Ask the Right Questions When Choosing Payroll Software or Services

Shopping for payroll can be complicated, though the key elements are simple enough to describe.

First, you must have your payroll requirements down cold. Don’t assume that what you need is so simple and straightforward that any payroll processor can handle it. Next you need to find a processing option that will accommodate your needs. Finally, determine the costs of processing payroll. This can be as easy as trying to nail jelly to the wall with some of the outsourced payroll service bureaus who seem to tack on extra charges at every opportunity.

You: “When will our pay checks arrive?”

Them: “They should be there by noon tomorrow. Thank you for your call. We will charge our 15-minute minimum to your account. Have a nice day.”

There always seems to be something extra on your payroll processing charges. Even if you buy software you'll probably need to update the tax tables every year, and that will be an "optional" extra.

Online services can offer even more perplexing options. Check if there are any extra per-period or per-employee processing costs. There may also be a fee for preparation of government-required tax forms and more detailed payroll reports.

The key here is to know exactly what you need and specify it in writing. Then get the service to guarantee in writing that they can provide those services, and have them quote you a fixed cost.

If you process payroll in-house, you’ll need to purchase paychecks and advice forms, also called pay vouchers. Some programs can prepare MICR-ready check forms, printed using special magnetic toner on your laser printer. Most businesses will opt for the simpler option of purchasing checks from a printer.

The least expensive check purchase option will most likely not be from the printer recommended by your bank or touted on one of those annoying little slips tucked into your software box. Software vendors and banks often receive lucrative referral fees (i.e., kickbacks) from recommended printers, who mark up their prices accordingly. Most commercial check printers will be able to manufacture compatible check forms once you advise them of the packaged software you are using.

You can get away from check printing costs by using a direct deposit service. But guess what? That costs money, too. It will often cost more to transmit a payment than the cost of a check form. However it may still be worthwhile, considering the reduction of your in-house labor cost to print and then distribute checks. Also, many employees appreciate the convenience of an automatic deposit into their bank accounts.

If you pay a number of employees and the cost of payroll processing is important to you, don’t hesitate to ask several competing payroll processing vendors to tell you what costs you should expect to incur for a year’s usage of their system, and tell them who else you're considering. It’s a competitive business. You may get one to sharpen its pencil and redo the quote.