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Strategy & Operations
What Is Payroll Service? (…And 4 Reasons Why You Need It)

The Pareto Principle states that 80% of your results can be traced back to 20% of your efforts. Put more colloquially, we might say it’s classic Murphy’s Law that the least important tasks tend to be the biggest time sucks.

No matter which way you slice it, the fact remains that delegating time consuming administrative tasks increases your efficacy at work by freeing you up to focus on what matters.

In this article, I’ll answer the question, “What is a payroll service?” and share how to find the best partner to suit your organization’s unique needs.

What is a Payroll Service?

Payroll services are third party providers that take over payroll functions on your behalf. Working with a payroll service provider allows companies to outsource payroll processing and the associated tasks.

This can be an enormous help for small businesses who have reached that awkward spot where they have too many employees for one person to manage payroll on their own, but don’t yet have a formal in-house payroll department.

A payroll service provider can assist you with the following tasks:

  • Tax filing with the IRS, CRA, or local governing body
  • Tax payment
  • Worker’s compensation
  • Bookkeeping
  • Employee benefits
  • Employment tax forms
  • Running payroll reports
  • Year-end reporting
  • Employee attendance and time
  • Direct deposits (biweekly or however your company chooses)
  • Additional human resources functions

Types of Payroll Service Providers

Payroll service providers cater to a wide variety of needs. Some specialize in small businesses while others focus on enterprise. Some are primarily payroll companies, while others also have bookkeepers and accountants on staff.

Generally speaking, we can divide providers into two main categories:

Full service

As the term “full service” implies, these payroll service providers do all the work for you. You simply provide basic business and employee information, and they do the rest. 

DIY

With a DIY payroll provider, you’re required to perform some of the administrative tasks and the provider conducts the additional tasks of your choosing.

Example: maybe you’d like to keep track of employee hours and attendance while your provider conducts the actual payroll calculations and deductions.

Perhaps the biggest differentiator between the two types of payroll service providers is price. A full-service approach will cost more than a piecemeal, DIY approach.

How Can a Payroll Service Benefit Your Organization?

If you’ve conducted all your payroll tasks in-house up until now, you may be wondering why you need a payroll service provider. Let’s take a look at a few of the benefits of outsourcing your payroll.

how can a payroll service benefit your organization infographic

1. Timely Deposits

Outsourcing payroll mitigates errors and ensures that employees are paid on time, every time. If you’re dealing with hourly and salary, full-time employees and contractors, and multiple schedules, rates, and pay periods, payroll can quickly become complicated and confusing. Outsourcing payroll to a third party will help you provide accurate calculations and timely deposits.

2. Compliance

Payroll service providers will calculate and deduct employment tax from every paycheck. They’ll ensure your tax compliance with both federal and state or provincial regulations. Not only does this take the time-consuming task of tax compliance off your hands, it also ensures that your employees aren’t confronted with any unexpected income tax bills at year end—and we can all get behind that.

3. Time Management

Often within small businesses, the payroll function falls to the human resources team. Beyond performing the expected HR functions, team members must expend additional time and energy to process payroll, input employee hours, and calculate tax withholding.

Once you outsource to a payroll service company, you can offload a variety of tasks, consolidate others into a central software application, and dramatically simplify the process of payroll overall. This way, more time can be spent on the tasks that pertain directly to your job description.

4. Monitor Schedules

The majority of payroll service companies offer self-service options that allow employees to directly input hours and submit paid time-off (PTO) requests. 

In placing the responsibility for reporting in the hands of the employees, you eliminate bottlenecks and increase the accuracy of time management records. With scheduling data now in a central location, it’s easy for you to monitor hours and track attendance.

What is the Difference Between Payroll Service and Payroll Software?

Working with a payroll service provider allows you to outsource your payroll to a third party, freeing up your time to focus on other tasks.

Working with payroll software you will still have to perform the business payroll yourself, but with the assistance of a software tool. You’ll have to manually input payroll data like insurance premiums, retirement plan deductions, social security, and other wage garnishments.

Small business owners will still find payroll software to be helpful, since the software will calculate payments and generate checks on your behalf. But working with software alone will not free up the time and energy that a payroll service provider can. 

How to Choose the Best Payroll Service 

To find the best payroll service provider, begin by asking the following questions:  

  • What’s your budget?
  • What’s your number of employees?
  • What additional services (on top of payroll) would you like to see?

From there, look for payroll service providers who offer:

  • A simple user interface that’s easy to navigate
  • Training materials to simplify onboarding
  • Integrations with other relevant tools your team is currently using
  • Cost effective solutions with excellent value for the money

Lastly, you’ll want to make sure that the payroll service company offers the following features:

  • Direct deposit payments
  • Payroll scheduling
  • Self-service portal
  • Tax compliance
  • Tax filing
  • Payroll reporting

Find the Right Partner Today

Working with a payroll service provider can streamline your payroll process and free up valuable time. If you’re looking for the right partner to suit your organization’s needs, check out our super handy list:

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By Kyra Evans

Kyra Evans is a Staff Writer for People Managing People. She has over 15 years of experience writing about finance, technology, and corporate wellness for many of Canada’s largest brands. In addition to writing, Kyra provides keynotes and workshops in mindfulness and holistic wellbeing to companies ranging from startups to multinational corporations. She writes for an engaged community of more than 30,000 readers on Instagram and TikTok, and her work has been featured by publications such as HuffPost and Authority Magazine. She lives on Vancouver Island with her family.