Basic Payroll

UPDATE: Time never stands still, and that aphorism certainly applies in the payroll service world. This article has become one of our most popular, so with all of the changes in payroll services for QuickBooks customers, it was overdue for a refresh. At long last, here it is.

Best Choice for Payroll Processing for 1 Company:

Best Choice for Payroll Processing for Up To 3 Companies

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 undertook a comparison of 3 big payroll services: Intuit, ADP, and Paychex. We did our initial comparison in late 2008, and we freshened that analysis at the start of 2011.

Since our initial analysis, there were some big changes in the payroll processing world. In 2009, Intuit acquired PayCycle for about $170 million. PayCycle was one of the largest players in the online payroll processing market, and the acquisition added significantly to its share of this market. The big impact: Intuit’s focus on online payroll products has increased.

Since we conducted our initial analysis more than 2 years ago, the cost of Intuit’s online payroll offerings has either dropped by 24% or gone up by 4%, depending on the product you choose, and there are more online products from which to choose. In the same time period, the effective cost of its desktop payroll products has jumped by 32%. It’s easy to see that Intuit is encouraging users to process payroll online by making the online service offerings more capable and widening the price gap to similar desktop products.

Let’s see how the 3 payroll service providers stack up in 2011.

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:

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

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.

Intuit 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). Depending on the version of Online Payroll you choose, it includes the tax payment and filing capability of its more expensive relative, QuickBooks Enhanced Payroll. Of course, it integrates with QuickBooks.

Intuit Online Payroll comes in 2 flavors: Basic and Plus with monthly costs of $25 and $39 respectively.1 Quoted monthly costs don’t tell the whole story. The standard monthly fee includes service for 1 employee, and every additional employee costs $1.50 per month. For a 10 employee company, that takes the monthly costs up to $38.50 for Basic and $52.50 for Enhanced. Offsetting that jump in monthly cost is the fact that Intuit Online Payroll does not charge extra for direct deposit fees. Another consideration is that Online Basic doesn’t support paying 1099 contractors, but Online Plus does.2 Online Basic doesn’t complete state tax forms – an important task in payroll processing. One other wrinkle: Intuit Online Payroll Plus provides state tax processing for 1 state at its standard monthly rate; every additional state is an extra $12 per month. Although we include it in our comparison table, we can’t consider Online Basic as a viable contender in our comparison.

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. Despite the “Basic” in its name, this is a desktop product and is separate from Online Basic. QuickBooks Basic Payroll is a good value for firms with up to 3 employees, and 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 $1.25 per deposit. When combined with your payroll frequency, this direct deposit fee has a big impact on the smart choice for payroll processing. If you pay frequently, it tips the scales to a service like Online Payroll Plus that doesn’t carry a direct deposit fee. Like Online Basic’s lack of state payroll tax processing, QuickBooks Basic Payroll doesn’t meet one of our requirements – filing and paying payroll taxes. Therefore, the desktop Basic Payroll is just included for completeness.

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 $1.25 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 Payroll3 to include Intuit preparing, filing, and paying payroll taxes. It also has an extra cost option to supply complete W2 forms at year-end. Of course, strong integration with the QuickBooks GL is standard.

One of the important differentiators for Intuit payroll service offerings is the number of different employer identification numbers supported. An employer identification number (EIN), or tax identification number, is a unique number issued to a business. If you need to process payroll for several businesses, don’t overlook the number of EIN’s supported, because this detail can completely change the outcome of this comparison. QuickBooks Assisted Payroll and Intuit Online Payroll, including Basic and Plus, are designed to process payroll for a single EIN. If you have 3 companies that need payroll processing, plan on buying 3 subscriptions. QuickBooks desktop-based Basic and Enhanced handle up to 3 EIN’s.

All of the Intuit payroll offerings feature direct deposit. Many employers are finding that some employees want to be paid by funding a debit card. That’s a common need for employees that don’t have easy access to a bank or don’t feel comfortable using online banking features. Intuit has addressed this need with its own Intuit-branded debit card called the Intuit PayCard, and any direct deposit payroll payment can make use of this capability.

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 deposit4 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.

In fairness to both ADP and Paychex, we didn’t spend a lot of time updating their pricing, but their approach to marketing their services is to blame. For all of the Intuit offerings, any visitor to the company’s website can see a plainly visible price. To be sure, that price needs to be adjusted for details often buried in footnotes. In contrast, a visitor to the sites of ADP and Paychex won’t find pricing in plain sight. Pricing is only available with a phone call or a contact form submission. Business owners quickly learn a rule of web marketing: if a company doesn’t openly publish prices, its prices aren’t the lowest. Intuit deserves a lot of credit for its relative price openness. There’s still room for improvement, but Intuit is well ahead of ADP and Paychex when it comes to pricing transparency.

Now for our comparisons. First, a word about gathering the data. Our first stop was the website for each service, and in our first pass we followed up with phone calls and emails to company reps. As noted above, for our latest update, we checked in with Intuit but didn’t have time to pursue updated quotes from ADP and Paychex.

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, in our initial comparison it got 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.

If ADP was responsive and direct, Paychex was a little harder to work with in our first go-round. 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 or easily located 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. For Enhanced Payroll, the savings is about $112.

You can click on the above image for a larger view or download our updated 2011 Payroll Comparison. 5

Conclusion

So where does that leave us? If yours is a single business processing weekly payroll in 1 state that uses direct deposit for all of its employees, Intuit Online Payroll Plus is your best bet. Take note of our emphasis on weekly payroll, because your payroll frequency has a big impact on your choice. If you only process payroll monthly, the desktop-based QuickBooks Enhanced Payroll is cheaper. With 12 pay periods triggering fewer direct deposit fees, Enhanced Payroll costs about $411.80 compared to $630 for Online Payroll Plus.

If you need to process payroll for more than 1 employer identification number, QuickBooks Enhanced Payroll is the clear winner. At 52 pay periods per year, our chart shows QuickBooks Enhanced Payroll costs $911.80. For 2 or 3 companies, that cost doesn’t change. For QuickBooks Online Payroll Plus, it jumps to $1260 for 2 companies and $1890 for 3. That’s a jump of 38% and 107% respectively.

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 more than 3 times the price of QuickBooks Online Payroll Plus. That extra cost gets Intuit to file and pay payroll taxes, along with supplying W2’s. Since Online Payroll Plus 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.6 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 companies using QuickBooks, Online Payroll Plus and QuickBooks Enhanced Payroll offer 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 weekly payroll for the first time would face total costs7 of $12 to $18 per week. Those are numbers that are hard to beat.

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1. There’s a third option, Household, at $20 per month, but we’ll skip it for terms of this comparison. [↩]
2. Intuit doesn’t make it clear that Online Plus supports 1099 contractors, but the virtually identical Plus product from Intuit subsidiary PayCycle does, as this PayCycle product comparison table sets forth. [↩]
3. The monthly charge for Assisted Payroll covers up to 15 employees. Beyond 15, add $1 per employee per pay period. Assisted Payroll isn’t available in IN and WY. [↩]
4. 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. [↩]
5. For a copy of our original data, check out our 2008 Payroll Comparison. [↩]
6. 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. [↩]
7. This cost doesn’t include costs for payroll check and form printing, if they’re required. [↩]