What is a Payroll Provider?: Things You Need to Know

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A payroll provider is a company that manages payroll on behalf of a client. For many businesses, running a payroll can be an overwhelming and expensive task. As such, they outsource to companies that provide payroll services. This process reduces the overhead cost and lessens the burden on businesses to satisfy their customers’ needs and other business-related tasks.

To learn more about what a payroll provider is, their responsibilities, and how to choose the right payroll service provider for your business, read deeper into the article.

What is a payroll service provider?

A payroll service provider is a third-party company that administers payroll services for another company while maintaining compliance with statutory laws, financial laws, labor laws, and payroll laws. These payroll services include payroll processing, calculating payroll tax deductions, and payroll tax filings at several government levels. Managing deposits, payroll reporting, administering benefits, and other accounting-based needs are part of their services. Partnering with a payroll provider makes these processes more compliant with complex laws while minimizing discrepancies and stress. 

In most cases, going with a payroll provider is more cost-effective than hiring an in-house accountant or human resources staff. Payroll providers streamline all your accounting processes at a more affordable rate.

What are payroll provider responsibilities?

Payroll providers offer a variety of services concerning payroll and tax management for their clients. Services provided by payroll service providers include:

Payroll processing 

A major responsibility of payroll providers is to process payroll on behalf of employers. This is a crucial aspect of every organization and must be attended to carefully. Payroll providers use software to automate the entire process, as it ensures better quality control and timely output compared to manual processing. With the software, they calculate how much every employee will be paid at the end of the payroll cycle-daily, weekly, biweekly, or monthly.

However, these computations are not as easy as they sound; you have to consider factors such as overtime, hours worked, days worked, and the minimum wage. In addition to this, you have to calculate tax deductions, health insurance, social security, and pensions.

Payroll tax 

Handling payroll taxes can be an overwhelming task for several businesses. Inappropriate knowledge of tax policy can lead businesses to make costly mistakes. Payroll providers have sufficient knowledge of the system and are always up-to-date with changes in laws pertaining to payroll tax. They will ensure accurate processing of the amount of tax to deduct from each employee’s salary, file tax documents at all levels, and pay taxes within the specified time period.

Benefits administration

Some payroll providers offer benefits packages as part of their services, while others don’t. Those who do manage the benefits and compensation plans for your employees, like holiday leaves, annual leaves, and social security. And they will ensure that these plans are accurately deducted from the employee’s pay and reflected on the payslip. In addition, payroll providers also help with the enrollment of benefits, tracking them, and ensuring compliance. 

Payment of employee’s salaries

Payroll providers will take the burden of paying employees’ wages and salaries off employers to free them to attend to other crucial needs like satisfying customers’ expectations and meeting up with the company’s goals and objectives. Nowadays, employees are paid via electronic funds transfer or direct deposit into their bank accounts. Payroll providers will ensure that the information employees provide is accurate before making transfers.


Compliance with financial and employment laws at all levels is a vital aspect of payroll that every organization must adhere to. These laws cover payroll regulations that range from minimum wage and overtime to tax filings and payroll record-keeping. All these can be tedious for businesses to handle effectively, and failure to comply with such laws attracts hefty penalties and fines.

Payroll providers can take away the headache as they are experts in this field of compliance. They are always up to date with changes in regulations and laws that businesses can easily miss, and with this knowledge, they ensure businesses stay compliant.  

Payroll provider options 

It’s the legal responsibility of all businesses to run payroll and maintain payroll compliance with regulatory bodies. In this scenario, businesses have two options for managing their payroll.

1. Self-service 

2. Paid services


Businesses may decide to handle payroll processing themselves through their in-house accountant or human resources staff. However, for small businesses with few employers, the business owner usually operates payroll and payroll processing manually or automatically. Utilizing an automated system streamlines and speeds up the entire process. However, most payroll software comes with a fee, and the cost depends on the services you need. Also, going automated requires the business to have a full grasp of the working system of the software to avoid pitfalls.

An important point business owners that run payroll themselves must be aware of is maintaining compliance and staying up-to-date with ever-changing regulations. Failing to do this will pose more damage to the business and incur unwanted fines and charges.

Paid services  

Another option businesses can explore is hiring a third-party payroll provider. In this case, the business owner relinquishes control of the payroll responsibilities to the external provider. This partnership entails that you work with the payroll service company to work out plans to meet your business payroll needs. The payroll company will be in charge of your administrative tasks, like running your payroll, depositing workers’ salaries, and filing payroll taxes where appropriate. Also, outsourcing your payroll to a payroll provider reduces the risks associated with poor compliance. As they take over the compliance responsibility off the shoulders of business owners.

related article: Top 10 tips for payroll management for small business owners

How do you choose the right payroll service provider?

When considering a payroll provider, there are some factors to consider before choosing the right one. This entails conducting extensive research on the company or companies before entering into a partnership with them. Because failing to do your due diligence can adversely affect the result you expect from them, and in turn, that can affect your company’s growth and reputation in the eyes of your employees. Below are key factors to consider:

Pain points 

Before deciding on which payroll service provider to choose to handle your payroll, you need to identify and understand your basic payroll business needs. Some things to consider are:

• Do you want just payroll or a combination of payroll and benefits services?

• How do you foresee your employees’ growth paths? Do you forecast a stable workforce or a growing workforce?

• Your business budget to cater for your payroll outsourcing  


Choosing the right payroll service provider can either make or break your business. Hence, research is very vital. You have to consider the services each payroll provider offers. Are these services what you are looking for or not? What benefits do they provide to your business? Are these services within your resources? These are questions you need to answer before scaling down on the potential provider list. 

Customer support

Critical questions may arise that are beyond your control, which will cause you to talk with customer care. On this note, carefully scrutinize the customer support agility of each of your scaled-down payroll providers. You won’t appreciate a situation where you need clarification on important issues and have no one to do that except the busy payroll experts. Customer support remains vital for the smooth running of payroll processing.


Choosing the right payroll service provider requires in-depth and ongoing research. The reliability of a payroll provider says a lot about that company and instills trust in its clients. You research the credibility and reliability of a provider by going through reviews and testimonials and reaching out to businesses that have worked with them or are currently using their services to further give you more insights about them and their quality of services.

Price scale

You don’t want to blow your budget on just payroll alone. Different payroll providers have different price scales depending on the choice of services and employee structure. Go through the different providers and choose the one that fits your budget while being capable of delivering quality payroll services.


How well payroll providers secure sensitive information regarding employee’s bank accounts, addresses, payroll documentation, and so on should be a focal factor to consider when choosing one. Go for providers that have systems in place to protect your payroll information and keep it from leaking out or being prone to hacking.


Businesses are bound to grow, which results in an increase in employee numbers. The payroll provider you decide to select should be able to grow with your business. They should be able to accommodate your new employee’s overtime and bonuses and still provide excellent services.

Why do businesses need a payroll provider?

Several benefits abound for businesses that outsource their payroll to external payroll companies, which are

• Provides knowledge and expertise. 

• Improves payroll reporting accuracy. 

• Guarantees resource management.

• Assumes responsibility for compliance. 

• Gives expert advice.

Ready to get your payroll running?

PoweredUp Consulting provides the platform to streamline your payroll processing while you focus on your core business operations. We have expert knowledge of payroll laws and other regulatory practices to give you the optimal payroll experience. Need further information on our payroll services and how your business can benefit from them? Book a consultation today.

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