Simplifying Payroll: How to Choose the Right Payroll Service Provider

As a business owner, you know the importance of getting your payroll done on time and without errors. Failure to do so can cause problems with everything from employee loyalty and retention to tax audits, so it’s essential to have the right tools and partners at hand to avoid mistakes.

Here at Addition Financial, we talk to our valued business members every day about payroll and other financial matters. One topic that we are often asked about is whether it’s worthwhile to contract with a payroll service provider to outsource payroll and related concerns, including payroll tax withholding, employee benefits and tracking employees’ time off. 

We believe that payroll companies for small businesses offer an array of benefits that can alleviate stress and minimize the risk of costly payroll errors. Here’s our guide to help you choose the right payroll service provider.

How can a business determine if they need to outsource their payroll to a service provider?

The first question to ask is whether outsourcing payroll is right for your company. Outsourcing may not be necessary if you’re just getting started, but the job of tracking and processing payroll can quickly become burdensome as your company grows. Here are some of the signs that you may want to consider partnering with an experienced payroll provider:

  • Your payroll process is consuming too much of your time. If you’re stealing time from things like managing your employees and growing your small business to figure out your payroll, it may be time to consider outsourcing.
  • Doing your payroll is costing you money. Business owners’ time is valuable, and in most cases you’ll pay more processing payroll in-house than you would to entrust it to a respected provider, particularly if you’re printing and signing checks and setting up direct deposit.
  • You’re worried about making mistakes. The calculations for things like employee PTO and taxes can be complex. Partnering with a provider can minimize the risk of mistakes and help to keep your payroll process accurate.
  • You want to be sure your payroll is secure. The last thing you want is for a hacker to access your payroll records–and your security might not be strong enough to prevent a breach. With a payroll service, your records will be encrypted and properly stored.
  • You need to comply with government regulations. We’ve already mentioned how costly payroll mistakes can be, but you should also be concerned about compliance with local, state and federal laws. Using a provider will help you avoid tax compliance errors that can lead to fines and penalties.
  • You need accurate payroll reports. If you don’t have the right payroll software and expertise, it may be difficult to get the reports you need to track your payroll expenses. Outsourcing will give you access to standard and ad hoc reports to use for tax filing and other purposes.
  • You want employees to be able to access their payroll information. It can be risky to give employees access to in-house payroll information. Most payroll service providers have employee dashboards, so your workers will be able to see their hours, PTO and pay stubs on the provider’s website.

If you’ve been handling the payroll needs for your company and any of these concerns have been on your mind, then you should consider partnering with a payroll service provider to save time and money and alleviate your stress.

What should i look for in a payroll service provider?

Deciding to hire a payroll service provider is one thing. It’s another to find a payroll provider with the services and expertise you need, and that’s something that can vary depending upon your company and its structure, as well as your industry. Here are some of the most important things to look for when you’re seeking a payroll solution.

Reputation and experience

The payroll provider you choose should be a well-established company with a stellar reputation and plenty of experience. This isn’t an area where you want to choose an unproven company.

Ease of use

It’s important for you to have an easy time entering payroll information, as well as for your employees to be able to view their information. Ask for a demo of the dashboard to make sure that it’s easy to access and use.


Cost is an important consideration before contracting with a payroll provider. We suggest calculating how much you’ve been spending to do your payroll in-house, so you have something to compare the provider’s costs to.

Customer support

With any service provider, it’s a must to check out their customer support and make sure they’ll be there to answer your questions and troubleshoot issues quickly to prevent delays in payroll processing.

Benefits administration

A payroll provider can take on many human resources tasks, including the administration of employee benefits. Services should include payroll deductions for health insurance and other benefits, tracking of vacation and sick time and other HR services you need.


Your business already uses software to track things like employees’ time and taxes. Since that’s the case, you should look for a payroll company that integrates with the accounting software and other tools you’re already using, so you don’t need to invest in anything new to take advantage of their services.


We’ll get into more detail about payroll features in the next section, but we suggest making a list of payroll-related services and choosing a provider that offers them at a price you can afford. Examples may include HR services and workers comp administration.


Never engage with a payroll service provider without asking about what they do to keep their clients’ information secure. Since most payroll services are cloud-based, you need to be confident that your information (and your employees’ information) will be safe from hackers.


With cloud-based services, any outage may cause a delay in your payroll. For that reason, we recommend asking how many outages the provider has experienced. On a related note, ask how often they take their system down for maintenance.

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What are different services offered by payroll service providers?

Partnering with a payroll service provider can help you obtain more than just payroll processing. Some offer a full menu of services that can help you outsource HR, including the following:

  • Multiple payment options for employees, which may include paper checks, direct deposit to their bank accounts, or even prepaid debit cards. 
  • Workers compensation administration.
  • Unemployment insurance administration.
  • Payroll deductions for employee benefits, including health insurance, HSA and FSA contributions, wage garnishments and 401(k) contributions.
  • Calculation, filing, deposit and reconciliation of local, state and federal taxes.

When you compare rates from several payroll service providers, make sure that you’re taking other services into consideration.

How can a business ensure a smooth transition when switching to a new payroll service provider?

Switching from in-house payroll to a provider (or from one provider to another) requires careful preparation and planning to avoid mistakes and delays. Here are the steps to follow:

  1. Review the terms of your existing contract. Many payroll providers operate on a month-to-month basis, but if you’re locked into a contract you’ll need to make sure you factor that into your decision.
  2. Choose the right time for the switch. Barring an emergency, it’s best to switch either at the start of a new year or the start of a new quarter. This timing minimizes your need to pull historical data and can help prevent errors.
  3. Choose a new payroll provider. You can use the criteria we’ve included here to choose the right payroll provider with the right services to meet your needs.
  4. Find out how long it will take to start running payroll with your new provider. You’ll have some information to gather–more on that below–and it will take some time for your new provider to get everything set up. Make sure you leave plenty of time, so you don’t end up being late with your next payroll run.
  5. Notify your old provider that you’re leaving. After you have chosen a new payroll partner, you’ll need to notify your old provider that you’re terminating their services. 
  6. Gather information to give to your new provider. You’ll need to provide employee information, including names, addresses, Social Security Numbers, and tax withholding information, benefits and other data. You’ll also need quarterly payroll reports and related information from your current provider.
  7. Verify your responsibilities with your new provider. Make sure you understand how far in advance you need to set up your payroll and which fees you’ll pay.
  8. Notify your employees of the change. Once you have your new payroll provider set up and ready to go, make sure to let your employees know about the switch. They’ll need to set up accounts to access their payroll information, so give them plenty of notice.

Getting set up with a new payroll provider doesn’t need to be complicated, but you will need to pay attention to the details and do everything you can to make sure that your employees are paid accurately and on time.

Simplify your payroll with addition financial

Outsourcing your payroll is something that can save you time and money while reducing your stress. It’s important to choose an experienced provider with a good reputation and the services you need, including integrations with your existing software.

Are you looking for a way to simplify your payroll? Addition Financial can help! Click here to read about referral service with Paychex and get the services you need to streamline your payroll and spend more time pursuing your most important business goals.

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.