Payroll Outsourcing: Costs, Models, and Providers

My problem with most guides to payroll outsourcing is that they answer a question nobody asked. They explain that outsourcing saves time, list some providers, and stop. The question a business owner is actually holding is narrower and harder: which of four quite different arrangements do I need, what does each one really cost at my headcount, and what am I still on the hook for after I sign.

The last part matters more than the marketing suggests. According to the Internal Revenue Service, the employer is ultimately responsible for the deposit and payment of federal tax liabilities, and if a third party fails to make those payments, the IRS may assess penalties and interest against the employer. There is exactly one arrangement that changes this, and it is not the one most small businesses end up buying.

I wrote this guide to answer all three. It explains the four service models in plain language: payroll software, a payroll service, a professional employer organization (PEO), and an employer of record (EOR). It then compares thirteen providers across them, shows real monthly cost at every scale, makes the honest case for and against, and walks through the move step by step.

What payroll outsourcing actually means

Payroll outsourcing is paying an external provider to do some or all of the work of paying employees. That work has five distinct parts, and different arrangements cover different subsets of them.

A common misunderstanding is that outsourcing means all five move to the provider. In practice the first four generally do, while compliance is shared and some obligations never transfer at all.

With payroll software or a payroll service, collecting a signed Form W-4, completing Form I-9 within three business days of the start date, and correctly classifying someone as an employee rather than a contractor all remain yours. A PEO does not take all of that off your hands either: even under co-employment, I-9 liability and the classification decision stay with you.

The four service models, in plain language

The four models are payroll software, a payroll service or reporting agent, a PEO, and an EOR, and each one solves a different problem. Nearly every confused payroll outsourcing decision traces back to comparing products from different models as if they were alternatives to each other. A PEO is not an expensive payroll service. An EOR is not a premium PEO.

The table shows who the employer is in each model, whose employer identification number (EIN) goes on the tax returns, and what each one typically costs.

Payroll software with full-service filing

You run payroll in a web application. It calculates everything, moves the money, deposits the taxes, and files the returns using your own employer identification number. Your business remains the sole employer. This is what most small businesses mean when they say they outsourced payroll, and it is usually the correct answer for them.

Payroll service provider and reporting agent

Functionally similar, but the relationship is more formal. A reporting agent is designated using IRS Form 8655 and is authorized to sign and file returns on your behalf.

Revenue Procedure 2012-32 adds a useful detail. A reporting agent must give you a written statement at least quarterly, advising that you remain responsible for timely filing and payment and that authorizing an agent does not relieve you of liability for its failure. If that reads like a disclaimer, it is, and it is accurate.

Professional employer organization

A PEO enters a co-employment relationship. You keep control of hiring, firing, and daily direction. The PEO takes the employer role for administrative purposes, files payroll taxes under its own EIN, and typically sponsors health insurance and workers compensation under its master policies.

That last point is the actual product. A small company cannot negotiate group health rates on its own, but joining a PEO's pool of thousands of worksite employees can produce pricing it could not otherwise reach. If you are considering a PEO purely to have someone run payroll, you are paying five to fifteen times the going rate for that alone.

Employer of record

An EOR becomes the legal employer through its own entity in the relevant jurisdiction. This exists almost entirely for hiring in countries where you have no legal presence. Setting up a foreign entity is slow and expensive, so for hiring one person or a handful abroad, an EOR at roughly $599 per person per month is usually cheaper and faster. For US-only hiring, an EOR is the wrong tool.

How a payroll service works, cycle by cycle

A payroll service works on a fixed loop. You approve hours and changes by a cutoff, the provider calculates pay and debits your bank account, employees are paid on payday, and the provider deposits the withheld taxes and files the returns on the schedule the IRS has assigned you. Everything else is detail.

Timing is the part worth understanding before you sign, because it decides how long your money sits with the provider and how late you can still fix a mistake. Depending on the deposit speed your provider gives you, the funding debit comes out one to four business days ahead of payday. Gusto's own documentation, for example, has you run payroll by 4 p.m. Pacific four, two, or one business day before payday, and debits your account that same day. The correction window closes when the file is submitted rather than when it is paid.

The deposit schedule in that table is not something a provider picks. The IRS assigns it from a lookback period, the twelve months starting July 1 of the second preceding year and ending June 30 of the prior year. Report $50,000 or less of employment tax in that window and you are a monthly depositor; report more and you deposit semiweekly.

Semiweekly means a payday falling Wednesday through Friday is deposited by the following Wednesday, and a payday falling Saturday through Tuesday by the following Friday. Once accumulated liability reaches $100,000 on any day of a deposit period, the deposit is due the next business day. A provider absorbs those rules. You keep the consequence of them being missed.

What the different names mean

Providers describe the same handful of arrangements with a dozen labels, and that vocabulary is most of why this category feels harder than it is. Managed payroll, payroll administration, and payroll bureau services are marketing terms for overlapping products rather than distinct ones.

Only two of those terms carry a legal definition: reporting agent and section 3504 agent. The rest are positioning. So the question to ask a salesperson is not what the company calls itself, but which of the four models it is selling and whose EIN your returns are filed under.

Local payroll companies and payroll agencies

A local payroll service is usually one of two things: an accounting practice that runs payroll for its bookkeeping clients, or a small regional bureau doing that work for businesses nearby. Both sit in the payroll service row of the table above, and most of them process on software licensed from one of the national providers rather than on anything they built.

What the local option sells is the relationship rather than the engine. Someone answers the phone, knows the city and county taxes where you operate, and will sit with you when a notice arrives. What it often lacks is published pricing, a self-service portal your employees can use without calling anyone, and a documented answer to what happens when the one person who knows your account leaves.

Judge a local firm on the same four things as a national one: whose EIN the returns are filed under, whether it is a reporting agent designated on Form 8655, who pays a penalty caused by its error, and what your data looks like on the way out.

Whichever firm you pick, verify deposits yourself through the Electronic Federal Tax Payment System (EFTPS), because being down the road does not change who the IRS holds responsible.

Who stays liable when payroll is outsourced

You do, in almost every arrangement. This is the part most comparison articles skip, and it decides whether the arrangement actually reduces your risk or merely moves the typing.

The IRS recognizes four third-party arrangements, and they carry different liability outcomes. Depending on which one you are in, you may remain solely liable, may become jointly and severally liable (the IRS can collect the full amount from either you or the agent), or may be relieved of liability.

The IRS sets the four side by side in its third party arrangement chart, which names the form that creates each arrangement, whose EIN goes on the returns, and who is liable. The table below follows it.

Only the last row shifts liability meaningfully. Under section 3511 and section 7705, created by the Tax Increase Prevention Act of 2014, a certified PEO is treated as the employer of any work site employee performing services for its customer, and no other person is. That treatment applies only to the remuneration, meaning the pay, that the CPEO remits.

That relief is narrow and exact. It covers the customer's liability for federal employment taxes on those specific wages, meaning income tax withholding, Social Security and Medicare taxes, and federal unemployment tax, and nothing beyond them.

The Treasury regulation at 26 CFR 31.3511-1 confirms that scope: for federal employment taxes on the pay a CPEO remits, the CPEO is the only person treated as the employer of the work site employee.

An uncertified PEO does not do this. Certification is voluntary, requires meeting financial, bonding, and reporting standards, and the IRS publishes a public list of organizations that hold it.

There is a practical corollary that applies whichever model you pick. Enroll in the Electronic Federal Tax Payment System and check periodically that deposits are actually landing. The service is provided free by the Treasury, and independent verification is the only way to catch a provider failure before the IRS does.

How we evaluated these providers

Every provider price here was taken from that provider's own pricing page rather than from an earlier roundup, which matters in a category where numbers move. Guides that have not been refreshed are quoting figures that no longer exist.

Two examples make the point. Gusto raised its Simple base fee from $40 to $49 a month during 2025, and Paychex now shows no price for any payroll package, quoting every one instead. Check multi-state pricing the same way, since at several providers here it sits outside the headline rate.

13 payroll outsourcing providers compared

The thirteen providers below are grouped by model rather than ranked as a single list, because a $37 payroll product and a $124 per employee PEO are not competing for the same purchase.

The first group is payroll software and full-service providers, the tier that covers most US small businesses. Every provider in it files federal and state taxes under your EIN, and the differences are pricing structure, support model, and how they handle multi-state.

Gusto

Gusto is a common first payroll purchase for US small businesses, and the company says more than 500,000 businesses use it. The Simple plan is $49 per month plus $6 per employee. Gusto is the most pleasant of these products to use, and the onboarding experience is genuinely better than the category norm, with offer letters, e-signature, and document collection built in rather than bolted on.

The constraint to understand before buying is the single-state limit on Simple. An employee across a state line forces the Plus tier at $80 plus $12 per employee, roughly doubling the per-employee cost. Gusto sells Simple as single-state payroll, reports, and basic support, and the limits of basic support show when something goes wrong close to a pay date.

OnPay

OnPay matches Gusto on headline price at $49 plus $6, with one flat plan, no tiers, and every state included at no surcharge. Year-end W-2 and 1099 filing sits in the base price rather than being billed separately. For any business with multi-state exposure, this pricing model is materially better than the identical numbers suggest.

OnPay also handles situations that trip up competitors without requiring a specialist tier: agricultural payroll on Form 943, clergy payroll, and restaurant tip reporting are all standard. The trade-off is that there is no cheaper entry option, so a three-person business pays more here than at Patriot.

Patriot Software

Patriot is the cheapest full-service payroll in this comparison once a team passes about five employees. It costs $37 per month plus $5 per employee and covers federal, state, and most local tax filing, though new hire reporting stays with you.

A Basic tier at $17 plus $4 exists if you file taxes yourself, and Patriot also sells its own accounting product, making it a genuine one-vendor stack for a micro business.

Two limits matter. Additional states cost $12 per month each, which erodes the price advantage quickly for multi-state teams. And standard direct deposit takes four business days, or two for qualified customers, which cannot meet a same-day final paycheck requirement without printing a check.

Square Payroll

At $35 plus $6, Square has the second-lowest published base fee here, after SurePayroll at $29, and includes federal and state tax filings in every jurisdiction where you run payroll, plus new hire reports. The reason to choose it is ecosystem: if you already run Square point of sale, timecards and tips flow into payroll without manual entry, removing the most error-prone step for a restaurant or retail operation.

SurePayroll

SurePayroll is owned by Paychex and built for the smallest employers, with one small business plan at $29 per month plus $7 per worker and the first state included. It also maintains a dedicated household plan from $39 a month, including one employee, for families paying a nanny or caregiver.

The flat $9.99 monthly multi-state fee regardless of state count is one of the better structures available. The $7 per-worker rate is the highest among the budget providers, so the value proposition inverts with growth: level with Patriot and Square at five people, and more expensive than Gusto at fifty.

Roll by ADP

Roll runs payroll through a chat interface: you type that you want to run payroll and the cycle completes in about a minute. Pricing is $39 plus $5 with three months free, covering all fifty states with unlimited runs, new hire reporting, garnishments, and same-day deposit.

What it does not have is depth. No benefits administration, HR help limited to an AI chat assistant, limited reporting. For an owner-operated business where payroll is a chore to dispatch from a phone rather than a system to administer, that narrowness is the product rather than a shortcoming.

Paychex Flex

Paychex reports approximately 840,000 businesses on its books, and it competes on service rather than software. The payroll line is now four packages (Basic, Foundations, Advanced, and Complete), and none of them carries a published price: every plan routes through a sales conversation or the online quote tool.

That absence of published pricing is itself the thing to plan around. You cannot budget Paychex from a web page, so ask for a written quote at your headcount and ask what is bundled against what is billed separately.

The add-on list is where the gap usually opens. On the entry Basic package the garnishment payment service is an add-on, state unemployment insurance service stays an add-on until Advanced, and year-end filing scope is worth confirming in writing.

ADP RUN

Every RUN package includes the core tax compliance engine, meaning tax calculation, filing, deposit, and reconciliation. It also covers multi-jurisdiction payroll for employees across states and localities, plus an AI payroll inspector (part of ADP Assist) that flags common errors before they reach a run.

Pricing is not published: all four packages (Essential, Enhanced, Complete, and HR Pro) are sold by quote, so ask for the number at your headcount. ADP says RUN requires no contract and service can be terminated at any time, and the packages page advertises three months of free payroll subject to its own offer terms.

Across the whole payroll software tier, the trade-offs look like this.

The second group is professional employer organizations: a different product at a different price point, bought for benefits access and compliance support rather than payroll processing.

Justworks

Justworks is unusual in publishing PEO pricing: PEO Basic at $79 per employee per month and PEO Plus at $124, alongside a standalone Payroll tier at $50 base plus $8 per employee. That transparency makes it the easiest PEO to evaluate without a sales process, and the payroll-only tier means you can start light and move up.

TriNet

TriNet publishes no standard list price. It quotes a flat fee per employee per month, never a percentage of payroll, and sets a minimum worksite employee count without publishing the number. It is industry-specialized, and for a very small company the administrative fee is difficult to justify unless the benefits arbitrage (the gap between its group rates and what you could buy alone) is substantial.

Insperity

Insperity sits at the high-touch end and also sells by quote rather than list price. The pitch is hands-on HR service and comprehensive workforce services rather than software. For a company that wants an outsourced HR department rather than a payroll vendor, that framing is honest and the quote will reflect it.

All three hold IRS certification, but the certificate belongs to a specific legal entity rather than to the brand name. The active list carries Justworks Employment Group, TriNet HR III-B, Inc., and Insperity PEO Services, L.P. alongside Insperity PEO HR, Inc. Check the entity you are actually signing with, not the logo on the proposal.

Across the PEO tier, the trade-offs look like this.

The third group is global payroll and employer of record.

Deel

Deel publishes its rates: employer of record at $599 per employee per month where you have no entity, contractor management at $49 per contractor per month, contractor of record at $325, and a US PEO at $110 to $125 per employee per month depending on the plan.

Deel's global payroll tier, for companies that already hold an entity in each country, is listed at $29 per employee per month. For a US-only business none of this applies. For a US business hiring its first engineer in Portugal, it is usually the practical answer.

What payroll outsourcing costs

Payroll outsourcing costs depend far more on the model you pick than on the provider. The table puts the models side by side at real headcounts, because the gap between them is an order of magnitude rather than a premium.

Three observations from those numbers.

The software tier is tightly clustered. At 10 employees, the spread between the cheapest and most expensive full-service payroll product is about $43 per month. Choosing between them on price alone is optimizing a small number; choosing on multi-state structure, contract terms, and support model matters considerably more.

A PEO costs roughly eleven times more than payroll software. At 50 employees, Justworks PEO Basic runs $3,950 per month in administrative fees against $349 for OnPay. That difference is not a markup on the same service. It buys benefits sponsorship, HR advisory, and shared compliance responsibility. If you do not need those three things, you are paying for them anyway.

PEO quotes exclude the biggest number. The administrative fee is what gets quoted. Health insurance premiums, workers compensation, and retirement contributions pass through on top and usually exceed it, which is not a hidden fee so much as a widely misunderstood structure.

The premium alone dwarfs the fee. According to the Agency for Healthcare Research and Quality's Medical Expenditure Panel Survey (2025), the average private-sector premium for single coverage was $9,025 a year, about $750 a month per enrolled employee, so a PEO proposal that looks like $100 per employee per month lands far higher once insurance is included.

The honest case for and against outsourcing

Outsourcing buys you time, fewer penalties, and less compliance tracking, plus benefits access in the PEO model. It leaves liability and the source documents where they were.

What outsourcing genuinely delivers

Time back, every cycle. Payroll lands on a fixed date whether or not anyone is free to run it, and the work does not shrink once it is learned. It recurs indefinitely and grows with headcount.

Meaningful penalty avoidance. In fiscal year 2025 the IRS assessed more than 4.4 million civil penalties on employment taxes. The failure-to-deposit penalty climbs from 2 percent at one to five days late to 15 percent on amounts still unpaid more than ten days after the first notice. A provider that deposits on schedule removes most of that exposure, which is the strongest financial argument for outsourcing at any size.

Absorbed compliance change. State unemployment wage bases, withholding tables, and minimum wages change annually, and in some states more often. Tracking that across even two states is a real ongoing task that a provider simply absorbs.

Benefits access, but only via PEO. Pooled purchasing is the one advantage that no payroll software can replicate, and the PEO industry association has put numbers on it.

The return on investment analysis published by the National Association of Professional Employer Organizations in 2019, on 2018 survey data, puts average cost savings at $1,775 per employee per year against an average PEO cost of $1,395 per worksite employee. It attributes 37 percent of that saving to health benefits costs. It is association research, so read it as the best case rather than the expected one.

What outsourcing does not deliver

It does not transfer liability. Outside a certified PEO arrangement, you remain responsible. This is the most common misconception in the category and the reason the liability section above sits before the provider comparison rather than after it.

It does not remove the source documents. With payroll software or a service bureau, Form W-4, Form W-9, and Form I-9 still have to be collected and retained by you. Correct worker classification stays with you too. A provider will process whatever you tell it, including a misclassification.

Handing the paperwork to someone else does not move the I-9 risk either. The Handbook for Employers from U.S. Citizenship and Immigration Services lets an authorized representative complete the form on your behalf, but you remain liable for any violation that representative commits.

It can create contractual lock-in. Some agreements renew automatically each year and can only be canceled inside a notice window, and an early termination fee can sit behind that. Missing a notice window means another year.

It reduces visibility. When a deposit does not happen, you find out from an IRS notice rather than from your own records, which is why enrolling in EFTPS to verify deposits independently is worth the fifteen minutes it takes.

Should you outsource payroll

The threshold is not headcount. It is complexity and consequence, and the five questions below test for both.

There is a defensible case for keeping payroll in house: very few employees, all salaried, all in one state, and someone competent already doing the filings. That describes a genuine minority of businesses, and it stops describing them the moment any one of those four conditions changes.

In-house payroll versus outsourcing, on the numbers

In-house payroll is not free. Its cost simply never gets a price tag. The comparison worth running puts a subscription against the hours it replaces, the software you would still be paying for, and the exposure you carry either way.

The recurring work line is the one that gets underpriced. According to the Bureau of Labor Statistics Occupational Employment and Wage Statistics survey (May 2025), payroll and timekeeping clerks earn a median of $28.01 an hour. Put six hours a month against that rate and the internal option costs about $168 in wages alone, more than full-service payroll for a ten-person company.

How to outsource payroll, step by step

To outsource payroll, work through seven steps in order, from picking the model to confirming that the first deposits landed.

Two steps are skipped more often than the rest, and both are the ones that cause problems later.

Step five gets skipped because multi-state pricing sits outside the headline rate at several providers. Ask directly, get it in writing, and price it at the headcount you expect in eighteen months rather than today.

Step seven gets skipped because it feels redundant. It is not. The IRS sends correspondence about a failed deposit to the employer at the address of record, which means the first signal that a provider has failed is frequently a notice arriving weeks after the fact. Independent verification through EFTPS closes that gap.

What to check in the contract before signing

Most payroll providers look similar in a demo. The differences surface after signing, and they live in the contract rather than the feature list.

The question that separates providers

Ask this one directly and in writing: if you make a filing error that results in an IRS penalty, who pays it?

Some providers accept liability for their own errors and handle the correspondence with the tax authority. Others file on your behalf and pass the liability straight back to you. Both models exist at similar price points, and the contract language is where the difference lives.

The liability cap is the related detail worth reading carefully, because an acceptance of liability can come with one: a service agreement can limit cumulative provider liability to a fixed annual figure, and against a large payroll that cap can sit well below the exposure.

Terms to itemize before you sign

What to do if your provider fails to pay

Check what was actually deposited, make any missing deposit yourself right away, and settle who pays with the provider afterward. This is the scenario the liability rule exists for, and the IRS publishes specific guidance on preventing and handling it.

Prevention: verify independently

The IRS recommends that employers ensure their payroll provider uses the Electronic Federal Tax Payment System, and that employers register on EFTPS themselves to obtain their own PIN and periodically verify that payments are being made.

EFTPS enrollment is free, and the PIN arrives by mail in five to seven business days. Once you are enrolled, the IRS EFTPS page says you can view fifteen months of payment history under your own EIN.

The IRS is direct about the threshold for concern: a red flag should go up the first time a service provider misses a payment or makes a late payment. It also notes that there have been prosecutions of individuals and companies which, acting under the appearance of a payroll service provider, stole funds intended for payment of employment taxes.

If something has already gone wrong

The order matters. Making the deposit stops the penalty clock, which steps up with the number of calendar days late and reaches 10 percent after fifteen days. Waiting to resolve the dispute with the provider first makes the eventual bill larger regardless of who ends up paying it.

Common mistakes when outsourcing payroll

Outsourcing HR and payroll together

Partly. Whether you can outsource HR and payroll together depends heavily on what you mean by HR, and the table shows where each option stops.

The pattern in that table is the useful part. Payroll providers and PEOs both cover the compliance and administrative side of HR reasonably well. Neither covers the operational side, meaning the workflows that move a new hire from signed offer to productive employee, with any depth.

That gap is why businesses regularly outsource payroll, solve the payroll problem cleanly, and discover six months later that offer letters are still being chased over email, I-9s are still slipping past the three-business-day deadline, and nobody can find the signed handbook acknowledgment when it is needed.

Which model fits your industry

Industry shapes the decision more than headcount does, because it determines which parts of payroll are actually hard.

Restaurants, bars, and hospitality

Tip reporting, variable schedules, high turnover, and hourly staff whose timecards must clear before every run. Square is the natural fit where the point of sale is already Square, since tips recorded at the till flow through payroll without a separate reconciliation. OnPay handles tipped payroll as standard rather than as a specialist tier. A PEO rarely makes sense here because turnover means constant enrollment churn against a per-employee fee.

Construction and trades

Certified payroll reporting on public works, prevailing wage, crews crossing state and municipal lines within a single week, and elevated workers compensation rates. ADP RUN pays crews across state and local jurisdictions in the same pay period and files the taxes for each jurisdiction, and its Enhanced package adds job costing; confirm certified payroll reporting in the quote.

Construction is also one of the few small business categories where a PEO can pay for itself outright, because workers compensation rates in construction are high enough that pooled purchasing produces real savings.

Professional services and agencies

Mostly salaried, mostly stable, often with contractors alongside employees and staff in several states. This is the profile the software tier is built for, and where the multi-state question decides between Gusto Plus and OnPay. A PEO is worth modeling only if health insurance costs are a genuine recruiting obstacle.

Healthcare practices

Shift differentials, on-call pay, credentialed staff, and benefits expectations set by larger employers competing for the same nurses and technicians. The benefits gap is the operative issue, which makes this one of the stronger cases for a PEO in a small business, since matching hospital-tier benefits standalone is usually impossible.

Startups

Multi-state from the first hire, a mix of employees and contractors, unpredictable headcount, and a need for the system to survive a funding round rather than be replaced at twenty people. That argues for no multi-state penalty and month-to-month billing, and against annual contracts, since requirements change faster than the contract term. Justworks fits this segment because it publishes pricing and offers a payroll-only tier to start from.

Nonprofits

Two wrinkles beyond standard payroll. Some nonprofits are exempt from federal unemployment tax (FUTA): according to IRS Publication 15-A, an organization exempt from income tax under section 501(c)(3) is also exempt from FUTA.

A nonprofit can also elect to reimburse state unemployment rather than pay contributions, an option federal law requires states to offer. A reimbursing employer pays the state back only for unemployment benefits actually paid to its former employees. Confirm the provider handles both the exemption and the election before signing, rather than after a Form 940 is filed incorrectly.

Businesses that need HR more than payroll

A distinct case worth naming. Some businesses looking at payroll outsourcing actually have an HR problem: no policies, no handbook, no idea whether their termination process is defensible.

Bambee targets exactly this, at $299 per month flat for one to four employees, $399 for five to nineteen, $499 for twenty to forty-nine, and $1,299 for fifty to seventy. A one-time setup fee sits on top, $500 up to nineteen employees, $1,500 from twenty, and $2,000 from fifty. The plans buy a dedicated HR manager, a set of core and custom HR policies, and job descriptions rather than payroll processing.

If the pain is policy and compliance guidance rather than calculating pay, that is a different purchase from everything else on this page.

Global and multi-country payroll outsourcing

Global payroll outsourcing means paying people in more than one country, and two distinct arrangements hide behind the phrase: global payroll aggregation and employer of record. Choosing the wrong one is expensive. The table also covers two neighboring cases, contractors abroad and a country where your headcount has outgrown an EOR.

For a US small business, the sequence is usually predictable. You hire one person abroad and use an EOR because establishing a foreign entity for one employee makes no sense. You add a few more in the same country. As headcount in that one country keeps growing, the per-employee EOR fee eventually exceeds what an entity plus local payroll would cost, and it becomes worth modeling the switch.

Enterprise global payroll platforms exist for companies running thousands of employees across dozens of countries. If you are reading a small business payroll guide, that is not the tier you need, and the sales process for those products will consume more time than the decision warrants.

Switching or exiting a payroll provider

Leaving is more constrained than joining, and the constraint differs by model.

Leaving payroll software is mostly a data exercise. Export year-to-date wage and tax totals per employee, import them into the new system, and confirm the old provider files the final quarter rather than assuming it. Switching on January 1 avoids the year-to-date import entirely; switching mid-quarter is the hardest timing because quarterly returns end up split across two systems.

Leaving a PEO is a project. Because the PEO sponsored your health insurance and workers compensation, exiting means sourcing your own plans, which has its own enrollment timeline and may mean employees change doctors. It can also mean re-establishing your own state unemployment accounts in states where you were reporting under the PEO's. Plan a quarter, not a month, and time it to a benefit plan year rather than to a whim.

Before you choose

FirstHR is not a payroll outsourcing provider. We do not process payroll, file payroll taxes, or sponsor benefits. Every provider on this page does something we do not, and if paying people and filing returns is the problem in front of you, one of them is your answer.

The reason this section exists is the pattern in the HR table above. Payroll providers and PEOs cover the compliance layer competently and the operational layer barely. Once payroll is outsourced, what stays with you is everything that happens before someone appears on a payroll run: the offer letter that needs signing, the I-9 that needs Section 1 signed by day one, the state withholding certificate that needs collecting, the training that needs assigning and tracking, the records that need to be findable when someone asks.

That is the layer we handle: onboarding workflows, e-signature on offer letters and I-9s, employee records, document management, and training with completion tracking, for US small businesses at a flat $98 to $198 per month. It runs alongside whichever payroll arrangement you choose. If the description above matches your situation better than a payroll calculation problem does, that is the gap we built for.

Frequently Asked Questions

What is payroll outsourcing?

Paying an external provider to handle calculating pay, withholding and depositing taxes, filing returns, and producing year-end forms. It spans four arrangements: full-service payroll software, a payroll service bureau or reporting agent, a professional employer organization operating as co-employer, and an employer of record that becomes the legal employer.

How much does it cost to outsource payroll?

Full-service payroll software runs roughly $87 to $130 per month at 10 employees and $287 to $450 at 50. A PEO costs about $40 to $160 per employee per month in administrative fees by ADP's estimate, and Justworks publishes $79 and $124, so $790 to $1,240 at 10 employees, before insurance premiums. Employer of record services start around $599 per employee per month.

Am I still liable for payroll taxes if I outsource payroll?

Yes, in almost every arrangement. The IRS states the employer is ultimately responsible for deposits and payments, and that if the third party fails to pay, the IRS may assess penalties and interest against the employer, who may also be held personally liable. The only exception is a certified PEO, which under sections 3511 and 7705 is treated as the employer for wages it pays.

What is the difference between payroll software, a payroll service, a PEO, and an EOR?

Payroll software and payroll services file under your EIN with you as sole employer. A PEO is a co-employer, files under its own EIN, and sponsors benefits under master policies. An EOR becomes the legal employer through its own entity, which is what makes it the route for hiring where you have no entity of your own.

What are the benefits of outsourcing payroll?

Time returned every cycle, avoidance of deposit and filing penalties, absorbed compliance change as rates and wage bases shift annually, and in the PEO model specifically, access to group benefits pricing a small employer cannot reach alone. The IRS assessed more than 4.4 million civil penalties on employment taxes in fiscal year 2025, which is the scale of what a provider takes off your desk. What it does not buy is freedom from liability.

What are the disadvantages of outsourcing payroll?

Reduced visibility into whether deposits actually happened, contractual lock-in where an agreement auto-renews or carries a termination fee, awkward data extraction when leaving mid-year, and in a PEO arrangement, employees sitting under another company's EIN, which can complicate lending or certain contracts.

Should I outsource payroll or keep it in house?

Outsource if employees work in more than one state, if you have hourly staff with variable hours, if headcount is growing, if you have ever nearly missed a deposit deadline, or if the founder is doing payroll. Keeping it in house is defensible only with very few salaried employees in one state and someone competent already filing.

How do I outsource payroll step by step?

Choose the model, gather your EIN and state tax accounts, collect employee records including Form I-9 and W-4, export year-to-date totals if switching mid-year, confirm state coverage and cost in writing, run one cycle in parallel, then verify deposits landed through EFTPS rather than assuming.

Is a PEO worth it for a small business?

Only if you need benefits sponsorship and HR advisory rather than payroll processing, since payroll alone is far cheaper elsewhere. NAPEO reports 233,000 US businesses use a PEO, with penetration near 14 percent among employers of 20 to 499 people and half of all clients sitting in the 10 to 49 range. Compare fully loaded quotes including insurance against your current total.

What is a CPEO and why does certification matter?

A PEO certified by the IRS under a voluntary program created by the Tax Increase Prevention Act of 2014. Certification requires financial, bonding, and reporting standards, and under section 3511 a CPEO is treated as the employer for wages it pays, relieving the customer of liability for those amounts. An uncertified PEO does not shift liability.

What is global payroll outsourcing?

Running payroll for employees in more than one country. Global payroll aggregation applies where you already have entities in each country and is priced per employee per month, from $29 at Deel. Employer of record applies where you do not, from roughly $599 per employee monthly, and stays the practical route until headcount in one country justifies an entity of your own.

What should I ask a payroll provider before signing?

Above all: if you make a filing error resulting in an IRS penalty, who pays it, and is that acceptance capped. Then establish scope in writing, accuracy standard, processing cutoffs, support response times, whether the provider registers new state accounts, contract length and notice period, termination fees, and data access on exit. Ask for a sample invoice at your headcount rather than a quoted rate.

How do I know my payroll provider is actually paying my taxes?

Enroll in EFTPS yourself and verify. The IRS recommends employers ensure their provider uses EFTPS and register for their own PIN to periodically confirm payments, which shows fifteen months of history under your EIN. Do not change your IRS address of record to the provider's address, since notices about a failed deposit go to the address on file.

What happens if my payroll provider does not pay my payroll taxes?

You are liable. Check EFTPS history, contact the IRS on 800-829-4933 or the number on the notice, make the missing deposit immediately since the penalty rises with each band of days late to 10 percent after fifteen days, correct the return with Form 941-X if needed, and notify the provider in writing citing the liability clause.

Can I outsource payroll and HR together?

Partly. Payroll providers offer document storage and templates, and often e-signature, sometimes only at higher tiers; a PEO adds advisory support and employment practices guidance. Neither covers the operational layer well: structured onboarding, training delivery with tracking, and org charts generally remain yours regardless of what you buy.