As a small business owner, you know that payroll is much more complex than most people think it is. Aside from the basic adjustments, such as taxes and garnishments, do you know how your company's unique situation can influence your payroll costs? There are many factors involved.
You might be surprised to hear that big-name payroll companies don't always offer better deals. At CSI Accounting & Payroll, we've worked with small businesses for more than 50 years, and our payroll department has been around since the 2000s. In all this time, we've become experts on the factors that make up the payroll fees of most providers.
Here are seven things that payroll companies use to determine your payroll fees. This list is based on full-service payroll companies, like CSI Accounting & Payroll. We realize that there are payroll service providers that offer software as a service (SaaS) or a do-it-yourself service which will likely include different factors for pricing.
7 Causes of Payroll Fee Increases
1. Pay Cycle Frequency
The more often your payroll is processed, the higher the associated fees can be. Even at lower prices per payroll cycle, it's more frequent fees that add up over time.
It will cost more to pay your employees weekly at a slightly lower fee than it will to pay them monthly at a slightly higher fee. That's why choosing to pay your employees less often will end up saving you some cash.
2. The Number of Employees on Payroll
Payroll providers charge more for having more employees on payroll to process because this directly correlates with the amount of work the payroll specialists need to do each pay cycle.
Plus, year-end forms must be created for each of your employees, which they will need in order to do their taxes. This means they'll be needing things like W-2s and 1099s, which require additional processing from your payroll provider than your average payroll.
To be clear, the number of employees you need to have on payroll is not completely in your control - and we're not encouraging you to avoid hiring the appropriate number of employees. In fact, understaffing can result in increased turnover. See point #7 for more information about how turnover increases your payroll fee.
3. Vendor Payments
By vendor payments, we mean things like:
- Retirement contributions
- Child support payments
- Tax levies
These things are not necessarily add-on services, but they go beyond the basics of what every payroll requires. For that reason, they are not included in a standard payroll fee and are an additional charge if a business needs their payroll specialist to do them.
4. Add-on Services
By add-ons, we mean things like:
- PTO tracking
- Timekeeping services
- HR packages
These are add-ons that are entirely optional to you, however, many small business owners find them useful and are happy to opt in. Since the additional services are optional, the additional fee is also technically optional. If you don't add on these services, you won't face their fees.
5. Printing Fees
Printing checks and reports, as well as getting them delivered, are all optional. You have a few options here:
- Use direct deposit at no extra fee or print your own checks. Avoid paying for printed checks.
- View your reports online and print them. This may not be available to everyone; check with your payroll providers to see if they offer that option in their portal. Avoid paying for printed reports.
- Still want printed checks and reports? Pick them up yourself. This is only an option if you live in the area and if your payroll provider allows it. Avoid delivery fees.
6. Multiple-state Employers
If you set up payroll in multiple states, you will need to pay the associated fees and taxes for each state. Some states have several taxes (unemployment, local, disability, workers' compensation), while others don't even have income tax, just unemployment tax. Even on a smaller scale, some cities or municipalities have their own additional taxes.
If you're hiring out-of-state for remote workers, you might find a company that offers accounting along with payroll to be helpful in relieving the associated tax nightmare. Learn more about the benefits of having accounting and payroll under one roof.
7. New Hire Reporting
New hire reporting is required by law, so if you're hiring, there's no way around it. It will also frequently come with an additional fee for the additional paperwork your payroll provider must process.
Learn how to do new hire reporting yourself here - but be aware that if you work with a payroll provider, they may insist on doing the work themselves to avoid any errors. So, what do you do if you work with a payroll provider and are facing new hire reporting fees? Do your best to minimize turnover by keeping your employees happy and offering them the benefits they're looking for - like retirement plans, for example.
Determine Your Payroll Fee
Payroll isn't always simple, and neither is finding out how to keep your fee low. Now that you know more about some of the key items that raise your payroll fee, you can attempt to avoid them.
This isn't a complete list of every possible factor of a payroll fee, of course. If you have more questions, click the button below to see if we are a good fit for each other. We hope to hear from you!
Not ready for a conversation yet? That's okay! This article will help you see the factors that make up a payroll fee at CSI Accounting & Payroll, plus the average fee that our clients pay.
