Top 5 U.S Outsourced Payroll Providers Compared
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The Ultimate Guide to Outsourced Payroll Services
Want to know more about payroll outsourcing? Read everything you need to know right here…
If you don’t pay your staff correctly and on time, you’re going to have a mutiny on your hands. It’s one of the less glamorous parts of running a business, but it’s essential. Wouldn’t it be nice if you could get someone to do that for you?
Well, you can: That’s what outsourced payroll services are for! In fact, 61% of U.S. companies already hire an external company to cover their payroll.
Don’t know where to start? Well, you’re in the perfect place to find out everything you need to know about outsourced payroll.
What is Outsourced Payroll?
Outsourced payroll is when a business hires an external provider to handle some or all of its payroll responsibilities. This can include:
- Running payroll
- Calculating taxes
- Managing employee benefits
- Ensuring compliance with employment laws
- Process unemployment claims
- Managing wage garnishment
With the help of third-party payment processing, you can offload complex, tedious, and time-consuming parts of payroll to professionals. These experts handle all admin and stay up to date with regulations, and maintain strong data security.
Partnering with an outsourced payroll provider doesn’t mean giving up control or key decision-making. You’re still responsible for wage structure, bonuses, and benefits management. The provider simply takes all of the technical aspects of payroll and the associated admin off your plate.
Types of Payroll Services
Payroll Processing Services
This is what most people think of when they hear payroll: calculating and distributing your employees’ wages.
Providers will usually handle tasks like calculating gross pay, applying deductions (such as taxes, insurance, and retirement contributions), and distributing net pay through direct deposit or paper checks. They will also generate pay slips and keep an up-to-date and compliant payroll record.
You can opt for a software-assisted process that allows your internal team to retain control over data entry, while using your provider’s systems for tax calculations and updates. With the help of customer self-service portals and automation tools, your team can save time and reduce the risk of errors and penalties.
Payroll Managed Services
Payroll managed services, also known as full-service payroll providers, are what you go for when you want the whole shebang. Full delegation of payroll services, including setting up systems, collecting data, calculating wages, and end-of-year tax filings (such as W-2s and 1099s), handling compliance, issuing payments, keeping records, and providing ongoing support.
This is perfect for growing businesses that can benefit from ongoing support, as you can remain up-to-date and compliant with the ever-changing laws and regulations and avoid any hefty fines. It’s also ideal if you operate in a heavily regulated, high-risk industry, where compliance regulations are even more stringent.
Payroll Outsourcing / Business Process Outsourcing (BPO)
Payroll BPO services go a step beyond managed payroll by embedding payroll within a larger outsourcing framework that includes HR, accounting, tax compliance, and even customer service. In layman’s terms, this is where you transfer your entire back-office functions to the experts so you can focus on what you’re supposed to be doing: running your business!
BPO providers typically offer custom integration, localized tax handling for multinational clients, and scalable resources depending on business size. This makes them ideal if you’re running a larger operation or if you’re undergoing rapid growth or eyeing up international expansion.
Professional Employer Organization (PEO)
A PEO operates under a co-employment agreement in which the payroll provider shares employer responsibilities with the client company. In this case, the client company is you.
Under the co-employment model, you will still retain full control of your business and key decision-making, but the PEO becomes the employer of record (EOR). This means they share legal responsibility for all things payroll, and can even take on other HR functions if required.
We’ve actually written a guide on PEO services. So if you think this could benefit you, be sure to check it out.
Reporting Agent Services (RA)
Is there anything worse than having to deal with the IRS? Of course, there isn’t. But that’s what Reporting Agent services are for.
Reporting Agents act as a middleman between your businesses and the IRS and other tax authorities. They file tax forms, submit employment tax payments, communicate with organizations on your behalf, and make sure that you’re always on the right side of regulations.
This service is best paired with managed payroll or BPO services to ensure that your tax obligations are not only calculated but also paid and reported accurately and on time.
Bookkeeping and CPA Services
Keeping it old-school and working with bookkeepers or certified public accountants (CPAs) for payroll is still possible. This can be particularly beneficial if you’re just starting. Having that single point of contact and building a rapport with someone who gets to know your business and goals inside out is invaluable.
Partnering with these professionals can offload wage calculation, tax deductions, and reporting as part of broader bookkeeping tasks, so your payroll aligns with general ledger and tax strategies.
Payroll Solutions by Company Size
Your business is completely different from the next one. If you’re a small cafe specializing in Ecuadorian artisanal coffee and French sweet treats, then your payroll needs are going to be far different from a multinational advertising agency. That’s why providers will often have tailored packages to meet the needs of your business, no matter its industry or size.
For example, small businesses benefit from simple, affordable payroll platforms with limited features, while mid-size and enterprise-level companies can access tiered solutions with automation, integrations, and multi-country support.
This allows you to only pay for the services you actually need, and not fork out on a bunch of add-ons that you’re never going to use.
What are the Benefits of Outsourced Payroll?
Cost Savings
One of the most attractive benefits of outsourcing your payroll, especially for smaller businesses, is the cost savings. If you hire someone in-house, you have to cover the costs associated with recruitment, training, salary, benefits, software, and other overheads. Hiring an external payroll professional allows you to significantly reduce these associated costs by up to 40%.
These aren’t the only savings you’ll benefit from. By leaving this to the professionals, you can minimize the possibility of errors that lead to overpayments, underpayments, and IRS penalties. In 2024, the IRS collected $2.8 billion in payroll-related fines.
Effective payroll is dependent on the use of advanced technology and compliance tools that need to be continually invested in. When outsourcing, this isn’t something you need to worry about, allowing for more predictable monthly expenses and better budgeting.
What to do with all this saved money? Marketing. Expanding your workforce. A new pool table for the staff room. The possibilities are endless.
Time Efficiency & Administrative Relief
On average, U.S. small businesses spend 260 hours each year on payroll. Wage calculations, tax deductions, benefits administration, and regulatory reporting are all eating into your valuable time. Think of what you could do with all of those reclaimed hours.
Working on something more pressing. Spending time with your loved ones. Watching your favorite sports team lose for the third weekend in a row. Anything other than payroll!
Outsourcing this allows HR and finance teams to focus on strategic priorities such as talent acquisition, employee engagement, or business development. If you’re going through a period of growth, then this is a perfect time to outsource. Bandwidth is already stretched thin, so release some of the burden and let your team focus on taking your operations to the next level.
Compliance & Legal Accuracy
Payroll is a compliance minefield. One wrong step and you could find yourself facing a whole host of expensive fines, drawn-out legal problems, and potentially irreparable damage to your reputation. Staying compliant with tax laws, employment regulations, and labor codes becomes even more difficult if you operate across state lines or different countries.
Do you really have time to stay updated with these ever-changing policies? No of course you don’t. You have a business to run!
Leave all that to the payroll professionals and focus your efforts elsewhere.
Reduced Payroll Errors
Payroll inaccuracies can have serious consequences, from employee dissatisfaction to legal penalties and IRS fines. Using automated systems and specialized expertise, outsourcing reduces human error and the risk of repercussions. Some businesses have reported payroll error rates dropping to as low as just 1% after outsourcing, compared to much higher rates with in-house teams.
Providers will often seamlessly integrate with your current HR systems, further reducing manual data entry and calculation mistakes. Reducing errors not only saves money but also fosters a more reliable work environment.
Enhanced Data Security & Disaster Recovery
As an employer, you have a duty of care to keep your staff’s sensitive information safe. Smaller businesses’ in-house systems often house salary, bank account numbers, Social Security numbers, and benefits data, without adequate security measures. If this leaks and gets into the wrong hands, then be prepared for a whole host of problems.
Professional payroll companies are armed with the finest systems that offer encryption, multi-layered access controls, secure data centers, and regular security audits. They also have disaster recovery protocols that maintain payroll continuity in the event of data loss, cyberattacks, or technical failures.
This enterprise-level security offers you a safety net that you otherwise may struggle to get without your budget taking a hit.
Access to Expertise & Specialized Knowledge
Handling payroll in-house often requires a deep understanding of taxes, benefits, employment law, and regulatory changes. Outsourcing gives you immediate access to a team of payroll professionals who specialize in these areas. They are equipped to manage complex scenarios such as multiple pay rates and varying deduction structures.
If you’re looking to expand into new markets or geographical regions, both within the U.S. and abroad, then this expertise is essential. You can rest assured that all region-specific pay and tax obligations will be met without having to expend resources on an internal team.
Integration with HR & Benefits Systems
Modern payroll providers’ software will seamlessly integrate with any other HR technology you already rely on. This allows for streamlined workflows, automatic data syncing, and fewer administrative bottlenecks. Integrating payroll with benefits ensures accurate deductions and faster onboarding for new hires.
You will also gain enhanced reporting capabilities, allowing for deeper insights into compensation trends, workforce costs, and better budget control and forecasting. These systems also help to avoid duplication of effort, improve data accuracy, and allow you to make data-informed decisions related to performance, compensation, and retention strategies.
Scalability & Flexibility
Payroll providers will typically offer customizable and flexible options that can easily grow (or shrink) with your ambitions. Whether you’re onboarding dozens of new staff members during a period of rapid growth or managing layoffs during a scale back, they can quickly adapt to your changing needs. This flexibility makes outsourcing ideal if you’re a start-up, looking to expand, or are a seasonal business.
Improve Employee Morale
If you don’t pay your staff properly and on time, then don’t expect them to stick around for very long. Payroll errors or delays can tank morale and increase turnover, and when it costs anywhere from 40%-200% of an employee’s annual wage to replace them, you cannot afford to make this mistake.
Outsourced payroll keeps everything consistent and on time, and many even offer employee self-service portals where staff can view pay stubs, log hours, and manage withholdings. This can take the strain off of your HR team as your staff will have all of the answers to their pay-related questions at their fingertips.
Payroll Costs and Pricing Models
When selecting a provider, you will have a decision to make when it comes to how you will pay for these services. Two of the most common approaches are Per-Process pricing and Per-Employee-Per-Month (PEPM) pricing. Each has its own pros and cons, and the right choice depends on your business size, payroll frequency, and financial goals.
What Is Per-Process Payroll Billing?
Per-process pricing is a transaction-based system where you pay each time payroll is run. Typically, this involves a base fee per payroll run plus a per-check or per-direct-deposit charge. This means you will be billed the base fee, then an additional fee for each employee or deposit made.
If you run a smaller operation with fewer employees, then this could be the perfect choice as you won’t be stung with those extra check/deposit fees. If you have a large staff, then it’s best to avoid this model as these fees will quickly add up, no matter how small they may seem in isolation.
Fees to Be Aware Of
Base processing fee: A flat rate you pay every time payroll is run.
Per-check fee: A flat rate fee you pay for every check written/deposit paid.
Additional transaction fees: Variable costs for tax filings, year-end reports, and special payroll runs like W-2s and off-cycle payrolls.
What Is Per-Employee-Per-Month (PEPM) Billing?
The Per-Employee-Per-Month (PEPM) model is a subscription service where you pay a flat monthly fee based on the number of active employees you have. Unlike per-process payroll, you will not be charged per-billing run, making it a more cost-effective model if you pay your staff on a more frequent basis, i.e, weekly.
This model also offers a clearly defined expectation of what you have to pay, helping with better budget control and cost forecasting.
Fees to Be Aware Of
Base platform fee: A flat fee you pay each month for the service
Per-employee fee: A flat fee you pay per employee
Optional add-on services: Additional costs for enhanced features
How to Choose the Right Payroll Provider
Experience & Qualifications
When choosing a provider, one of the first things you should check is their track record.
How long have they been in business? Do they have any case studies? Any provider worth their salt will be eager to show you their experience and qualifications to back up their claims.
If you have your sights set on multi-state or even international expansion, make sure your provider is equipped to help. If you’re looking at opening a branch in a new region, look for a provider with experience there. This way, you can easily navigate the complexities of payroll in new territories.
Cost and Pricing
How are you going to pay for these services? Is it Per-Process or Per-Employee-Per-Month? Make sure you know exactly which model you are choosing and what it is going to cost.
Before signing anything, clarify all of the different fees. These should be clearly outlined, and if anything seems vague, never be afraid to ask for an explanation. This way, you won’t be met with a nasty surprise when it’s time to pay your bill.
This should also go without saying, but make sure you can afford the services. It’s not worth stretching your budget and drawing resources away from other departments just to get your first choice provider, no matter how perfect they seem.
Scalability and Flexibility
Your payroll provider should be able to meet your needs now and in five years. Whether you’re looking to rapidly add new team members, expand into new territories, or scale back during a forecasted downturn, your provider should have the flexibility to accommodate it all.
Security and Compliance
When it comes to payroll, you have a lot of sensitive employee information to keep secure. One wrong move and you will have unhappy staff, legal problems, and reputation damage to deal with. Factor in that nearly 50% of small businesses have dealt with a cyber attack, and security should always be a priority.
Find yourself a provider that offers robust security features like encryption and multi-factor authentication. Also, confirm how they keep up-to-date on tax laws and employment regulations, and what compliance credentials they have.
Customer Support
Having access to reliable and responsive customer support is a non-negotiable. Live chat and emails are fine, but issues can arise at any time, so make sure your provider is easily accessible by phone. Look for ones that are available 24/7 so that no matter the time of day, you can get the support you need, especially if you operate across multiple time zones.
If they offer a dedicated account manager, then you could be on to a winner. This level of personalized support is unmatched as they get to know your business inside out, any hurdles you’re facing, and your ambitions for future growth.
Reviews
It’s all well and good listening to a smooth-talking salesperson tell you everything they can do for you, but how do you know if it’s legit? Check out sites like Trustpilot and their Google reviews. Here you’ll find what customers, both past and present, are saying about them.
Don’t worry too much if there are one or two bad reviews. These are to be expected. But if you notice any patterns emerging, both good and bad, then this is something you should take very seriously, as it’s probably a true reflection of their service.
How Can I Get Payroll Services For My Business?
Running a business is hard, but finding the best outsourced payroll provider for your business doesn’t have to be. At Commercial Experts, we’ve made it our mission to help U.S. businesses like yours with their payroll needs, and we’d love for you to be our next success story.
All you have to do is tap the button on this page and answer a few questions about your business. Then, based on your responses, you will receive a range of payroll services quotes tailored to your specific needs.
All quotes are 100% free and non-committal, so what are you waiting for? Tap the button below and get comparing now!
FAQs
How does outsourced payroll work?
Outsourced payroll involves hiring a third-party provider to handle tasks like wage calculation, tax deductions, compliance, and employee payments. You retain control over pay decisions while experts manage the technical processes, saving time, reducing errors, and ensuring legal accuracy.
What are the benefits of outsourcing Payroll?
Benefits of outsouring your payroll include cost savings, improved accuracy, time efficiency, stronger data security, legal compliance, and access to payroll experts. Outsourcing frees up internal resources and reduces the risk of penalties or errors while ensuring employees are paid correctly and on time.
What’s the difference between per-process and PEPM pricing?
Per-process pricing charges per payroll run and per transaction, making it ideal for smaller or seasonal teams. PEPM charges a flat monthly fee per active employee, which is better for larger businesses or those with frequent payroll runs due to predictable budgeting.
What should I look for in a payroll provider?
Look for experience, transparent pricing, strong security, compliance expertise, scalability, and responsive customer support. Check reviews and confirm they can handle your business’s current and future needs, especially if you plan to grow or expand into new regions.
How can I get payroll services for my business?
Just tap the button on this page and answer a few questions about your business. Based on these answers, you’ll receive free, no-obligation payroll service quotes tailored to your needs. It’s fast, easy, and designed to help you find the best fit for your business.
