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Types of Payroll Partners: Which Is Right for You?

by John Tuttobene on Apr 5, 2022 8:00:00 AM

If you’re ready to ease your administrative burden and have decided to get help with your payroll, you have several options when it comes to partners. But sorting through the various types of payroll partners can be challenging. How do you choose the best payroll provider for your needs?

To help you decide the right payroll service provider for you, here we’ll discuss the most common types of payroll companies:

  • Bookkeepers
  • CPAs
  • PEOs
  • Payroll software providers
  • Local payroll providers
  • National payroll companies

After reading this article, you’ll be able to make a decision about what payroll approach is best for you. 

Top Options For Payroll Partners

With so many choices on the market today, here are the advantages and disadvantages of the different types of payroll service providers so you can choose the best fit for your company. 

1. Bookkeepers

A bookkeeper records financial transactions, posts debits and credits, creates invoices, maintains and balances the books and, in some cases, manages payroll using Excel or a payroll software like QuickBooks

One benefit of using a bookkeeper for payroll is that they already maintain a general ledger where  your payroll journal entries will be posted automatically, giving you a more accurate and complete financial picture. Bookkeepers are also typically less expensive than other common business partners used for payroll, such as accounting firms, because they’re not required to be certified. While the amount you’ll pay depends on how much time it takes someone weekly or monthly to perform services for you, generally speaking, you can expect to pay $29.21 to $43.40 per hour for a freelance bookkeeper

A potential downside of using a bookkeeper for payroll is that you may need to worry about integration issues with a third-party software. In addition, you’ll have to ensure that the bookkeeper you use has specialized expertise in payroll since not all handle this function. For example, some won’t process payroll but will simply input payroll data into your accounting system after you submit the data.

2. CPAs

As your business grows and you require more comprehensive financial reports and intelligence, you may want more advanced capabilities that a full-service accounting firm can provide. These partners offer tax and accounting consultations to help you make financial decisions and also often handle payroll processing and administration. 

Not only will they ensure your team is paid on time, withholdings are properly deducted, and payroll taxes are submitted, they can also keep track of payroll reports, expense reimbursements, and profit-sharing disbursements. Additionally, CPAs can deliver a higher level of service that can help you reach your financial goals, especially when it comes to tax laws and ensuring your compliance so you can avoid payroll tax penalties.

However, when considering payroll partners, you should know that you’ll pay more for a CPA’s  services; the average rate for CPAs ranges from $160 to $275 an hour based on their experience and your business. If you are evaluating CPAs to help lower your expenses, be sure you ask about any additional fees they may charge. For example, some will charge you if you submit incomplete information. 

3. PEOs

A PEO is a professional employer organization. It’s also known as an employee leasing model, and that definition is pretty descriptive since a PEO will hire your employees and you’ll lease them back. In this way, you’re technically both co-employers. Since your employees technically work for the PEO, the PEO will be responsible for a wide range of workforce management functions, including payroll, HR, benefits and compliance. 

This full-service approach is one of the biggest advantages of using a PEO. In addition, you’ll realize potential cost savings on benefits compared to what you could get on your own since you’ll be part of a larger group of employers. 

The downside is that some PEOs may charge you administrative fees of around 3% to 15% of wages; others will charge you a per employee per month (PEPM) fee. Another potential concern for many businesses is the level of control they have over their business since the PEO technically has the right to hire and fire your employees.

4. Payroll Software Providers

If your payroll needs are pretty simple, you may want to move from using manual-based processes to a payroll software partner for a cost-effective way to improve upon your current processes. Think of this as a Do-It-Yourself (DIY) approach but with some level of support to ensure you’re doing payroll right. 

The software is programmed to automatically calculate wages and withholdings and updated with the latest tax tables each year to minimize human error. If you run into issues, they typically offer some type of customer support, either by phone, email, or chat. However, since each vendor’s service differs, you’ll want to inquire about the level of help that is available, especially if you may need a lot of assistance. 

A potential disadvantage is that the vendor may not have integrated solutions to address other workforce needs as you grow, such as onboarding or time and attendance. In addition, since it’s still DIY, you’ll need to spend the time to run payroll each pay period and the responsibility rests on you to do it accurately and on time.

5. Local and Regional Payroll Partners 

An outsourced payroll provider will handle as much or as little of the administrative and compliance tasks associated with payroll as you’d like. For example, you may just want a vendor to process payroll and take care of tax filings. Or you may want to offload more responsibility and outsource other functions as well. 

As you start investigating your options, you’ll likely find some local or regional vendors you could partner with. These providers generally offer the same services as national payroll companies; however, they’ll have an office – or more than one – where you can reach an individual for personalized support. In fact, typically, you’ll be assigned the same representative or team so that you can speak to someone knowledgeable about your business. Being personal and reachable is the biggest plus for these providers, especially if you want your vendor to feel like an extension of your business. 

While many local and regional payroll partners have the ability to scale with your business, a potential downside is that these providers do not always have the same breadth of offerings you may need as you grow. For instance, if you want help with employee benefits, they may refer you to one of their industry connections so you would have to deal with a different firm. 

6. National Payroll Companies

National payroll companies generally offer bundled offerings to address all your needs – payroll, HR, and benefits – in one place. This approach offers some advantages like improved accuracy and efficiency since the vendor will use one, integrated platform. For example, when an employee enrolls in benefits, the amount of their contribution is automatically deducted from each paycheck. 

However, with a full-service approach, you may end up overpaying because you pay for services you don’t actually use. Another potential disadvantage of bigger payroll providers is that they may be more impersonal. In many cases, you’ll be pointed to online resources if you have a question. Even if you can contact a live representative, they’ll typically be in a call center so you won’t reach the same individual every time you call.

Choosing the Best Payroll Partner for Your Business

With several types of payroll partners available, it can be overwhelming to identify what may be the best fit for your company. Hopefully this article gave you a good starting point. 

As you begin your search for the best fit for your business, it’s critical to know the top factors you should consider when choosing a payroll service provider. If you’ve settled on using an outsourced provider, you’ll want to compare the top companies to see if you can find a match.

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