or guide you through complex scenarios?
  • Reviews: Check online reviews for customer support experiences. Companies like Patriot Payroll and SurePayroll often receive high marks for their support.

Hidden Costs and What to Watch Out For

When you’re chasing the “cheapest” option, it’s easy to get caught by seemingly low introductory rates or advertised base fees that don’t tell the whole story.

Many payroll providers have a knack for burying additional charges or making certain features optional upgrades. Best payroll for small business

As a solo employer, you need to be particularly vigilant about these “hidden costs” that can quickly inflate your monthly bill.

Setup Fees and Onboarding Charges

Some payroll services, especially larger, more traditional ones, might charge a one-time setup fee when you first sign up. This fee covers the process of setting up your company account, employee information, and tax details.

• What to look for: Always ask if there’s a setup fee before committing. Many modern, cloud-based payroll services like Wave, Patriot, or even some small business plans from ADP/Gusto do not charge setup fees, making them more attractive for budget-conscious single-employee businesses.
• Example: A provider might advertise “$20/month,” but then hit you with a “$99 one-time setup charge,” effectively adding over $8 to your average monthly cost for the first year.

Additional Fees for Tax Filings or Year-End Forms

This is a common sneaky tactic. While a service might advertise a low per-employee fee or a base price, they might then charge extra for the very services that make a payroll solution valuable: filing your quarterly payroll taxes Form 941, annual unemployment taxes, or generating W-2s at year-end.

*   "Full-service" vs. "Basic" plans: Always opt for a "full-service" plan if available. This typically includes tax filing and year-end forms in the base price.
*   Read the fine print: Does the advertised price include *all* federal and state tax filings? Are W-2s included, or is there a per-W-2 charge?
*   Example: A "basic" plan at $17/month might seem cheap, but then you find out they charge an extra $10 per quarterly 941 filing $40/year and $5 per W-2 $5/year, bringing your true annual cost significantly higher.

Fees for Multiple Pay Runs or Off-Cycle Payrolls

Most services offer unlimited payroll runs as standard. However, some older systems or very budget-tier options might charge extra if you run payroll more than once per pay period, or if you need to do an off-cycle payroll e.g., a bonus, termination pay.

• What to look for: Confirm that unlimited payroll runs are included, or at least that off-cycle runs don’t incur exorbitant fees. For a single employee, this is less likely to be an issue, but it’s worth checking if your pay schedule is unusual or fluctuates.

State-Specific Fees and Tax Registration Assistance

Payroll taxes vary significantly by state. Some payroll providers might charge additional fees for managing state-specific taxes, especially in states with complex local tax structures. Furthermore, if you’re a new employer, you’ll need to register with your state’s unemployment insurance SUI and withholding tax agencies. Some services offer assistance with this registration, but it might come with an extra charge. Hr services for small business

*   State availability and pricing: Ensure the advertised price applies to your specific state, or if there's an additional state-specific surcharge.
*   New employer setup: Ask if they assist with state tax ID registrations and if there's a fee for that. This can be a significant time-saver for first-time employers.

• Data Point: California, New York, and Pennsylvania are examples of states with notoriously complex payroll tax requirements, sometimes leading to higher service fees. Always verify pricing for your specific state.

Pricing Tiers and Feature Limitations

Be wary of low-cost tiers that omit crucial features that you might eventually need. While you only have one employee now, what if you hire a second or third down the line? Or what if you want to integrate with accounting software?

*   Scalability: Does the "cheapest" plan only support one employee, or can it easily scale? What's the price jump for 2-3 employees?
*   Feature Gaps: Does the cheapest plan exclude direct deposit, mobile access, or essential reporting?
*   Integration costs: If you plan to integrate with QuickBooks or other accounting software, ensure this isn't an upsell.

By carefully scrutinizing these potential hidden costs, you can make a truly informed decision and pick the payroll service that remains genuinely affordable for your single-employee business in the long run.

Doing Payroll Yourself for One Employee: When it Almost Makes Sense and When It Doesn’t

The thought of “doing it yourself” for payroll, especially for just one employee, often crosses the mind of a solo entrepreneur trying to pinch pennies. And yes, technically, it is the cheapest option in terms of direct service fees because you pay nothing. However, this path is riddled with complexities and potential pitfalls that make it rarely the best or most cost-effective choice in the long run.

The Allure of DIY Payroll

For some, the appeal of DIY payroll for a single employee is purely financial.

If you’re only paying one person a simple hourly wage with no benefits or complex deductions, the process seems straightforward on the surface. Payroll system for small business

• No Monthly Fees: The primary draw is avoiding monthly subscription costs from payroll providers.
• Full Control: You manage every aspect, from calculations to filings, which some prefer.
• Simple Cases: It might be feasible if:
  • Your employee earns a fixed salary with no overtime or commissions.
  • You are in a state with very simple payroll tax laws e.g., no state income tax, straightforward unemployment insurance.
  • You have ample time and a meticulous nature for detail.

The Realities and Risks of DIY Payroll

This is where the “almost makes sense” turns into “definitely doesn’t.” The complexities of payroll laws, even for one employee, are significant.

The risks of errors and penalties far outweigh the perceived savings for most small business owners.

• Compliance Burden:
  • Federal Taxes: You need to calculate federal income tax withholding, Social Security, and Medicare FICA taxes, and Federal Unemployment Tax FUTA. You must also deposit these taxes with the IRS on specific schedules monthly or semi-weekly, depending on your tax liability.
  • State Taxes: Most states have their own income tax withholding and unemployment insurance SUI taxes, each with unique rates, thresholds, and filing schedules.
  • Local Taxes: Some cities or counties also have local income taxes or other payroll-related taxes.
  • New Hire Reporting: You’re required to report new hires to your state’s new hire registry within a specific timeframe often 20 days or less.
  • Year-End Forms: You are responsible for generating and filing W-2 forms for your employee and W-3 with the Social Security Administration by January 31st each year.
• Time Commitment:
  • Research: Constantly monitoring federal and state payroll tax law changes.
  • Calculation: Manually calculating gross pay, deductions, net pay, and employer contributions.
  • Filing: Preparing and submitting all required forms e.g., IRS Form 941 quarterly, Form 940 annually.
  • Record Keeping: Maintaining accurate payroll records for at least three years.
• Penalty Risk: This is the biggest deterrent. The IRS and state agencies are unforgiving when it comes to payroll tax errors.
  • Late Deposit Penalties: If you deposit federal payroll taxes late, the penalty can be 2% to 15% of the unpaid amount, depending on the delay. For example, if you owe $1,000 in federal taxes and are 15 days late, that’s a $50 fine immediately.
  • Incorrect Filing Penalties: Errors on forms like W-2s or 941s can incur fines, often ranging from $50 to $290 per form for incorrect or late filings.
  • Interest: Penalties often accrue interest daily.
  • Example: A single missed or incorrect quarterly 941 filing and a late W-2 for one employee could easily result in hundreds of dollars in penalties, negating any savings from avoiding a payroll service.
• Lack of Automation: No direct deposit, no automatic tax payments, no employee self-service portal. Everything is manual.

When DIY Could Be Considered Very Limited Cases

• You are the only employee of your own S-Corp: In this specific scenario, you are technically an employee of your own corporation. If you are extremely well-versed in payroll tax law, have a meticulous system, and are willing to dedicate the necessary time, you could technically manage it. However, even here, most experts recommend a payroll service to avoid errors.
• You have zero employees: This is a trick answer, but it’s important. If you are a sole proprietor with no employees and only pay yourself through owner’s draws, you don’t need payroll. You’d pay estimated taxes quarterly.
• Short-Term, One-Time Payment: If you only need to pay one person a single, one-off payment and that person is an independent contractor not an employee, you would issue a 1099-NEC at year-end, not run payroll. This is a crucial distinction.

Verdict: For almost all scenarios involving a legitimate employee, even just one, the risks, time commitment, and potential penalties of DIY payroll far outweigh the nominal cost of an affordable payroll service. The peace of mind and compliance assurance provided by a dedicated service are invaluable. The data unequivocally shows that businesses that try to handle payroll themselves often face significant financial repercussions due to mistakes.

Integrating Payroll with Accounting Software

For a solo entrepreneur with one employee, efficiency is key.

Having your payroll data seamlessly flow into your accounting system isn’t just a nice-to-have. Smm-panel-romania.com Reviews

It’s a must that saves hours, reduces errors, and gives you a clearer financial picture.

While you might be focused on the cheapest payroll service, consider the long-term benefit of integration.

The Benefits of Integration for a Single Employee

Even with just one employee, manual data entry between payroll and accounting can lead to mistakes and wasted time.

Integration streamlines processes and enhances accuracy.

• Automated Journal Entries: Instead of manually inputting payroll expenses wages, taxes, deductions into your accounting ledger, integrated systems do it automatically. This ensures your profit & loss statement and balance sheet are always up-to-date.
• Reduced Data Entry Errors: Every time you manually transfer data, there’s a risk of typos or miscategorizations. Automation eliminates these common human errors.
• Real-Time Financial Insights: Your financial reports will accurately reflect your true labor costs immediately after payroll runs, allowing for better budgeting and financial planning.
• Simplified Reconciliation: Reconciling bank statements and general ledger accounts becomes much easier when payroll expenses are correctly categorized and posted.
• Audit Readiness: Clean, integrated data makes it simpler to pull reports for tax purposes or in case of an audit.

Popular Payroll Services with Strong Accounting Integrations

Many of the top payroll services offer robust integrations with popular accounting software. Connex-academy.com Reviews

This often comes at no extra cost, making it a compelling value proposition.

• Wave Payroll:
  • Native Integration: This is Wave’s biggest strength. If you use Wave Accounting which is free for basic features, Wave Payroll plugs in seamlessly. All payroll transactions automatically post to your Wave ledger, categorizing wages, taxes, and deductions.
  • Ideal for: Solo entrepreneurs who are already using or planning to adopt Wave’s free accounting software. It’s a truly integrated solution for managing both books and payroll.
• QuickBooks Payroll Intuit Payroll:
  • Native Integration: As both are Intuit products, QuickBooks Payroll is natively integrated with QuickBooks Online QBO and QuickBooks Desktop. This offers the most seamless experience for QBO users.
  • Pricing: QBO Payroll can be a bit pricier than some standalone options, starting around $45-$55/month + $8-$10/employee for a full-service plan. However, the integration is second to none for QuickBooks users.
  • Ideal for: Businesses already invested in the QuickBooks ecosystem. The efficiency gains often justify the higher cost.
• Gusto:
  • Robust Integrations: Gusto integrates beautifully with a wide range of accounting software, including QuickBooks Online, Xero, FreshBooks, and more.
  • Integration Process: Typically involves a few clicks to connect your Gusto account to your accounting software, and then payroll transactions are automatically synced.
  • Pricing: Gusto’s basic plan starts around $40/month + $6/employee, making it competitive.
  • Ideal for: Solo employers who want a modern, feature-rich payroll solution that plays well with various accounting platforms.
• Patriot Payroll:
  • QuickBooks and Xero Integration: Patriot Payroll integrates with both QuickBooks Online and Desktop and Xero.
  • Integration Method: While not always as deeply integrated as native solutions, it still provides automated journal entry posting, saving significant manual effort.
  • Ideal for: Cost-conscious businesses using QuickBooks or Xero who want a strong, affordable payroll solution.

Considerations for Integration

• Your Existing Accounting Software: The first step is to identify which accounting software you currently use or plan to use. Then, look for payroll services that offer direct integration with it.
• Depth of Integration: Some integrations are simple journal entries, while others offer more granular detail e.g., breaking down expenses by department, though less relevant for one employee.
• Pricing Tiers: Ensure that the specific payroll plan you choose includes the integration feature. Sometimes, higher tiers are required for advanced integrations.

By opting for a payroll service that integrates with your accounting software, you’re not just buying a payroll solution.

You’re investing in a more efficient, accurate, and financially insightful business operation.

For a solo entrepreneur, this synergy is often worth the extra consideration, even when prioritizing cost.

Legal and Compliance Considerations for Single Employee Payroll

In fact, for a solo employer, understanding and adhering to these regulations is even more critical because you don’t have a dedicated HR or legal department to lean on. Platinumcarparking.com Reviews

A single misstep can lead to severe penalties, regardless of your business size.

Employee vs. Independent Contractor Classification

This is perhaps the most critical distinction you’ll make.

Misclassifying an employee as an independent contractor is a common mistake that can lead to massive fines, back taxes, and legal headaches.

The IRS and state labor departments scrutinize this heavily.

• Employee Characteristics:
  • You control what work is done and how it’s done.
  • You provide tools, equipment, or a workplace.
  • The relationship is ongoing.
  • The worker’s services are a key aspect of your business.
• Independent Contractor Characteristics:
  • They control how they do their work.
  • They typically use their own tools and work from their own location.
  • They offer their services to the general public.
  • They typically have a defined project or contract with an end date.
• Consequences of Misclassification:
  • Back Taxes: You’ll owe the employer’s share of FICA taxes, FUTA taxes, and potentially state unemployment and income taxes, plus penalties and interest.
  • Penalties: Significant IRS penalties e.g., failure to file W-2s, failure to pay employment taxes. State penalties can also apply.
  • Employee Benefits: You might be liable for employee benefits health insurance, retirement plans that they would have received.
  • Lawsuits: The employee could sue for unpaid overtime, minimum wage, or other benefits.
  • Example: In 2023, the IRS continued its focus on worker misclassification. A single misclassified worker could lead to fines ranging from $50 per W-2 form not filed to penalties equal to 100% of the FICA taxes you should have withheld and paid, plus interest. State penalties can be even higher.

Federal Payroll Tax Requirements

As an employer, you are responsible for withholding and remitting federal taxes. Trycozee.com Reviews

• Income Tax Withholding: Based on the employee’s W-4 form.
• FICA Taxes Social Security and Medicare:
  • Social Security: 6.2% from employee, 6.2% from employer total 12.4% up to the annual wage base $168,600 for 2024.
  • Medicare: 1.45% from employee, 1.45% from employer total 2.9%. No wage limit.
  • Additional Medicare Tax: 0.9% on wages over $200,000 for single filers, withheld from employee only.
• FUTA Federal Unemployment Tax Act:
  • Rate: 6.0% on the first $7,000 of each employee’s wages.
  • Credit: You can typically get a credit of up to 5.4% for timely state unemployment contributions, effectively reducing the FUTA rate to 0.6%.
• Reporting Forms:
  • Form 941 Employer’s Quarterly Federal Tax Return: Filed quarterly, reporting wages, tips, and taxes withheld/paid.
  • Form 940 Employer’s Annual Federal Unemployment FUTA Tax Return: Filed annually, reporting FUTA taxes.
  • W-2 Wage and Tax Statement: Provided to employees and filed with SSA annually.
  • W-3 Transmittal of Wage and Tax Statements: Filed with W-2s annually.

State and Local Payroll Tax Requirements

These vary wildly by state and even by locality.

• State Income Tax Withholding: Not all states have it e.g., Texas, Florida, Washington, Nevada, South Dakota, Wyoming, Alaska, New Hampshire, Tennessee. If your state does, you must withhold and remit it.
• State Unemployment Insurance SUI Tax: Almost all states have SUI. Rates vary based on industry, claims history, and if you’re a new employer.
• State Disability Insurance SDI: A few states California, Hawaii, New Jersey, New York, Rhode Island, Washington have mandatory employee-paid or employer-paid disability insurance.
• Local Taxes: Some cities or counties impose their own income taxes, local services taxes, or occupational privilege taxes.
• New Hire Reporting: All states require employers to report newly hired or re-hired employees to a state directory.

Federal and State Labor Laws Minimum Wage, Overtime, Breaks

Beyond taxes, you must comply with labor laws.

• Fair Labor Standards Act FLSA:
  • Minimum Wage: Federal minimum wage is $7.25/hour. Many states have higher minimum wages e.g., California $16/hour for 2024, New York $16/hour for NYC/Long Island/Westchester, others varying. You must pay the higher of federal, state, or local minimum wage.
  • Overtime: Non-exempt employees must be paid 1.5 times their regular rate for hours worked over 40 in a workweek.
  • Child Labor: Restrictions on hours and types of work for employees under 18.
• State-Specific Labor Laws:
  • Breaks: Many states mandate paid or unpaid meal and rest breaks.
  • Paid Sick Leave: An increasing number of states and localities require employers to provide paid sick leave e.g., California, New York, Washington.
  • Pay Frequency: States often dictate how often you must pay employees e.g., weekly, bi-weekly, semi-monthly.
  • Pay Stub Requirements: States can mandate what information must appear on an employee’s pay stub.
• Anti-Discrimination Laws: Federal laws Title VII of the Civil Rights Act, ADA, ADEA and state laws prohibit discrimination in employment.

Given this extensive list of requirements, it becomes abundantly clear why a full-service payroll provider is not just a convenience but a necessity for compliance, even for a single employee.

The average small business owner simply cannot keep up with this regulatory burden without specialized tools or expert assistance.

Alternative Payroll Models & Resources

Beyond the traditional full-service payroll providers, there are a few alternative models and resources that might be relevant for a solo entrepreneur looking to manage payroll for a single employee, particularly if budget is exceptionally tight or needs are highly niche. Helloacasa.com Reviews

Employer of Record EOR / Professional Employer Organization PEO

While typically more expensive and geared towards larger businesses or those expanding internationally, it’s worth briefly understanding what an EOR/PEO does. An Employer of Record EOR or a Professional Employer Organization PEO takes on the legal responsibility of being the employer for tax and compliance purposes. They handle all payroll, taxes, benefits administration, workers’ compensation, and HR compliance.

• How it works for 1 employee: The employee is technically on the EOR/PEO’s payroll. You still direct their day-to-day work.
• Cost: Significantly higher than traditional payroll services, often a percentage of wages e.g., 5-15% or a high per-employee fee.
• Pros: Complete compliance burden removed, access to group benefits usually unavailable to small employers, HR support.
• Cons: Very expensive for one employee, less control over some HR aspects.
• Verdict for 1 employee: Generally not the cheapest option for a single employee unless you need comprehensive HR support and benefits administration that far outweighs the cost. However, for a high-value, critical hire where you want to offer top-tier benefits without the administrative headache, it could be considered.

Free Payroll Calculators and IRS Resources for DIY-ers

If you are absolutely committed to the DIY path despite the warnings, these resources are essential. They do not file taxes for you, but they can help with calculations.

• IRS Payroll Calculators: The IRS offers tools and publications to help employers understand their tax obligations.
  • IRS Tax Withholding Estimator: Helps employees adjust their W-4.
  • Publication 15 Circular E, Employer’s Tax Guide: A comprehensive guide to federal payroll tax rules. This is updated annually and is hundreds of pages long.
• Online Free Payroll Calculators: Many websites e.g., ADP, Paychex, Gusto, and state labor department sites offer free calculators where you input gross wages, withholding allowances, and state, and it estimates net pay and tax withholdings.
  • Limitations: These are for calculation only. They don’t file taxes, manage direct deposit, or handle year-end forms. You’re still responsible for everything after the calculation.
• State Labor Department Websites: Essential for finding state-specific minimum wage laws, SUI rates, new hire reporting requirements, and any state-specific tax forms.
• Verdict for 1 employee: These are necessary tools for DIY payroll, but they highlight the complexity. They do not automate or simplify the process of compliance and filing. They are only helpful for one part of the equation – the calculation.

Accountants and Bookkeepers for Payroll Assistance

Many small businesses, especially those with very few employees, choose to outsource payroll to their existing accountant or bookkeeper.

• How it works: Your accountant calculates payroll, processes payments often via direct deposit through their system, files all necessary tax forms, and provides year-end W-2s.
• Cost: Varies widely based on the accountant’s hourly rate or their flat fee for payroll services. It could be competitive with full-service payroll providers, especially for one employee, if they package it with other accounting services. Typically, it could range from $50-$150 per payroll run or a monthly retainer.
• Pros:
  • Expertise: You get highly personalized, expert advice.
  • Comprehensive Service: They handle all tax compliance, often integrating it directly with your bookkeeping and tax preparation.
  • Peace of Mind: They are professionally liable for accuracy.
• Cons:
  • Can be more expensive than dedicated payroll software.
  • Less self-service—you’re relying on their schedule for payroll runs.
• Verdict for 1 employee: A strong contender, particularly if you already have a trusted accountant. This can be an excellent way to ensure compliance and accuracy while focusing on your core business. It might not be the absolute cheapest per month but could offer the best overall value in terms of expertise and comprehensive financial management.

When selecting any of these alternatives, it’s crucial to weigh the direct cost against the time saved, the reduction in compliance risk, and the overall peace of mind.

For most solo employers, a dedicated, affordable full-service payroll provider offers the best balance. Britainenergy.co.uk Reviews

Strategies for Cost-Effective Payroll Management

Beyond just picking the cheapest provider, there are strategic approaches you can take to minimize your payroll expenses and maximize efficiency, even with just one employee.

Think of it as operational excellence for your micro-business.

Pay Frequency Optimization

How often you pay your employee directly impacts your administrative burden and, in some cases, the cost of your payroll service.

• Less Frequent Payroll Runs = Lower Cost:
  • Most payroll services charge a base fee plus a per-employee fee per payroll run. If you run payroll less frequently e.g., monthly instead of bi-weekly, you pay the base fee fewer times or incur the per-run employee fee less often.
  • Example: A service charging $20 base + $5 per employee per run.
    • Bi-weekly 26 runs/year: $20 x 26 + $5 x 26 = $520 + $130 = $650/year.
    • Monthly 12 runs/year: $20 x 12 + $5 x 12 = $240 + $60 = $300/year.
  • This is a significant saving for a single employee!
  • Employee Needs: Does your employee prefer or require more frequent payments?
  • Cash Flow: Does monthly pay fit your business’s cash flow?
  • State Laws: Some states mandate minimum pay frequencies e.g., weekly or bi-weekly. Always check your state’s regulations.
• Strategy: If state laws permit and your employee agrees, moving to a monthly or semi-monthly pay schedule can be a simple way to reduce your payroll service costs.

Utilizing Employee Self-Service Portals

Modern payroll services almost universally offer an employee self-service portal. This isn’t just a perk. it’s a powerful tool for cost and time savings.

• Reduced Administrative Burden:
  • Employees can access their pay stubs, W-2s, and other tax forms like 1099s if applicable online, eliminating the need for you to print, mail, or email these documents.
  • They can update their personal information address, bank details for direct deposit themselves, reducing data entry errors and saving you time.
  • They can often adjust their W-4 withholdings directly, ensuring accuracy and compliance.
• Environmental Benefits: Less paper used.
• Cost Savings: No printing costs, no postage, no time spent on administrative tasks related to distributing documents or updating information. While these seem small for one employee, they add up over time.

Automating Time Tracking If Applicable

If your single employee is hourly, manual time tracking e.g., spreadsheets, paper timesheets is prone to errors and can lead to disputes or incorrect pay. While perhaps not directly related to the payroll service cost itself, integrating time tracking can save you money by ensuring accurate payroll. Transparentfxtrading.com Reviews

• Integrated Time Tracking: Some payroll services like Gusto or QuickBooks Payroll offer built-in time tracking features or integrate with popular time tracking apps e.g., When I Work, Homebase, TSheets.
  • Accuracy: Eliminates manual data entry errors from timesheets to payroll.
  • Compliance: Ensures accurate calculation of overtime and adherence to break laws.
  • Time Savings: Time logged flows directly into payroll, simplifying processing.
• Cost Impact: While the time tracking feature itself might be an add-on, the overall efficiency and error reduction contribute to cost-effective payroll management by avoiding costly mistakes or overpayments. For one employee, it might be an extra $5-$10/month, but that’s often cheaper than dealing with a single payroll error.

Maintaining Accurate Records

This sounds basic, but meticulous record-keeping is foundational to cost-effective and compliant payroll.

*   Audit Readiness: The IRS and state agencies can audit payroll records for up to three years or longer in cases of fraud. Well-organized records make audits much smoother and less costly.
*   Error Prevention: Up-to-date records minimize calculation errors and ensure accurate tax filings.
*   Dispute Resolution: In case of an employee dispute over wages or hours, accurate records are your best defense.

• What to keep: Employee W-4s, I-9s, timecards if hourly, pay stubs, payroll reports from your service, proof of tax payments, and copies of all filed tax forms 941s, 940s, W-2s.
• Strategy: Utilize the reporting features of your chosen payroll service and keep digital copies of all relevant documents.

By implementing these strategies, you’re not just finding the cheapest service.

You’re building a lean, compliant, and efficient payroll system for your single-employee business, protecting your bottom line and freeing you to focus on growth.

Final Considerations and Recommendations

Choosing the cheapest payroll service for your single employee isn’t just about the lowest monthly fee. it’s about finding the best value that balances cost with critical features, compliance, and your peace of mind. As a solo entrepreneur, your time is your most valuable asset, and investing in the right tools can save you countless hours and potential headaches down the line.

Balancing Cost vs. Value for 1 Employee

The temptation to cut corners on payroll is strong, especially with only one employee. Drukasia.com Reviews

However, the penalties for non-compliance are severe, regardless of business size.

• Cheap vs. Free DIY: While DIY payroll has no direct service fee, the indirect costs your time, risk of penalties almost always make it the most expensive option in the long run. The average IRS penalty for payroll tax errors can range from $50 to 15% of the unpaid tax, adding up quickly.
• Low-Cost Providers: Services like Wave Payroll, Patriot Payroll, and SurePayroll offer an excellent balance. They provide full-service tax filing and direct deposit for a reasonable monthly fee typically $25-$50/month for one employee. This investment is negligible compared to the cost of a single IRS or state penalty.
• Scalability: Consider if the “cheapest” option can easily scale if you hire a second or third employee in the future. Some providers might have steep price jumps at certain employee counts.

Importance of Professional Support

Even with a user-friendly payroll service, you’ll inevitably have questions. Good customer support is invaluable.

• Payroll Service Support: Look for providers with strong customer reviews regarding their support channels phone, chat, email and responsiveness.
• Accountant/Bookkeeper: If you already have an accountant, leveraging them for payroll or at least for advice can be a robust solution. They offer personalized expertise and can handle the complexities that even a payroll service might not entirely explain. This is particularly valuable for understanding specific state or local tax nuances.

Key Takeaway for Solo Entrepreneurs

For a solo entrepreneur with one employee, the recommendation is almost always to invest in a full-service, affordable payroll provider.

• Avoid DIY Payroll: The risks, time commitment, and potential penalties far outweigh any perceived savings. Your time is better spent growing your business.
• Prioritize Full-Service: Ensure the service handles all federal, state, and local tax calculations, filings, and payments, along with direct deposit and year-end forms W-2s. This offloads the compliance burden entirely.
• Consider Integration: If you use accounting software, choose a payroll service that integrates seamlessly to save time and prevent errors. Wave for Wave Accounting users, QuickBooks Payroll for QuickBooks users, and Gusto/Patriot for broad integrations are strong contenders.

By choosing wisely, you’re not just finding the “cheapest” option.

You’re adopting a smart, compliant, and efficient strategy for managing your single employee’s payroll, allowing you to focus on what truly matters: building a successful business.

Frequently Asked Questions

What is the cheapest payroll service for 1 employee?

The cheapest payroll service for 1 employee that offers full-service tax filing and direct deposit typically ranges from $25 to $50 per month. Options like Wave Payroll $26-$41/month for 1 employee, Patriot Payroll Full Service: $41/month for 1 employee, and SurePayroll around $40-$50/month are strong contenders.

Can I do payroll for 1 employee myself?

Yes, you can technically do payroll for 1 employee yourself, but it’s highly discouraged due to the significant time commitment, complexity of tax laws federal, state, local, and the high risk of costly errors and penalties. The perceived savings rarely outweigh the risks.

What are the federal payroll tax obligations for 1 employee?

For 1 employee, you must withhold and remit federal income tax, Social Security 6.2% employer, 6.2% employee, Medicare 1.45% employer, 1.45% employee, and Federal Unemployment Tax FUTA. You’ll also need to file Forms 941 quarterly, 940 annually, and W-2/W-3 annually.

How much does it cost to outsource payroll for one person?

Outsourcing payroll for one person to a dedicated payroll service typically costs between $25 and $50 per month for full-service options that include tax filing. If using an accountant, it could be a similar monthly fee or a per-pay-run charge.

Is Gusto or Patriot Payroll cheaper for 1 employee?

Patriot Payroll generally tends to be slightly cheaper for 1 employee, with its full-service plan starting around $41 per month. Gusto’s basic plan starts around $40 per month + $6 per employee, making it roughly comparable or slightly higher depending on your state and any add-ons.

Does Wave Payroll handle all tax filings for 1 employee?

Yes, Wave Payroll’s full-service option calculates, files, and pays all federal and state payroll taxes on your behalf for your 1 employee, provided they offer service in your state.

What is the risk of misclassifying an employee as an independent contractor?

The risk of misclassifying an employee as an independent contractor is very high. Consequences include owing back payroll taxes employer and employee share, significant IRS and state penalties e.g., failure to file W-2s, failure to pay employment taxes, and potential lawsuits from the worker for unpaid wages or benefits.

Do I need an EIN if I only have one employee?

Yes, you absolutely need an Employer Identification Number EIN from the IRS if you have an employee, even if it’s just one. An EIN is like a Social Security number for your business and is required for all employer tax filings.

How often do I have to pay federal payroll taxes for 1 employee?

The frequency of federal payroll tax deposits income tax, Social Security, Medicare depends on your total tax liability. Most small businesses with one employee will typically deposit taxes monthly, but if your liability exceeds $50,000 in a lookback period, it could be semi-weekly. Your payroll service will determine and manage this for you.

What year-end forms do I need for 1 employee?

For 1 employee, you will primarily need to prepare and file Form W-2 Wage and Tax Statement for your employee and submit it to the Social Security Administration along with Form W-3 Transmittal of Wage and Tax Statements. Your payroll service should automate this.

Can I get free payroll services for 1 employee?

While some companies offer “free” basic payroll calculators, they do not provide full-service payroll tax filing, direct deposit. There isn’t a truly free, comprehensive payroll service for 1 employee that handles all compliance and tax obligations. Wave offers free accounting, but their payroll service is paid.

What is the cheapest way to pay my only employee?

The cheapest and most compliant way to pay your only employee is typically through an affordable full-service payroll provider that handles direct deposit and all tax filings for a low monthly fee e.g., $25-$50. Manual processing seems cheaper but carries significant hidden costs and risks.

Do I need workers’ compensation insurance for 1 employee?

Most states require workers’ compensation insurance even for a single employee, with some limited exceptions. This protects both you and your employee in case of work-related injury or illness. Check your specific state’s laws.

What payroll features are essential for a single employee?

Essential payroll features for a single employee include automatic federal and state tax filing and payments, direct deposit, and year-end tax form W-2 generation. User-friendly setup and good customer support are also crucial.

Should I use my accountant for payroll for 1 employee?

Using your accountant for payroll for 1 employee can be a highly effective and compliant option, especially if you already have a trusted relationship. They provide expertise and integration with your overall financials, though it might be slightly more expensive than dedicated software.

How do I choose between Wave Payroll and Patriot Payroll for one employee?

Choose Wave Payroll if you are already using or plan to use their free accounting software for seamless integration. Choose Patriot Payroll if you prioritize an extremely user-friendly, affordable full-service option that integrates with popular accounting software like QuickBooks or Xero, even if you don’t use Wave accounting.

What are “hidden fees” in payroll services for small businesses?

Hidden fees can include setup fees, additional charges for tax filings e.g., quarterly 941s, year-end W-2s, fees for multiple pay runs, charges for specific state tax management, or extra costs for advanced features or integrations not included in the base plan. Always read the fine print.

What information do I need from my employee to run payroll?

To run payroll, you’ll need your employee’s Form W-4 Employee’s Withholding Certificate, Form I-9 Employment Eligibility Verification, their full legal name, address, Social Security Number, and bank account information for direct deposit.

Can a payroll service help with state new hire reporting?

Yes, most full-service payroll providers will automatically handle state new hire reporting for your employee, which is a legal requirement to report new hires to your state’s directory within a specified timeframe e.g., 20 days.

How often do I pay my employee if I use a payroll service?

The pay frequency weekly, bi-weekly, semi-monthly, or monthly is chosen by you, but it must comply with your state’s labor laws.

Your payroll service will accommodate your chosen frequency and process payments accordingly.

Less frequent payments can sometimes reduce the per-run cost from your provider.

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