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Updated: June 6, 2024

Choosing a payroll provider for your business? 10 questions to ask

Published By:

Erin Ellison

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If you’re setting up payroll the first time or thinking about switching payroll providers, you’ll probably hear a lot of promises about everything different solutions can do for small businesses. But can you believe them? And with so many options available out there, how do you find the right one for you?


Here are 10 questions you should ask when choosing the best payroll software company for your business:



Infographic showing 10 key factors for choosing a good payroll provider.


1. Are payroll taxes calculated, withheld, and filed automatically?

You’re not a tax expert, nor should you have to be. So, the first and perhaps most important question you need to ask a payroll provider is whether they can deduct the correct amount of federal, state, and local taxes, along with Medicare, unemployment, etc.


Deductions should all be done automatically and accurately — that’s sort of the point of using a good payroll service. And when tax rates change, the software should be updated in real-time so that your company is always IRS compliant.


The consequences of not meeting tax requirements can be severe. According to the IRS, it assessed more than $5 billion in civil penalties related to employment taxes in 2017. Ouch.


The best payroll software for small businesses should also be able to handle employee-specific deductions like 401(k), HSA, and even garnishments.


2. Who is responsible if the tax filings are wrong?

Payroll providers will undoubtedly tout the accuracy of their software. But if for any reason, they make an error that results in an IRS penalty, your payroll service should offer to take responsibility for the mistake. Nobody wants to make a blunder that costs either of you money or time — but you should ask how they handle a gaffe before it ever comes up.


3. Is the payroll provider safe and secure?

Most payroll software systems are now cloud-based SaaS solutions that are usually offered on a monthly subscription basis. As long as you have access to the Internet, you have access to your payroll — even if your computer crashes. Cloud-based solutions are easier to manage than traditional desktop programs. You simply pay a fee each period, and you don’t have to keep a payroll system on your own server, install updates, or migrate data when you buy a new computer.


However, since you are sending sensitive employee information to third-party servers, security is of the utmost importance. Hackers are constantly trying to steal employee direct deposit payments.


The payroll solution you choose should know exactly how it keeps your data secure and away from security threats. In some cases, this means they only work with U.S.-based companies so that any overseas access is immediately flagged and blocked.


4. Can the provider process paychecks for all types of employees?

Not all employees are alike. Some are paid hourly, others are paid annual salaries, and still others are contractors. There are part-time or full-time staffers, commissioned sales, and those that rely mostly on tips and bonuses.


The best payroll software must be able to track all of these different employment categories (even if you don’t have anyone in that category right now) and automatically calculate things like commissions or overtime pay. Timesheet integrations should be available to make entering hours seamless, and 1099s should automatically be issued to contractors at the end of each year.


5. Does the software calculate and track PTO or vacation days?

Gone are the days of manually tracking each employee’s PTO and vacation on an Excel spreadsheet. The best payroll software will easily be able to track and calculate the time available for each employee’s vacation, holidays, sick days, maternity and paternity leave, and the like. It should also have a mechanism for employees to request time off.

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6. Can my employees easily access their own payroll accounts?

Speaking of tracking PTO accruals, granting employees access to their personal payroll account lets them quickly and easily check things like their last pay stub or PTO balance 24 hours a day. It means you won’t have to constantly answer those questions, which makes the process more efficient for both you and your team — something that can lead to an increase in employee morale.


With self-service accounts, staffers can also edit things like a change of address or other personal information in minutes without you needing to be involved.


7. Can this software pay my employees by both direct deposits and physical checks?

Direct deposit is the preferred payment method for more than 85% of employees between the ages of 22 – 34 use in the US because employees don’t have to worry about cashing a physical check and waiting for the bank to clear it. And you won’t have any issues reconciling lost or stolen checks.


On the employer side, having access to direct deposit means you no longer have to print checks manually and distribute them to each employee.


Some employees do still prefer to receive physical checks, so it is imperative that your payroll software accommodates all forms of payment.


A third alternative is offering pre-paid debit cards to employees who don’t have a bank account, but still want to avoid check-cashing fees.


8. Does the software seamlessly integrate with my company’s accounting system?

The average small business owner spends about 18 hours per month on payroll-related tasks. And more than 40% do all the bookkeeping and accounting themselves. In other words, payroll and accounting can take up a lot of time that you could be spending on other facets of your business.


The best payroll software will integrate seamlessly with your accounting software (like Quickbooks or Xero) to help you avoid having to add payroll expenses to your general ledger. Plus, the fewer manual entries you need to make, the fewer mistakes can slip through.


9. Can customer support help me if I get stuck?

When you call your payroll software provider for help, the last thing you want on the other end of the line is elevator music playing in the background while a robot reminds you “your call is important to us.” When you’re on hold waiting to get your people paid, it just feels like that isn’t true.


If you have questions about payroll, you want customer support from a real person who is knowledgeable about payroll. You don’t want to be put on hold for an hour while waiting for the next available representative. You’ll also probably need some help getting set up.


Most providers will claim to have amazing service, so take some time to look at online ratings and reviews to see what real customers think. You might also want to take a peek at social media to get a sense of how many disgruntled customers are airing their issues there — and whether the provider is responding to them. Be sure to look for a rating on their Facebook Page, too. Companies have no ability to alter or influence the reviews they receive on Facebook, but they do have the ability to hide them. Hidden reviews may mean something’s afoot.


Finally, ask about the help you’ll get with set up and migrating any existing employee data or prior wages. Some providers will do all the heavy lifting for free.


10. To get everything I want, how much is this going to cost me?

Now that you’ve figured out which features and functionalities you can’t live without, it’s time to think about how much a payroll provider will cost. Going with the cheapest option now might end up costing you more time and money later on if they don’t have everything you need, if you have to correct mistakes, or if there are numerous hidden and added fees.


They should be completely transparent about their pricing, but you’ll want to understand the following to be sure:

  • Are services charged monthly or per pay run? Per-pay-run pricing can often be twice as expensive, since most businesses run payroll two or more times a month.
  • Are there fees for tax filings?
  • Are there fees for creating 1099 and W-2 forms?
  • Are there fees for changing or canceling a pay run?
  • Are there fees for direct deposit or check printing?
  • Are you billed for employees or contractors who don’t receive a paycheck in a given month?
  • Are there fees for software integrations?
  • Are there fees for PTO tracking or HR features?
  • Are there any annual fees?
  • Will fees change after an introductory period (often the first year)?


Final thoughts

Running a business is hard. Paying wages and payroll taxes doesn’t have to be. Ask smart questions before choosing your next payroll software provider to find one that really meets all your needs.


Using the right payroll software will not only save you hours of valuable time, but it will also empower you and your employees to have greater control and visibility over the whole process. And hopefully, everyone will get to spend more time focused on your bottom line. If you want to dive a little deeper, you can also check out our checklist for comparing payroll solutions or take a look at ratings and reviews of the best payroll services.

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Erin Ellison is the former Content Marketing Manager for OnPay. She has more than 15 years of writing experience, is a former small business owner, and has managed payroll, scheduling, and HR for more than 75 employees. She lives and works in Atlanta.