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An HR Glossary for HR Terms

Glossary of Human Resources Management and Employee Benefit Terms

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Payroll Service

What Is the Definition of a Payroll Service?

A payroll service is an organization that offers payroll processing to other businesses. Rather than having to deal with calculating employee pay, paid time off, benefits, taxes, and withholdings themselves, it can be simpler for an organization to outsource these responsibilities by using a payroll service instead.

Most payroll services provide their clients with payroll software. One advantage that payroll software offers is through integrations, which make it easier to sync all employee data from an existing human resource information system (HRIS). This way, you don’t have to have a back and forth with less-than-secure emails or worry about updating employee information across multiple systems.

What Can a Payroll Service Do?

Depending on the payroll service that you choose, you may be able to rely on them for a variety of payroll processing and HR services, including:

  • Running payroll, including for different types of compensation

  • Syncing employee data with your HRIS

  • Calculating, filing, and paying local, state, and federal taxes

  • Issuing and filing tax forms, like W-2s

  • Reporting new hires to the government

  • Tracking and calculating time off, breaks, vacations, etc.

  • Providing digital paystubs

  • Providing a mobile app version of the software

  • Providing self-serve access to employees

  • Onboarding employees

  • And more

What Is the Cost of a Payroll Service?

This will vary across providers and will depend on the size of your organization. Many payroll services have tiered pricing based on the number of employees on your payroll. Other costs may include:

  • An initial implementation fee

  • A monthly base fee

  • A monthly fee for each employee on your payroll, also called a per employee per month (PEPM) fee, usually combined with a monthly base fee

  • A base fee for each payroll run

  • A fee per employee for each payroll run, usually combined with a base payroll run fee

  • Ancillary fees for a variety of services, like providing W-2s or end-of-year fees

Not all of these costs will apply all at once for every payroll service. Payroll services offer varying pricing structures. For example:

  • Some payroll services will only charge a fee per employee per payroll run. 

  • Others will charge a monthly base fee for the whole service and a PEPM fee but offer unlimited payroll runs. 

  • Some won’t charge a monthly base fee, instead opting for per payroll run fees, with a base fee and a per employee fee. 

As you consider which payroll service to purchase, think about how often you pay your employees since this will determine how often you’ll need to run payroll. 

What Other Factors Should an Organization Consider When Choosing a Payroll Service?

While cost is certainly an important factor, there are other aspects of the experience that you should consider when choosing a payroll service. Here are some other factors that may affect your choice: 

  • Customer service options and availability: Running payroll can be a delicate and time-sensitive operation, so how you’re able to communicate with the payroll service is a key consideration. Will you need a dedicated representative? Do you need to be able to call someone and speak to them? Do you need the option to contact your provider by chat and email? 

  • Software interface and employee portal: Since you’ll be spending time in this system, how easy is it for you to use? Do you need complex features or would you rather have a simpler interface? Do you also want a system that allows your employees to sign on and make changes themselves? 

  • Mobile app: Do you need to access and make changes to your payroll on the go?

  • Integration capabilities: We’ve mentioned this already, but if you’d rather not have to deal with multiple systems, does the payroll service integrate with an HRIS?

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