Payroll Companies vs DIY Payroll: What Works Best for Your Budget?
Running payroll may not be the most exciting part of owning a business, but it’s one of the most important. Every payday, you’re not just cutting checks—you’re also handling taxes, compliance, and employee records. If something goes wrong, the fallout can be costly. That’s why many small business owners face a big question: should you handle payroll yourself or partner with payroll companies?
Both options have pros and cons, and the right choice depends on your budget, time, and comfort with compliance.
The DIY Payroll Route
DIY payroll usually means you (or someone on your team) use spreadsheets or payroll software to calculate wages, taxes, and deductions. It can feel like the cheaper option upfront, especially for very small teams.
Advantages of DIY payroll:
-
No recurring service fees
-
Full control over the process
-
Works fine for very small businesses (1–2 employees)
Drawbacks of DIY payroll:
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Easy to make tax mistakes
-
Time-consuming, especially as your team grows
-
Limited support if you run into compliance issues
According to the IRS, about one in three small businesses gets penalized for payroll errors each year—usually for things like late tax filings or incorrect withholdings. These mistakes can easily wipe out any “savings” from doing payroll yourself.
Payroll Companies: A Different Approach
Payroll companies take the heavy lifting off your plate. They handle calculations, direct deposits, tax filings, and even HR add-ons like time tracking or employee onboarding.
Advantages of payroll companies:
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Saves time—hours each month that you can use to run your business
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Reduces compliance risk (they stay up to date with changing tax laws)
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Professional support if questions come up
Drawbacks of payroll companies:
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Service fees (usually monthly or per employee)
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Less hands-on control—someone else manages the process
While costs vary, most payroll providers charge somewhere between $40–$100 per month plus $5–10 per employee. For a team of 10, that could be around $100–$150 monthly. It’s an extra expense, but for many owners, the peace of mind is worth it.
Cost & Time Comparison
Here’s a simple way to compare the two approaches:
|
Factor |
DIY Payroll |
Payroll Companies |
|
Monthly cost |
Software fee or free spreadsheets |
$40–$100 base + $5–10/employee |
|
Time required |
5–10 hours/month |
1–2 hours/month |
|
Compliance risk |
High (easy to make mistakes) |
Low (experts handle updates) |
|
Best for |
Solo owners or very small teams |
Growing businesses, 3+ staff |
Which Option Works Best for Your Budget?
If you’re just starting out with one or two employees, DIY payroll might make sense—especially if you’re confident with spreadsheets and tax rules. But as soon as you add more people or start juggling complex benefits, the balance shifts. The time you spend on payroll is time you’re not spending on customers, sales, or growth.
Think of it this way: if you spend 8 hours a month on payroll and your time is worth $50/hour, that’s $400 of hidden cost. Suddenly, paying a payroll company $120 a month doesn’t seem expensive—it’s a trade-off that frees you up to focus on what grows your business.
The Bottom Line
There’s no one-size-fits-all answer. DIY payroll may stretch your dollars in the early days, but payroll companies often deliver better value in the long run by saving you time and reducing risks.
If payroll stress is cutting into your workweek, it might be time to compare providers and see if outsourcing makes financial sense for your business.
About The Author
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