Running your business can be a little overwhelming, especially when you’re trying to make sure your team is getting paid accurately and on time. If you’re just starting out, running payroll might happen in spreadsheets and free online payroll calculators that get the job done.
And that might be perfectly fine for now! When you’re staying cost-conscious about what business expenses are necessary and what can be spared, you might not be considering a complete payroll solution because you can calculate payroll yourself.
While a free online payroll calculator might be good for calculating something like, say, take-home pay, a business that’s scaling its team will slowly find payroll calculations becoming increasingly complex. It’s not easy to juggle tax withholdings, benefits deductions, PTO tracking, and salary and wage calculations.
So where does your business stand? We created a quick guide to help you determine what level of payroll support you need and whether a free payroll calculator or a full payroll solution is the right fit for you.
Benefits of a Free Online Payroll Calculator
Before extolling the virtues of payroll solutions, it’s important to just acknowledge that as your business grows and scales, the processes you do manually today only compound as time goes on. The effort required to run payroll via free payroll calculators today gets significantly more complicated as you add employees and offer benefits and paid time off.
Sure, the payoffs of utilizing free online tools pale in comparison to what you would get with a dedicated payroll software, but that doesn’t render these freebie solutions completely unhelpful.
Depending on the lifestage of your business, there could be a few reasons you might opt to use a free payroll calculator before paying for a more sophisticated solution.
This is the obvious benefit of calculating your payroll with a free online tool. What you might be saving by forgoing a dedicated payroll solution could be crucial to early business operations, especially if with all the investments and upfront costs encountered in the earliest stages of running a business.
Acceptable Size for the Micro Startup
Growing companies will need a more sophisticated tool to manage payroll, while micro businesses might feel more comfortable without a full tool. If you’re a micro startup, you might still be working on laying the operational groundwork. A temporary solution might allow flexibility while you focus on smoothing out the seams in your business processes.
Benefits of a Full Payroll Solution
Of course you’re going to get more bells and whistles with any business solution you pay for, but what are the real benefits and do they truly impact your business? Let’s look at a few ways a dedicated payroll solution goes beyond perfunctory calculations.
Payroll Tax Compliance
Part of the battle with payroll is complying with payroll tax regulations. There’s the federal and state-level unemployment taxes you have to pay as a business, plus FICA taxes like contributions to Medicare and Social Security.
While these might not be top of mind when running payroll, the stakes of tax compliance are high: in 2019, the IRS assessed more than $33.8 billion in additional taxes for returns not filed timely and collected more than $1.9 billion with delinquent returns.
Compliance can take on many forms. For instance, federal withholdings (FWH) calculations can keep you from withholding too little tax and encountering a hefty tax bill the following year. Having a FWH calculator within your normal payroll calculations can help you out significantly at tax time next year.
An Overview of PEOs
Get the guide on how PEOs work for small businesses.
Additionally, if you have employees working in different states (par for the course in 2020), you’ll need to adhere to the different state payroll tax rates — a massive headache as you add more remote team members.
Of course, there are ballpark approximations with free payroll tax calculators but they lack the same degree of accuracy as a robust payroll software. (And if you’re having to calculate the payroll taxes you deposit on a monthly, semi-weekly, or next-day deposit schedule, is that free calculator really doing you much good?)
Related article: Payroll Taxes in 2020: The Dos and Don'ts
If you’re already offering your employees benefits, you also need to know how much they should be contributing monthly for those benefits, which adds another variable to running accurate payroll.
And if employee benefits are still on the distant horizon, the scalability of your payroll processes can streamline the transition once you’re ready. The fewer DIY solutions you rely on, the less you’ll need to adapt as your company grows and scales.
Similar to benefits, the perks of paid time off can complicate payroll calculations, especially if you have hourly employees who accrue PTO.
And like some of the aforementioned facets of payroll, you might find a free online calculator for this, but you’re now looking at three (four?) calculators to cover all the bases of payroll. It’s more numbers to sift through — and way more room for errors in the calculations.
One of the most important advantages of a dedicated payroll solution is automation. Without a way to seamlessly calculate the withholdings, deductions, and payments, you end up draining your time and resources crunching numbers. The smaller your operation, the more critical it is that you reserve that time and effort towards running your business.
Robust payroll software significantly cuts down on time managing payroll, and in cases like Justworks, can give your employees a self-service dashboard to manage their direct deposit and benefits in one place, so you can expect to deal with fewer payroll-related questions.
Simplify Payroll While Scaling Your Small Business
As small businesses grow their operation and add new team members, they’re likely to encounter growing pains, but who says that payroll has to be one of them?
By consolidating all the DIY manual processes into one single tool, you free up business resources all while making benefits, paid time off, and tax less challenging.
Want to learn more about what a full payroll solution can do for you? Check out Justworks payroll features to see how we can help your small business grow.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.