Differences Between Payroll Services and Payroll Software

The Difference Between a Payroll Service and Payroll Software

payroll service vs. payroll softwareThis updated article was originally published on May 30, 2013.

While small business owners have many options when considering how to pay employees, the complexity of payroll these days really makes old-fashioned ledgers and tax tables a poor solution. Even a small business needs a “payroll system” in order to satisfy all the regulatory requirements.

You can outsource payroll to an accountant or payroll company (which can be expensive), or choose to handle the task on your own. What about payroll tax filings? Here too, an employer can entrust their payroll providers to handle the payroll tax filing tasks, or you can choose to handle these tasks yourself.

So how do you choose? What is a payroll system going to include that is the most efficient, and cost-effective? Chances are, you are going to end up selecting either online payroll software or a full-service online payroll option.

Payroll software

Employers can choose to use payroll software. You enter the time details on your own, and the software calculates the paychecks. You can then print the checks or send them via direct deposit.


    • Payroll software can be an affordable option.
    • With payroll software, you are in control and can process payroll on the fly.
    • Payroll software may have online access. This can be particularly helpful for small business owners who may want the convenience of online access from any location.
    • Online payroll software can be automatically updated which means you don’t have to worry about installing updates to keep your software current.


    • Some payroll software is designed for experienced accounting professionals.
      • Solution! Choose software that is designed to be easy-to-use for small business owners.
    • Fees might be imposed for cancellation or support.
      • Solution! Before signing up, be sure to read the fine print and find out if there are a long-term contract and/or cancellation fees.
    • You are responsible for payroll taxes. You need to compute payroll taxes and make sure that all forms and payments are completed accurately.
      • Solution! Be sure your payroll software offers free reports that clearly show the number of your payroll tax liabilities (… but filing on time is ultimately your responsibility).
    • Forgotten payroll tax payments (or paperwork mistakes) could happen and can be costly.
      • Solution! Consider using full-service payroll software.

Some small business owners find that they do not have the time nor the expertise to handle payroll taxes. In that case, you may choose a full-service payroll option. The right provider can save a small business owner more than 100 hours of time each year!

Full-service payroll

In the past, a payroll service might print and deliver paychecks to your business. But now, many small business owners save time and money by using full-service payroll and direct deposit. Full-service payroll options now have the convenience of running payroll online and offer a hands-off solution for filing federal, state, and local payroll taxes.


    • Full-service payroll can be the least costly option for a small business when considering the time saved for filing payroll taxes.
    • Federal, state and local taxes are filed on behalf of your small business with the full-service payroll option.
    • Full-service online payroll systems can provide automatic updates and the convenience of processing payroll from any location 24/7.


    • The cost of full-service payroll will be more expensive than the basic payroll software option.
    • Ultimately you are responsible for your payroll tax filings.
      • Solution! Be sure you are dealing with a reputable company with a good rating from the Better Business Bureau. Payroll providers should be able to provide you with reports of timely tax filings.
    • Some full-service payroll options may have setup costs and charge significant support fees.
      • Solution! Make sure when you sign up with a payroll provider that you are aware of any additional fees upfront.

Your takeaway

  • Payroll software vs. full-service payroll. You will want to carefully weigh the pros and cons of each option. For example, although the payroll software may cost less, will the “cost” of time to compute and the penalties for possibly late payroll tax payments make full-service payroll a better option for your business?
  • Hidden fees. Before committing to a payroll method, you will want to carefully consider the fees for cancellation, customer support, setup, etc.
  • Consider levels of service. Is the software easy to use? What customer support is available? For full-service payroll, how do you record employee hours and review the amounts paid? If you’re searching for online payroll software for payroll service providers, does the program have affordable rates?
  • Updates are critical. You need to be assured that payroll tax tables are timely and up-to-date. Many online payroll software options have automatic updates. Updates on software that has been downloaded will be your responsibility.
  • Evaluate the payroll providers. Check all payroll providers for complaints with the Better Business Bureau, no matter what decision you make.

Do you think an easy-to-use payroll software is right for your small business? Try us for free today!

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