UPDATE: Just when we thought we were done typing, Intuit cut their price on QuickBooks Online Payroll to $9.95 – and then threw in 3 months free. That makes QuickBooks Online Payroll the value leader, with normal monthly fees totaling less than $90 if you sign up before 2/1/09. At the same time, the price of QuickBooks Enhanced Payroll came down by about $25. We’ve revised our comparison table to reflect those changes. The image below is link to Intuit to quickly take advantage of this offer. Our full review continues below the link.

As every business owner knows, it takes a lot of work to turn timesheets into a completed payroll either in the form of paychecks or direct deposits, calculate all deductions, and process all payroll taxes. That’s where payroll software and services prove their value on a regular basis.

In response to a request, we recently undertook a comparison of 3 big payroll services: Intuit, ADP, and Paychex. Let’s see how they stack up.

First, the basics. Our objective was to find the right software or service to prepare payroll and file/pay all payroll taxes for a firm with a payroll of 10 employees paid weekly in a specific northern Virginia zip code. Payroll costs should easily integrate with the QuickBooks GL. Once implemented, the firm will be switching from the current manual payroll system.

We started with online quote systems and supplemented what we learned with phone calls and emails to pin down the details.

In payroll processing, as you’ll soon see, the devil is in the details. We compared:

• QuickBooks Basic Payroll
• QuickBooks Enhanced Payroll
• QuickBooks Assisted Payroll
• Paychex
• ADP

If you need to distribute physical checks to employees, there are some fundamental differences between Intuit’s service offerings and the competitors we evaluated. For all of the Intuit services, an organization must print any physical checks it needs to distribute. For all but 1 service plan (Assisted Payroll) it also needs to print any forms that will be distributed to employees, such as W2’s. For ADP & Paychex, delivery of physical checks and forms is either included or available as an extra-cost service. Printing checks and forms is a routine task that QuickBooks users perform regularly. Therefore, if the savings are significant, the small amount of extra work to print any required payroll checks isn’t a big hurdle to adopt Intuit’s services.

QuickBooks Online Payroll provides the “anytime, anywhere” advantage of Software as a Service (SaaS), allowing you to manage payroll from any web-accessible PC. It covers up to 100 employees (a practical limit), but it doesn’t support paying 1099 contractors. It includes the tax payment and filing capability of its more expensive relative, QuickBooks Enhanced Payroll. Of course, it integrates with QuickBooks. With a regular monthly fee of $9.95 per month – more than 60% less than QuickBooks Enhanced Payroll, Online Payroll rocketed to the top of our comparison table.

QuickBooks Basic Payroll is targeted at firms that need to process payroll and want up-to-date tax tables for payroll calculations but will prepare, file, and pay payroll taxes either on their own or with the assistance of their outside accountant. It’s a good value for firms with up to 3 employees, but for an extra cost it can handle an unlimited number of employees. Payroll can be completed by printing a check or making a direct-deposit, but direct deposits carry an extra fee of $0.99 per deposit. QuickBooks Basic Payroll doesn’t meet one of our requirements – filing and paying payroll taxes – but we included it for completeness anyway.

QuickBooks Enhanced Payroll is designed for firms that want to process payroll and prepare, file, and pay payroll taxes. Enhanced, just like Basic, can make payroll with either a paycheck or a direct-deposit, and direct-deposits carry the same extra charge of $0.99 per deposit made. With Enhanced Payroll, a company can file payroll taxes at no cost with E-File and pay those taxes with E-Pay. At year-end, Enhanced Payroll provides the links for a firm to print W2’s on its own hardware and forms.

QuickBooks Assisted Payroll extends the service of Enhanced Payroll¹ to include Intuit preparing, filing, and paying payroll taxes. It also has an extra cost option to supply complete W2 forms at year-end. Effective November 7, 2008 Intuit increased the cost of Assisted Payroll by adding a fee on top of the direct deposit for every employee, no matter how they’re paid. We used the new, higher fees in our cost calculations. All the Intuit services handle up to 3 EIN’s. Of course, strong integration with the QuickBooks GL is standard.

For small businesses, ADP has 3 packages: Compliance, Compliance with Pay Convenience, and Compliance with Pay Convenience and Reporting. Note: The links open images of the actual ADP quotes. Compliance is similar to QuickBooks Basic Payroll except that ADP will supply printed paychecks or make direct deposits; payroll taxes are calculated, but not filed or paid. Compliance with Pay Convenience and Reporting is the most expensive of the 3, and the extra cost is for additional reporting which could be useful in certain environments (e.g., a unionized workplace). ADP’s standard reporting covers most needs. Therefore, we’ll focus on ADP’s Compliance with Pay Convenience, which includes making payroll by paycheck or direct deposit² and paying/filing all payroll taxes. It also includes a QuickBooks GL interface at no cost if a company’s accountant is a contact for the service.

For Paychex, we evaluated two options: its Flexible pay package and Small Biz paperless option. Flexible was the option quoted on the web, but the quote omitted the cost of a number of services to meet our requirements. Small Biz is a new paperless option quoted by the local Paychex rep that offers a cost significantly lower than other Paychex programs, but it lacks a true QuickBooks GL interface and is only a good choice if all employee payments are made by direct deposit.

Now for our comparisons. First, a word about gathering the data. Every service had some extra charges that required digging to unearth. But the significance of these extra charges varied widely. While ADP was the most expensive, it gets high marks for responsiveness and directness. Within a day of requesting our quote, we had a follow-up email from an ADP manager. That in turn prompted more questions from us, and in just a few hours, those questions were fully and directly answered. The upshot: while ADP’s online quote didn’t include a $200 set-up fee and an $84 charge to produce & deliver W2’s, it’s running a special offer through the end of the year that resulted in a final price that’s lower than the online quote after including the $284 in charges that were omitted. That makes ADP’s online estimate fairly conservative.

If ADP was responsive and direct, Paychex was a little harder to work with. Its national sales center wouldn’t give out pricing information, leaving that to a local rep. The local rep provided fast, thorough answers and came up with a recommendation for a different service offering that was 63% below the program quoted online. But if a business is going to have an online quote system and a national sales center, why not let those systems quickly present the company’s best price? More importantly, the cost for the service quoted online was $2028, but the bottom line cost for what we were trying to price was $3889.50, or 92% higher. That’s a lot of extra-cost add-ons that should have been easy to include in the online quote.

Intuit’s payroll team was quickly reachable by phone and provided some of the extra charges that aren’t included on its website. For Enhanced Payroll, all costs are shown on Intuit’s website. However, Intuit’s Assisted Payroll had 1 add-on cost (i. e., the cost for W2’s) that required a phone call to identify. That item bumped the price by about 5%, far less than the 92% jump for Paychex. Assisted Payroll recently experienced a major price increase that wasn’t included on Intuit’s website as of the date it went into effect, but it did make it online by the time we finished this post. For the Intuit offerings, we applied our ProAdvisor/Affiliate discounts, which you can take advantage of by following the links at the top of this page or on our Buy QuickBooks page. The discount for Enhanced Payroll is $50. For Assisted Payroll, Intuit lowers the monthly rate by $9 (to $51 from the new price of $60) and waives the $49 setup fee, for total savings of $157.

You can click on the above image for a larger view or download our updated Payroll Comparison.

So where does that leave us? If a business either has a workforce that only uses direct deposit or is prepared to print its own checks, QuickBooks Enhanced Payroll was the low-cost option that met all of our requirements with the updated pricing QuickBooks Online Payroll is the low-cost option that meets all of our requirements. QuickBooks Enhanced Payroll was also a strong contender. Outside of the Intuit offerings, the Small Biz paperless option from Paychex was the next cheapest solution – but it’s 136% more expensive than QuickBooks Online Payroll. That extra cost comes with a few compromises: there’s no straightforward QuickBooks GL integration and manual checks would have to be produced for every employee not using direct deposit. If we consider the Paychex Flexible and ADP Compliance with Pay Convenience packages, the cost difference is even greater. Paychex Flexible is 543% more than QuickBooks Online Payroll, and ADP’s package is 477% more expensive. The Paychex cost ignores the cost of getting printed checks, which needs to be added to produce a fair comparison to ADP. That puts Paychex 612% more than the QuickBooks Online Payroll Price. Opting for QuickBooks Online Payroll results in savings of over $2676 compared to ADP and over $3418 compared to Paychex. Those savings are hard to ignore.

Intuit’s Assisted Payroll is priced much lower than either Paychex or ADP if a firm needs physical pay checks (which would rule out the Paychex paperless offering), but it’s almost three times the price of QuickBooks Online Payroll. That extra cost gets Intuit to file and pay payroll taxes, along with supplying W2’s. Since Online Payroll includes the no-cost E-File and E-Pay options and the ability to print W2’s, that’s a price difference of almost $1000 for a 10 employee firm for what amounts to a few mouse clicks each pay period.³ Of course, having an outside payroll processor that files and pays taxes imposes a certain discipline on a company, and some firms may find it worth that extra cost for that reason alone.

For a company using QuickBooks, Online Payroll offers compelling savings. Current Paychex and ADP customers getting at least some printed checks and paying rates equivalent to our quotes could cut costs by 90% and 80%, respectively. A 10 employee firm setting up payroll for the first time would face total costs⁴ of less than $16 $12 per week. Those are numbers that are hard to beat.

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1. The monthly charge for Assisted Payroll covers up to 15 employees. Beyond 15, add $2 per employee per pay period. [↩]
2. ADP also offers a debit card option, which can be an attractive option for lower-paid workers that use banking services less frequently. Offering the option can be a way to increase overall acceptance of electronic payment of payroll. [↩]
3. Because of the pricing structure for Assisted Payroll, the price difference grows rapidly for firms with more than 15 employees that pay on a frequency such as a weekly. For example, every employee paid weekly causes the price difference between Assisted and Online Payroll to grow by $104 per year. [↩]
4. This cost doesn’t include costs for payroll check and form printing, if they’re required. [↩]