How much should a small business spend on payroll software?

Ask a small business owner what payroll costs and you'll usually hear two numbers: the wages themselves, and a monthly bill from a payroll provider that nobody remembers signing up for at that price. The first number is the business. The second is worth a hard look — because for a team of five or ten people, it quietly adds up to $1,000 a year or more, every year, for work that is mostly arithmetic.

What a small team actually pays

Most payroll services charge a monthly base fee plus a fee for every employee you pay. Here is what that works out to over a year at each vendor's published regular price, before any add-ons:

Published regular prices, checked September 2026. Paychex prices by quote only. Add-ons such as next-day deposits, time tracking or filing in a second state cost extra.

A ten-person business on a mid-tier plan can spend well over $2,000 a year. Even the budget option crosses $1,000 for a ten-person team once it files the taxes for you. Against a $250,000 payroll, $1,000 is only 0.4% — but it is pure overhead, and it grows every time you hire.

What that money actually buys

It helps to split a payroll subscription into the jobs it does:

• The arithmetic. Federal withholding from each employee's W-4, Social Security and Medicare, federal and state unemployment, state income tax. The formulas are published by the IRS and the states — software has made this part a commodity.
• The paperwork. Pay stubs, the quarterly Form 941, the annual Form 940, W-2s and W-3, and state wage reports. The official forms themselves are free.
• Paying and filing for you. Moving tax money to the IRS and state agencies and submitting the returns on your behalf. This is the genuinely hands-off part.
• Direct deposit. Convenient — but your business bank can almost always send the same payments.

The first two are where most of the effort used to be, and they are exactly the parts that free software now does just as well. The last two save you a few minutes each payday and a few deadlines a year. Whether that is worth $1,000 or more a year is the real question.

When paying for full service makes sense

There are good reasons to hand payroll off entirely:

• You have employees in many states or cities with their own local taxes.
• Your team is large or changes constantly, or you pay tips, commissions and bonuses every run.
• You simply don't want to think about a deposit or filing deadline ever again.

If that is you, a full-service provider earns its fee. But a five-person business in one state, paying the same people every two weeks, is paying for a service it could do itself in a few minutes a payday.

Is it easy to do payroll for free online?

Yes. Everything you need is available online, and none of it has to cost anything:

1. Set up once. Get an EIN from the IRS (free), register with your state for withholding and unemployment accounts, enroll in EFTPS — the Treasury's free system for paying federal payroll taxes — and create a free Social Security Business Services Online account for filing W-2s.
2. Collect a W-4 from each employee, plus your state's withholding form if it has one.
3. Run payroll with free software. Enter hours; the software calculates withholding, Social Security, Medicare and state taxes, and produces a pay stub for everyone.
4. Pay your people by direct deposit through your business bank, or by check.
5. Deposit the taxes through EFTPS on the schedule the IRS gives you — most small employers deposit monthly.
6. File on time. Form 941 is due each quarter (April 30, July 31, October 31 and January 31); Form 940 and W-2s are due January 31. Good free software fills in the official forms for you and reminds you before each deadline.

After the first setup, a regular payroll run takes minutes: check the hours, review the numbers, pay. The quarterly and year-end filings take a little longer, but when the forms are already filled in with your numbers, the job is checking and submitting, not calculating.

The honest trade-off

Free payroll means you press submit — on the tax deposit, the 941 and the W-2s. The software does the hard part, but you own the deadlines. For most small teams that is a reasonable trade for keeping anywhere from a few hundred to a couple of thousand dollars a year. If it isn't, you can always move to a paid service later; the numbers you have been running carry over.

That is why we built PayrollZero: unlimited payroll runs, federal and state tax calculation, pay stubs, the official 941 and 940, W-2s with an EFW2 file for e-filing, and deadline reminders — free for up to 10 employees, in your browser, with nothing to install. You can see every feature with screenshots, or compare it with Patriot Software and Paychex.

This article is general information, not tax or legal advice. Payroll rules vary by state — check your own obligations, or ask an accountant, before relying on it. Gusto, Patriot Software and Paychex are trademarks of their respective owners and are not affiliated with PayrollZero; confirm current pricing with each vendor.