What does a small business need before it runs its first payroll?

Summary

Before you pick a product, collect a few forms from each new hire, report the hire to your state, and decide whether you want the provider to deposit and file your payroll taxes. When you compare prices, work out the monthly total at your actual headcount. With three or four employees, the base fee is most of the bill, so the per-employee rate tells you very little.

Paperwork that comes before any software

The IRS asks employers to get a signed Form W-4 from every new employee when they start work and to apply it from the first paycheck. If an employee never hands one in, you withhold as if they were single. You also need each employee's name and Social Security number exactly as they will appear on the W-2, and the IRS says not to accept an ITIN in place of an SSN.

Form I-9 applies to everyone you hire, citizen or not. Both the employee and the employer complete it, and USCIS gives the employer three business days from the first day of paid work to finish Section 2. Someone who starts on a Monday needs a completed Section 2 by Thursday.

Finally, new and rehired employees have to be reported to your state's directory of new hires within 20 days of hire, and some states set a shorter deadline. This is one task a full-service plan may take off your hands. Square Payroll lists new-hire reporting as part of its full-service plan.

Why the base fee dominates a small payroll bill

Take three employees. Gusto Simple, at $49 a month plus $6 per person, comes to $67, and $49 of that is the base fee. Roll by ADP charges $39 plus $5 per employee, so the same three people cost $54, with $39 of it fixed. A dollar's difference in the per-person rate moves the bill by $3; the gap between base fees moves it by $10.

Months with no payroll are billed differently from one provider to the next. Patriot Software charges only the base price in a month when you do not run payroll, and Gusto bills its contractor fee only for months in which you actually paid a contractor.

Price the business you will have in a year

If three employees are likely to become ten, run the numbers at ten as well. It tells you whether today's plan still fits or whether you will be switching in the middle of a tax year, which means carrying year-to-date wages and taxes over to a new provider.

Sources

• https://www.irs.gov/businesses/small-businesses-self-employed/hiring-employees
• https://www.uscis.gov/i-9-central/complete-correct-form-i-9/completing-section-2-employer-review-and-attestation
• https://www.acf.hhs.gov/css/employers/employer-responsibilities/new-hire-reporting
• https://gusto.com/pricing
• https://www.rollbyadp.com/pricing
• https://www.patriotsoftware.com/pricing/
• https://squareup.com/us/en/payroll/pricing

Related on this site

• What does payroll software do, and where does a payroll service take over?
• Base fee or per-employee fee: which one decides your bill
• Payroll software cost calculator
• The cost of switching payroll providers mid-year
• What should you compare before picking a payroll provider?