What is a Payroll Service Provider?

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Payroll is one of the most tedious yet essential processes of any business with employees. If executed incorrectly, payroll can put the business in serious financial distress and also potentially put the employers at risk for legal issues. That’s why many businesses prefer to outsource the service to a payroll service provider.

What is a Payroll Provider?

A payroll service provider is a company that automates your payroll calculations and handles the paperwork. Besides ensuring you make payroll correctly, the company also complies with labour and tax laws. Depending on your chosen company, the company can offer various payment options for your employees, varying from paper checks to direct deposits.

Payroll service providers come in different sizes and configurations to suit the needs of various business sizes. When choosing the provider, you should consider various factors and features, as well as the types of services the company offers.

What Do Payroll Service Providers Do?

The exact services that a payroll services provider offers depend on the provider you choose. Most operate online using the cloud and don’t require you to install or maintain any software. However, such a service is available for businesses looking to integrate the software with their current accounting software.

Once you hire the payroll service provider and you’ve been successfully on-boarded, there are various services you can access and receive from the provider, including;

Payroll processing

 A payroll services provider can automatically calculate how much employees should be paid each pay period. The service can account for wage rates, shift differentials, overtime, holiday pay, taxes and benefit deductions. The service then pays the employees through the several available remittance channels.

Filing and paying payroll taxes

A payroll service provider can also help withhold employee taxes, file your quarterly payroll tax reports and pay your employees’ tax withholdings with the relevant tax collection authority. The service can also issue any relevant tax certificates, documents or forms at the end of the year. Some services go as far as offering an error-free guarantee.

If there’s an error, the company will correct the error and pay any fines and interests that you might incur.

New hire reporting

Many payroll services will also report new hires to the government on your behalf, allowing you to focus on running the business and maximising profit-making.


Some payroll reporting services offer unique features and services that are integrated with various payroll-related programs that businesses already use, such as accounting, time and attendance systems, and human resource software. These systems make it easier for businesses to keep an eye on their financials and payroll processes from one centralised location and give them full access to the information they need to make crucial business decisions.

Payroll reports

Finally, the payroll service also provides a detailed wage and labour report from your service that can give you a deeper look into how your business operates.

Evidently, a payroll services provider will be a huge part of your business and can make substantial contributions to the financial growth of the business. This makes choosing the right one a make-or-break decision that every business should carefully consider.

What to Look for in the Right Payroll Service

 Not all payroll service providers are built equal or offer the same level of service. For a business, that means not every service will fit your needs. You have to take time to find the right service with the right amount of experience and features to offer the features that will deliver the best experience for your business and working relationship.


In addition to payroll processing and tax handling, you should check whether the payroll service provider you want to work with offers other features like multiple payment options, multiple wage rates, garnishment of payments, PTO management and detailed payroll reports, among others. You might not need some of these services at the onset, but at the point where you need them, if the provider you work with doesn’t offer them, you might find yourself in the difficult position of finding a new provider or taking up the responsibilities yourself.

Ease of use

The payroll service shouldn’t be too complicated to understand. The user interface should make it easy for you to run payroll, add employees to the system quickly, and run other payroll functions smoothly without any hindrances.


Because this is a service, it will be an additional cost to the business. You want to find a service you can afford and offer value for money for the services you’re looking for. Besides the cost, you need to determine if a contract is required. Most payroll service providers operate on a month-to-month basis with no long-term requirements, allowing businesses to drop the service at any point without any serious financial obligations.

Others require yearly commitments, which can be a huge factor if you’re unhappy with the services provided. You should also determine whether you’ll pay the month or by period, depending on how often you run payroll. The pricing structure you choose or provided by the service provider could have substantial implications for the business and its cash flow, which is why cost and payment terms are a big part of finding the right payroll services provider.


 Does the service provider you’re looking at have a strong track record with good online reviews? You will feel more secure with a company that has experience dealing with the same payroll issues you are facing and has found effective solutions. Online reviews should give you insight into the experience and efficiency of the company.


You might want to consider working with a company that offers integrations, whether built-in or open API, that sync with the programs you already use. Many businesses overlook this feature because they don’t need it at the time, but as the business grows, using such software is unavoidable, and having a provider that offers integrations makes it easy for the business to keep track of most of its functions from one location.


Look for a payroll service that provides help when you need it. The right provider should have a dedicated and responsive support representative as your main contact point. If you have any problems or questions, the support agent should be available to help you quickly.


Most payroll services are cloud-based, meaning the business is putting itself at the mercy of the payroll provider to keep its system up and running. You should ask the provider whether their system suffers any outages and how often it is down for maintenance. You can also peruse through the customer reviews to see if there are any reliability and outage complaints from current and previous customers.

Employee self-service

It’s an added advantage if your payroll service allows employees to log in to their own accounts to view their digital pay stubs and year-end tax forms. It creates transparency and builds trust.

Questions To Ask When Choosing a Payroll Service Provider

Knowing the right questions to ask to get accurate information can go a long way in helping you find the right payroll services provider. Some of the questions you should ask during the search include;

How often are tax tables updated for compliance?

This question highlights the efficiency of the payroll service provider and lets you know how often they update their tax tables because they change as new laws are passed. Ideally, the provider should update them every time a new tax law goes into effect.

Do you have other clients in the same industry?

As the potential payroll service provider, if they have clients in the same industry as you. If it does, the company might get an edge because that means they have experience handling businesses like yours and understand how to navigate your industry’s tax and employment laws.

However, a lack of industry-specific knowledge should not outrightly disqualify the services you are considering.

Can it integrate with your employee benefits offerings?

Find out if the service can be integrated with your employee’s benefits, such as paid time off. This will simplify accounting and payroll because everything is integrated into the software and workflow.

How will the service handle your business as it grows?

If your company scales up and adds more employees, does the provider have the capacity to handle the growth? You can share your expectations and projections with the provider to see how they will adjust and adapt to the growth in your business.

Do you have any security measures to keep my payroll data secure?

Outsourcing your payroll means exporting a lot of employee data to the service provider. The provider must have adequate security features and protocols in place to avoid data breaches and leaks that could compromise the integrity of such information. The company should have top-tier security to protect your data from potential breaches.

Final Thoughts

Working with a payroll service provider improves the business’s efficiency. It reduces risk by ensuring payroll is handled effectively by someone who understands the labour and tax laws that go with it. It allows top-tier management in the business to focus on business growth while a specialised provider takes care of ensuring employees get their dues and the company is in good books with the revenue collection agencies.

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