Payroll Services vs. Payroll Software: Which is Right for You?

Payroll Services vs. Payroll Software: Which is Right for You?

Paying your staff is critical, and finding the right way to pay them is complicated. The appropriate management of your payroll presents a crucial choice for businesses: How do you pay your team efficiently, accurately, and affordably? Generally speaking, there are two options: Outsourcing to payroll services (including professional companies like ADP or Paychex) or utilizing payroll software (such as Quickbooks or OnPay) and managing the process internally. Selecting the correct of these two options depends on numerous factors. 

Many businesses have faced the same questions as you. As such, you’ll need to consider numerous factors when deciding what payroll service to use. 

Support and expertise

The first question you need to ask is relatively simple: Can you do it? Do you have the staff on hand that can manage payroll services? Is the right software and expertise at your fingertips? Remember that this isn’t simply a matter of writing out checks and ensuring they get to employees. Internally managing payroll means selecting the right software (at the right price), appropriately withholding taxes, ensuring the accuracy of your numbers, and more. Failure to adhere to appropriate financial and legal standards may mean that your staff gets paid slower, and this can lead to significant fines and penalties.

Your staff may not be capable of managing payroll. In that case, you may want to turn to a payroll service. These services offer extensive support, expertise, and guidance. Depending on the business you select, a payroll service can walk you through the entire payroll process, ensuring that your business manages payroll to satisfy employees and financial authorities. 

Control and customization

Different businesses and industries require different levels of control and customization. Companies often offer a variety of benefits and tax plans — such as HSAs, 401Ks, and more — that require regular contributions and deductions. Your business may need to manage a variety of these programs. The size of your business may make this entire process much more challenging.

In such instances, using payroll software may be for your benefit. You may be able to quickly set up such a program that allows you more significant control and customization. Alternatively, you may find that handling all of these programs is too complex to take internally. In that instance, you may benefit from the use of a payroll service. 

Tax filing and compliance

Managing tax paperwork and ensuring compliance with any necessary financial or legal regulations is a necessary evil in today’s economy. Failure to appropriately maintain records and ensure compliance with applicable regulations can land you in serious hot water. To that end, any payroll platform you use has to appropriately maintain records and ensure compliance with local, state, and federal laws.

Payroll services are often national or international conglomerates. They are used to handling larger financial accounts and likely have access to the necessary information and talent to ensure your payroll stays legal and withholds all the required taxes. To clarify, you can still manage tax filing and regulatory compliance using payroll software. However, using payroll software for tax purposes requires more manual input. Such input leaves more room for error and leaves open the possibility that you will potentially make a costly mistake.


Small to mid-sized businesses often lack the manpower to manage their payroll appropriately. It is often inefficient to hire a staffer who works this function, unless they also handle other aspects of accounting. Hiring the right person – particularly in today’s challenging talent climate – can be difficult. It can also be expensive. In these instances, it can be more cost-effective for a business to hire a payroll service and completely outsource the process. 

However, this is not always the case. If you can find the right person and have the right skills and experience, it may be worth it to use payroll software and have someone also manage other accounting programs. Furthermore, many larger businesses manage the process internally, noting that doing so can save them money by allowing them to take advantage of local economies of scale. 


The decision about using payroll services vs. payroll software is not easy. Fundamentally, the answer to the above questions can guide you. You’ll need to consider deeply individualized factors when making this decision, including your business size, complexity, and overall budget. These factors should give you the information you need when deciding whether a payroll service or software is right for your business.