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What Is a Payroll Service Provider?

Written by:

Natalie is a writer with experience in operations, HR, and training & development within the software, healthcare, and financial services sectors.

Reviewed by:

Daniel Eisner is a payroll specialist with over a decade of practical experience in senior accounting positions.

What Is a Payroll Service Provider?

What Is a Payroll Service Provider?

A payroll service provider, as defined by the IRS, is a third-party service hired to fulfill a business’ payroll and employment tax obligations. The main benefit is that delegating payroll responsibilities frees up business owners, and HR teams, to focus on more urgent work.

In addition to using the best payroll software, payroll service providers offer a wealth of services, including:

  • Preparing and distributing employee pay
  • Filling out relevant government forms and tax returns
  • Making federal payroll tax deposits and tax payments
  • Filling out and storing W2s
  • Providing tax advice and compliance assistance
  • Tracking metrics related to payroll and compensation
  • Tracking employee time and attendance

If you’re considering using a payroll service provider, this comprehensive guide will lay out all the key considerations to help you make your decision. 

Types of Payroll Providers

When it comes to selecting the right payroll service provider for your business, you have several strong options.

Online Payroll Software

One of the most popular payroll solutions today is online payroll software. There are several good options available, and new ones pop up seemingly every day so it can be difficult to know which is the best payroll software out there today. 

Whether you need simple services for your small business or a more robust platform for your mid-sized firm, online payroll solutions are often highly customizable and affordable. Many are also subscription-based, like Quickbooks payroll, which offers financial flexibility. 

Depending on the services plan you choose, you may still be responsible for handling some elements of taxes and compliance, so be sure to read the fine print.

Full-Service Payroll Provider

If you prefer to outsource payroll so you’re free to focus on your business, a full-service provider may be your best bet. A full-service payroll company will not only oversee your payroll processing, but also take care of taxes and compliance and make sure everything is up to date. 

Many full-service providers also provide their clients access to an online portal where they can monitor payroll functions and easily communicate with their point of contact.

Professional Employer Organization (PEO)

A professional employer organization, or PEO, is essentially a full-service payroll provider that’s capable of much more. A business looking to outsource all of its HR functions, for instance, might hire a PEO to handle it. This is also known as a co-employment arrangement. 

Many PEOs bundle payroll services into their broader suite of offerings.

Professional Accountant

Traditionally, businesses have relied on certified accountants, either in-house or on contract, to handle payroll. Accountants are good with numbers and having one oversee your payroll, in addition to spending, could result in a deeper understanding of your firm’s financial health. 

The added benefit of handing payroll to an accountant is expert tax advice. One drawback, however, is that most accountants are unreachable during non-office hours and extremely busy each year during tax season.

Whichever of the above options you choose, you’ll have more time to grow your business – and peace of mind knowing your payroll is in good hands. 

businessman holding a paper while using calculator

Payroll Service Providers and Business Processes

Some of today’s modern payroll service providers come equipped with cutting-edge software that matches up well with the top HR management systems and accounting platforms. When everything’s in sync, human resources and accounting professionals benefit from more accurate data entry and reporting. Let’s take a look at some of the top available solutions. 

Budget Planning and Expenses

The share of revenue that goes to payroll is a key metric for every business owner. Working with a payroll service provider means you’ll always know this data point – and be aware of any changes. 

This information is crucial for budgeting, as well as planning and staffing decisions. Some payroll systems also enable you to track your sales against expected payroll costs.

Human Resources Tasks

Tracking employee hours and attendance can consume considerable resources, especially if done manually. Fortunately, payroll service providers often provide electronic timesheets or integrated punch clocks that automate this process. 

Today’s payroll providers also keep you informed of new tax regulations and policies to ensure continued compliance.

Business Reporting

Payroll providers are able to track key financial details you may not have access to. For example, a payroll service provider may have a feature that highlights the roles and functions within your business that generate the most revenue. 

You might also be able to break down payroll costs as they relate to specific projects, which could be invaluable if you’re looking to secure funding or attract a business partner.

Employee Self-Service

The more employees you have, the more complicated your payroll will be. Fortunately, many service providers offer self-service portals, enabling your employees to complete tax forms and update their banking information online. 

This can free up time for your accounting and HR teams and ensure greater transparency for employee payments and salary updates. 

These are just a few of the ways a payroll service provider can ease your burden. There are many more, and today’s innovative providers are always coming up with new customizations and integrations. 

Be sure to review all of your potential provider’s available services before committing. 

businesswoman working on computer tool

How To Choose A Payroll Service Provider

Choosing a payroll service provider can feel overwhelming, especially if you have little experience in this area. Here are a few key elements to keep your eyes on as you narrow down your choices. 

Consider the Cost vs. Desired Features

Each business has its own unique challenges when it comes to payroll, and it’s important to make sure you’re only paying for what you need. For example, if your main issue is that you don’t have the time or resources to handle payroll processing, you might need a full-service solution. 

On the other hand, if you have the capacity to run payroll, but are looking for more automation or detailed reporting, an online service might be right for you. Many business owners just want more assistance with payroll tax and compliance and today’s providers are experts in these areas.

As you’re shopping around, be sure to get price quotes from each of the services you’re considering. Request detailed information on what’s included at each price point and compare your top options. 

If you’re looking for a payroll solution that’s compatible with your current business processes and systems, ask about integration capabilities. 

Check Customer Reviews

Take a close look at the reputation of your possible service providers before signing a contract. Check out customer reviews at Trustpilot, the Better Business Bureau, Google and beyond.

You might also reach out to your personal and professional networks in search of insight and guidance. 

Assess Available Support

If you’re transitioning from manual payroll, good assistance from your new service provider goes a long way. Many providers have a streamlined process to help business owners and HR professionals make the smoothest possible switch. 

Ideally, you’ll have a dedicated point of contact or customer support team during business hours. If you’re integrating your new payroll system with existing software, ask about technical support and request access to people who can troubleshoot when issues arise.


A reliable payroll service provider tends to sharply reduce the stress and responsibility levels of a business owner or HR manager. You’ll have more time for other work, and peace of mind knowing that payroll, tax and compliance are in good hands. You could also align your budgeting with payroll and streamline your payroll tax processes, which makes filing a breeze. 

Some providers can be excellent business partners, providing key business metrics and insights that could be impossible to find without their help. You’ll make smarter hiring and planning decisions because you’ll always know which departments are the most costly – and which are the most valuable to your bottom line.  

No matter which provider you choose, being able to outsource payroll to a professional is usually a smart business decision. Processing payroll manually is tedious work that can take up tons of time and resources – and result in problematic errors. 

When it comes to payroll, accuracy is absolutely critical. Once you start working with a trusted payroll service provider, you’ll be able to spend more time building your business, boosting revenue, and taking things to the next level!