What is a Payroll Service and How Does it Work?

how does payroll service work

Completion of monthly/weekly/biweekly payroll is a time-consuming and complex job requiring efficient work habits, careful record-keeping, meticulous attention to detail, and extensive tax knowledge. Why not let a payroll service provider help? A payroll service optimizes efficiency, saves you time, and reduces your need for payroll staff.

What is a payroll service provider?

A payroll service provider is a company that assists businesses with human resources and payroll duties through the use of automated tools and/or software, helping an employer administer employment tax and payroll while integrating attendance, time, and benefits administration. They calculate and process payroll, remit income tax, pension, and employment insurance, and often handle withdrawals, deposits, garnishment, new-hire reporting, and support orders. 

How does a payroll service work?

A payroll service streamlines the payroll process, reducing stress and eliminating the redundant and/or busy work involved in manual payroll calculations, allowing business owners/managers to focus their attention and time on more important tasks. Typically a payroll service:

  • Undertakes time calculations
  • Tracks employee attendance/wages
  • Calculates payroll taxes
  • Completes payroll
  • Pays all employees (check, direct deposit, pay card, cash)
  • Pays all contractors
  • Undertakes payroll analytics
  • Creates payroll reports
  • Does new-hire reporting
  • Completes wage garnishment
  • Creates an employee portal (for viewing pay stubs, documentation, etc.)
  • Monitors workers’ compensation premiums
  • Keeps payroll records
  • Follows federal and provincial laws for payroll
  • Prepares and mails employee tax forms
  • Sets up, adjusts and makes direct deposits
  • Integrates third-party benefits into payroll 

What are the benefits of using a payroll service? 

Payroll services provide benefits for all sizes of businesses. 

  • Save time: By calculating and completing withholdings (retirement benefits, wage garnishments, child support, taxes, employment insurance, pension, etc.) and determining and administering pay (direct deposit, check, cash, and/or pay card), a payroll service saves a company time. 
  • Reduce tax errors: Dealing with taxes is difficult and time-consuming. Incorrect filing is costly for employees and businesses. A payroll service can accurately calculate taxes and remit them before the deadline. If errors occur, they’ll file an amended return.
  • Meet your needs/preferences: Though many employers/employees prefer direct deposit pay, a payroll service has the capability of paying according to your needs (cash, check, pay card, direct deposit).
  • Provide industry-specific services: Some industries (restaurants, non-profit organizations, farming/agriculture, construction, church/clergy, etc.) have specific payroll/tax requirements. A payroll service is equipped to handle these unique needs. 
  • Reduce HR costs: A payroll service completes a number of tasks traditionally fulfilled by HR employees, allowing businesses to reduce the size of their HR department and save on costs. 
  • Happy employees: Payroll that is on time and accurate contributes to employee satisfaction. 
  • Scalability: A payroll service ensures accuracy no matter how many employees you have/hire.
  • Data collection: Payroll services provide insights into payroll taxes, benefits administration, employee use of HR features and payroll features.

How much do payroll services cost?

How much your payroll services cost will depend upon the services you require, the number of pay periods per year, whether you require online/phone support, and the number of workers you employ. Most providers charge a flat fee, an additional cost per employee, and a fee for add-ons or additional services. Some providers charge per pay cycle, depending on the payday frequency you choose (monthly, semi-monthly, weekly, bi-weekly) plus an additional cost per employee. Some payroll providers offer a discount if you pay annually. On the lower end, services cost $39 monthly plus $5 per employee. The price increases if more services are required or if you wish for more support (basic, standard, premium). Before hiring a service provider, find out the cost for the base subscription fee, setup/support fees, per-employee or per-transaction fees, taxes/compliance fees, and add-on fees for additional services/features. 

Do I need a payroll service?

The following are reasons that your business may need a payroll service provider: 

  • You’re a small business proprietor with much to accomplish daily, making the complex duties involved in payroll one too many tasks. 
  • You’re a large business owner with complex pay and tax needs that you wish to simplify. 
  • You wish to reduce payroll costs: Having a qualified accountant and/or bookkeeper on staff is expensive. Using a payroll service reduces your staffing needs, saving you money and freeing up time for more important business duties. 
  • You want convenience: Using a payroll service provider gives you easy access to documentation/reports, customizable services, online/digital pay stubs, digital time and attendance reports, and more. 
  • You want to meet deadlines for payday and tax remittance without rushing and/or worrying. 
  • You want to be compliant with all tax laws/regulations: Human error and constantly changing tax compliance laws make in-house payroll difficult. A payroll service provider offers up-to-date knowledge and experience with tax compliance regulations and they guarantee accuracy. 
  • You desire a self-service portal for employees: A self-service portal is a time saver for employers and employees, allowing workers control over their payroll information (paystub, timesheet, time off requests, payment method, benefits, etc.) and freeing HR staff to attend to more important duties. Most payroll providers will establish a self-service portal for your business. 
  • You wish to streamline payroll services and HR administration: Many payroll services also do HR work, freeing time for you to focus on running the business. 


If you wish to save time, reduce stress, decrease your HR costs, improve payroll/tax accuracy, file taxes on time, and streamline your operations, then a payroll service may be right for you. Payroll presents many challenges to businesses of all types, sizes, and industries. A payroll service can mitigate these challenges. Payroll service providers help employers meet deposit requirements, make filing deadlines, and streamline business operations. Consider whether these services are right for your business.