Table of contents
  1. What Is the Difference Between a Payroll Service and Payroll Software?
  2. What Do Payroll Services Do?
  3. The Benefits of a Payroll Service
  4. How to Pick a Payroll Service
  5. Conclusion 

A payroll service is a third-party organization that will process your business’s payroll on your behalf. These businesses do all the necessary work to streamline your payroll processes and ensure all employees are paid on time. 

The main focus of a payroll service is to ensure employees are paid accurately and on time. However, many payroll services also offer human resources support. On top of processing all payroll taxes, they may complete tasks such as tracking employee attendance and ensuring compliance with state and federal laws.

What Is the Difference Between a Payroll Service and Payroll Software?

A payroll service will process your employees’ payroll on your behalf, including tasks usually completed by a Human Resources Management (HRM) system, such as monitoring absence levels. This will take a lot of administrative work away from your managers and HR department and streamline workflow. 

Payroll software, in contrast, is a type of program that helps you track and calculate payroll. However, the administrative work of inputting data will need to be completed manually by an employee. This software will not calculate payroll taxes or monitor your employees’ attendance. 

Using payroll software is usually cheaper than outsourcing your payroll completely to a third party. However, it will require some experience for managers to use the software effectively, and you’ll also be paying for their hours spent managing payroll. 

What Do Payroll Services Do?

Most payroll services will process your payroll through an online portal. When you sign up for a payroll service, the company will usually give a tutorial to help you understand how their process works.

With a payroll service, your employees will either need to physically clock in and out for their shifts with a time clock or use a digital time clock through an app like Connecteam. At the end of the pay period, your managers will need to confirm that employees have worked all the hours they have clocked in. From there, the payroll service will automatically perform many important tasks needed to get your employees paid, including the following.

  • Monitoring absence and attendance. Payroll services usually offer built-in employee time clocks. This will allow you to track employee attendance, hours, and monitor employee absence. You can easily see if employees have hit an absence trigger or if they have utilized their PTO allowances. Some payroll services will even allow your employees to request PTO through their software. 
  • Ensuring employees’ tax deductions are correct. Your payroll service will automatically calculate your employees’ state and federal taxes and any insurances or other deductions they may owe. These services will usually also assist in preparing employee tax forms such as 1099s. 
  • Paying employees on time. A payroll service will ensure employees are always paid correctly and on the designated pay date. Employees are usually paid via direct deposit; however, other payment options are available. This can reduce any questions about payroll coming through to your managers or HR department.
  • Keeping electronic payroll records. Depending on how your employees are paid, you may need to keep electronic payroll records to evidence how many hours employees have worked and what they were paid for that work. For example, under FLSA regulations, non-exempt employees who work over 40 hours per week must be paid at 1.5 times their usual salary for this work. Many payroll services will maintain your electronic payroll records. 
  • Preparing and mailing employee tax forms. Many payroll services will help you prepare and mail your employee tax forms. This is a major administrative task and will save your HR department and managers a lot of time. 
  • Collecting wage and time information. Payroll services can collect your employees’ wage and working time information for record-keeping, reports, and analysis. For example, you could use information such as employee salary and gender to assess your gender pay gap. 

The Benefits of a Payroll Service

Payroll services reduce a lot of the administrative work your managers and HR department need to complete. A payroll service will pull all your payroll-related activities into one easy-to-use software. This will save your managers and HR department time, as they can access all employee payroll information through one easy-to-use service. 

Ultimately, a payroll service can help prevent miscalculations with taxes or other deductions. These errors could be expensive in the long run, especially if the errors occur with state or federal taxes. So while a payroll service may be costly upfront, it will likely benefit your business in the long run.

How to Pick a Payroll Service

Deciding on the right payroll service for your organization can be challenging. With so many options on the market, you need to ensure that your payroll service is the right fit for your business needs. 

Step 1: Consider your current service or software provider.

The first step in picking a new payroll service provider is to consider your current payroll service provider, process, or software. 

Consider what features you currently don’t have but would like to see. These missing services should be your top priority when looking for new software. Or, if there are features you currently don’t use, finding a plan or provider that doesn’t include these could save you money.

Step 2: Set a budget.

Some services will be more expensive than others, so it’s important to find out how much payroll services cost and balance this with the needs of your business. Setting a budget first will give you a benchmark for what you can afford.

There are many aspects to consider when setting your budget. For example, there may be general costs associated with the service, such as a monthly usage fee, a support fee, or a per-user fee. Most payroll services range from $5 per employee per month to $20 per employee per month. 

You may also need to consider the cost of changing payroll service providers. Many services will charge you a fee for canceling your contract. 

Step 3: Consider your employees.

The number of people you employ will also impact the cost of your payroll service. Most payroll services charge per employee per month, so more employees will result in a bigger monthly bill. 

If you have a small business, Connecteam offers free software for businesses with less than ten employees that could save you a lot of money. This software will allow you to export your full timesheets in a PDF format for easy payroll processing. You can also fully integrate Connecteam with your current payroll provider. 

Consider whether your employees are FLSA-exempt or non-exempt. If you have a high number of FLSA non-exempt employees on your payroll, then your payroll process is likely to be more complicated than a payroll process with a large number of exempt employees. Businesses with many FLSA non-exempt employees will likely find a payroll service more beneficial than those with more FLSA-exempt employees. 

Step 4: Consider your pay schedule.

As payroll services are used every pay period, more pay periods per year may drive up the cost of a payroll service. 

For example, if a payroll service offers 12 pay periods as standard, but your employees are paid bi-monthly, you will need 24 pay periods per year. Check with the provider to see if this adds any additional costs that you should factor into your budget. 

Step 5: Consider what features you need.

Research the features and plans available. Payroll services often offer many different features that can streamline your payroll processes. This might include time management tools or built-in chat functions. The more features you need, however, the higher the cost is likely to be. 

Note that some providers will charge you more if you require services that do not come as part of the standard package, for example, electronic payroll records or access to a support hotline.

Step 6: Compare your choices.

After you’ve gone through each of the above steps, you should only have a few new payroll service providers to consider. Weigh up the pros and cons of each option to decide what will be best for your business. Make sure to include managers and HR departments in this choice, as they will be the ones using the system.

Once you have made your decision, reach out to the sales department of your desired payroll service provider to discuss getting started. 


A payroll service provider is a third-party business or organization that will process your employees’ payroll on your behalf. They usually incorporate other aspects of human resource management, such as calculating taxable deductions and tracking employee absence levels.

A payroll service can be a major investment in your business. Consider time and energy saved for your HR department and managers to decide whether outsourcing your payroll could benefit your business.