Payroll Cost Calculator 2026

Small business payroll services cost $40–$200/month for 1–10 employees. Gusto is the most popular for small businesses at $40 base + $6/employee/month ($70/month for 5 employees). ADP and Paychex offer more HR features but at higher prices.

Gusto is better for most businesses under 25 employees — simpler interface, lower cost, and includes health benefit administration. ADP and Paychex are better for 50+ employees who need advanced HR, compliance support, and 401k administration.

Employer payroll tax rates: Social Security (FICA): 6.2% of wages up to $168,600. Medicare: 1.45% of all wages (no cap). Federal Unemployment (FUTA): 6% on first $7,000/employee (net 0.6% after state credit). State Unemployment (SUTA): varies 0.1%–6.8% by state and claims history. On a $50,000 salary, total employer payroll tax adds approximately $3,825–$5,000/year.

Yes, but it's high-risk for most businesses. DIY payroll requires: calculating withholding, filing Form 941 quarterly, making timely federal tax deposits (penalties up to 15% for late payment), filing W-2s by January 31, handling state tax filings separately. The IRS charges 40% of all small business penalties for payroll tax errors. For most businesses, the cost of a payroll service ($40–$200/month) is far less than the risk of a single compliance mistake.

Payroll software (like Excel templates or basic tools) calculates paychecks but you still file taxes manually. Full-service payroll (Gusto, ADP, Paychex) handles everything: calculates, pays employees, files and pays federal and state payroll taxes, and generates W-2s/1099s. The $40–$200/month you pay a service includes tax filing — which saves 5–10 hours per month and eliminates compliance risk. Full-service is the right choice for nearly all small businesses.

Average cost per employee: Gusto = $6/employee/month. QuickBooks = $5/employee/month. ADP Run = $4–$8/employee depending on tier. Paychex = $4–$7/employee. When comparing, factor in the base fee: $40–$80/month base + per-employee fee. For 3 employees: Gusto = $58/month ($19/employee). For 15 employees: Gusto = $130/month ($8.67/employee). Volume reduces effective per-employee cost.

Yes — payroll service fees are 100% tax deductible as a business expense on Schedule C (sole proprietors), Form 1120-S (S-corps), or Form 1065 (partnerships). Additionally, your employer payroll tax payments (FICA, FUTA, SUTA) are fully deductible business expenses. Document all payroll service invoices and keep records for at least 4 years per IRS retention requirements.

For businesses primarily paying 1099 contractors: Gusto handles both W-2 employees and 1099 contractors in the same platform (contractor-only plan: $6/contractor/month with no base fee). QuickBooks Payroll and Wave Payroll also handle 1099s. If you only have contractors, Wave Payroll is free for contractor payments. For mixed workforce (employees + contractors), Gusto's unified platform is the most seamless option.

Common payroll service fees beyond the advertised base price: (1) Year-end W-2 and 1099 filings: $50–$150 extra (some services include this in higher tiers). (2) New hire reporting: typically included, but some services charge per report. (3) Off-cycle payroll runs: $25–$75 per additional run outside your normal schedule (common for corrections or bonuses). (4) Garnishment processing: $5–$25 per garnishment per pay period (child support, tax levies). (5) Next-day or same-day direct deposit: $10–$25 extra per run vs. standard 2–4 day ACH. (6) HR add-ons: benefits administration, PTO tracking, and onboarding tools are often sold as upgrades ($6–$12 per employee per month extra). (7) State tax registration assistance: $100–$300 if you need help registering in a new state. Always request a full fee schedule before signing up — the total cost for a 5-person company can be 30–60% higher than the advertised base + per-employee rate.

Switching payroll providers is straightforward if done correctly. Step-by-step process: (1) Choose your new provider and set your go-live date (beginning of a new quarter is ideal — avoids splitting quarterly tax reports). (2) Export all payroll data from your current provider: year-to-date payroll totals, employee tax withholding records, benefit deduction records. (3) Set up your new provider with employee information 2–3 weeks before go-live — most providers offer free setup assistance. (4) Run a parallel test payroll (not for payment) to verify accuracy. (5) Notify employees of the new payroll system 1–2 weeks before the change. (6) Keep your old account active through end-of-year W-2 filing (or confirm your new provider handles W-2s for the full year). Best time to switch: January (new tax year), or start of any new quarter. Switching mid-year requires careful handling of year-to-date tax records — most providers manage this automatically. Cost of switching: typically free — new providers earn your business and provide migration support at no charge.