Explore Your Options

When it comes to processing payroll, you have a wide spectrum of options from which to choose — and there are big differences between them. Before deciding which path best suits your business, take a moment to consider your priorities. Are you looking to save money? Save time? Eliminate errors and costly tax penalties? Whichever option you choose, it’s important to know what to expect.

Types of Payroll Options

Do It Yourself

Doing payroll yourself is like any DIY project: a great way to save money if you have the time and skills to do it right. It’s a popular choice for new businesses, but the time requirements and — surprise! — costly mistakes can quickly become overwhelming.


Be prepared to track and record employee hours, calculate wages and deductions, distribute paychecks, deposit withholdings, manage compliance with all regulations, and file and pay employment taxes.


Payroll software helps automate some aspects of the process, such as calculating wages and deductions. Plus, if you have questions, most payroll software comes with some level of support. But you will still need to track and record all employee hours, enter the data, file and pay the right taxes at the right time, and deduct the proper withholdings from every check. Ultimately, compliance will be your responsibility.


Businesses that place a high value on their time and peace of mind often end up partnering with a full-service payroll provider. A full-service provider will either assume or assist with all aspects of the process: deposits and withdrawals, withholding and garnishments, and filing taxes. Some may state that your taxes will be done right or will pay to correct errors. The most common surprise here is that you end up saving money because you are no longer racking up expensive penalties.


When you enlist the help of an accountant, you get a trusted advisor who probably knows your local, state, and federal tax requirements. You’ll save time, but different accounting professionals handle payroll management differently—many simply enlist the help of a full-service payroll provider on your behalf—so ask yours what level of involvement they’ll expect from you.

Professional Employer Organization (PEO)

A PEO is a co-employment partnership that can benefit both your company and your employees. It’s similar to a full-service payroll and HR outsourcing provider, but with some added benefits: built-in compliance monitoring, access to premium employee benefit plans at a competitive rate, workplace risk and safety support and guidance in day-to-day HR topics. A PEO provides you with the simplicity of having a single vendor to support you across your human capital needs.

Ways to Pay Your Employees

Physical checks can be handwritten or printed and require only that your business have a checking account with a bank.

Provides a paper trail and doesn’t require employees to have a bank account.


They must be hand-delivered or mailed.

Direct Deposit
Electronically transferring funds from your company’s account to your employee’s account has become the preferred method.

Funds are transferred instantly, minimizing wait times for employees.


Employees must have a bank account.

Pay Cards
This relatively new option allows employers to pay workers in the form of pre-paid debit cards rather than checks or direct deposit.

Workers get immediate access to their funds without needing traditional bank accounts.


Cards are easily lost or stolen, and workers who need cash will be subject to ATM fees.

Tips to Avoid Common Payroll Challenges

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Misclassifying Employees

If you have control over when and how workers work or your workers meet other criteria defined by the IRS and other federal and state agencies, these individuals may not be independent contractors. Plus: Non-exempt employees (whether considered salaried (which is not a best practice) or hourly) are entitled to overtime pay when applicable. You must familiarize yourself with the FLSA guidelines and ensure you are classifying and paying your workers correctly.

Incomplete Records

Make sure you always have a backup method of payroll records – run reports and keep copies of the records electronically or on paper. Consider implementing, and frequently auditing, an automated time and attendance system that syncs to an electronic payroll record to coordinate payment records and pay stubs and then make sure you are maintaining copies of those records.

Missing Deposit Deadlines

You must deposit your federal taxes on specific dates, but those dates are partly determined by the total taxes you report on Form 941. File late and you can end up with fees of up to 25 percent on certain payments.

Failing to Comply with Laws

Many federal payroll laws have changed in recent years; several states and municipalities recently adopted sick-leave mandates; and minimum wage requirements have a way of sneaking up on you. These changes make it easy to miscalculate your payroll and tax obligations or fail to file a required form — particularly if you employ people across multiple states or jurisdictions.

Failing to Report All Compensation

Payroll taxes aren’t limited to income. Most fringe benefits like stock options, achievement travel and employee discounts are subject to federal income and employment tax withholding, too. These forms of compensation must be reported to the IRS, or you could face significant penalties.

Sloppy Integration

When your timestamps are on paper and your hourly rates are on spreadsheets, loading your payroll amounts can be a chore, and mistakes can happen. Enhanced integration of the payroll process — from time and attendance to tax payments to Worker’s Compensation payments — means time savings and fewer opportunities to make expensive errors.

Misprocessing of Garnishments

There are different rules for different kinds of employee garnishments (fines, taxes, child support, etc.). Failure to comply could result in fines, and employees may struggle to retrieve payments that were processed in error.