Cheapest payroll service for one employee

If you’re a small business owner, especially one with just a single employee, the thought of payroll can feel like a daunting and expensive headache. But let’s cut to the chase: the cheapest payroll service for one employee often starts with free options like Square Payroll’s contractor-only plan or low-cost, self-service solutions such as Gusto’s Simple plan or QuickBooks Payroll’s Core plan, which typically run around $45-$50 per month plus a per-employee fee. The key is to find a service that offers just the essentials you need without bloated features, focusing on automation, tax filing, and compliance for your specific one-person payroll scenario. Don’t fall into the trap of overpaying for features you’ll never use. We’ll break down the best options that keep your wallet happy and your payroll compliant, ensuring you don’t waste precious capital on unnecessary bells and whistles.

Navigating Payroll for a Single Employee: The Essentials

When you’re running a lean operation with just one employee, payroll can seem like an oversized task. Yet, getting it right is crucial for compliance and employee satisfaction. The goal isn’t just about finding the absolute “cheapest” but the most cost-effective and efficient solution that meets all your legal obligations without excessive overhead.

Why Payroll Automation is Non-Negotiable, Even for One

Even with a single employee, manual payroll is a recipe for errors and wasted time.

Imagine forgetting to file a tax form or miscalculating withholdings – the penalties can be steep.

• Time Savings: Automation frees you from tedious calculations, ensuring you spend less time on administrative tasks and more on growing your business. Studies show small business owners spend an average of 8 hours per month on payroll-related tasks.
• Accuracy: Payroll software virtually eliminates human error in calculations, deductions, and tax filings.
• Compliance: Tax laws are complex and constantly changing. Good payroll software stays updated with federal, state, and local tax regulations, helping you avoid costly penalties. The IRS assesses billions in penalties each year for payroll tax errors.
• Direct Deposit: Your employee expects to be paid on time and conveniently. Direct deposit is now standard and often expected by employees.

Understanding the True Cost: Beyond the Monthly Fee

The “cheapest” isn’t always what it seems. Look beyond the base monthly fee.

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Consider per-employee fees, setup costs, year-end filing charges, and potential hidden fees for features like direct deposit or advanced reporting. Cheap payroll software

• Base Monthly Fee: This is the core charge for the service.
• Per-Employee Fee: Many services charge an additional fee for each employee on your payroll, typically ranging from $4 to $12 per employee per month. For one employee, this is a fixed, minor addition.
• Tax Filing and Remittance: Does the service automatically calculate, file, and remit payroll taxes on your behalf? This is a critical feature and often impacts the price. Some services offer this at a higher tier.
• Year-End Reporting W-2s, 1099s: Ensure these forms are included in the price or understand the additional cost.
• Support: Access to customer support phone, chat, email can be invaluable, especially when you’re new to payroll.

Differentiating Employees vs. Contractors 1099

This is a critical distinction that significantly impacts payroll service needs and costs.

Misclassifying an employee as a contractor can lead to severe penalties from the IRS.

• Employees W-2: You dictate how and when they work, provide tools, and integrate them into your business. You withhold income taxes, FICA taxes Social Security and Medicare, and unemployment taxes. This requires full payroll services.
• Independent Contractors 1099: They control how they do the work, provide their own tools, and offer services to multiple clients. You generally don’t withhold taxes from their pay, but you must report their earnings via Form 1099-NEC if they earn over $600. Some payroll services offer contractor-only plans, which are significantly cheaper or even free. For example, Square Payroll’s contractor-only plan is free for paying contractors and filing 1099s.

Top Contenders for Cheapest Payroll Services for One Employee

When scrutinizing options for a single employee, we’re looking for value, simplicity, and core compliance at the lowest possible price point. These services often strike the best balance.

Gusto: Simplicity and Automation for Small Teams

Gusto consistently ranks high for user-friendliness and comprehensive features, even at its entry-level.

Its “Simple” plan is a strong contender for one employee. Easy payroll for small business

• Gusto Simple Plan:
  • Cost: Typically around $40/month + $6/employee per month. So, for one employee, you’re looking at ~$46/month.
  • Key Features: Full-service payroll calculations, filings, remittances, direct deposit, employee self-service portal, new hire reporting, benefits administration for health insurance, 401k if needed, though this adds cost.
  • Pros: Extremely intuitive interface, excellent customer support, automatically handles federal, state, and local payroll taxes, offers W-2 and 1099 filing. Scalable as you grow.
  • Cons: Not the absolute cheapest if you only need contractor payments. Benefit administration features might feel like overkill for just one employee if you’re not offering benefits yet.
  • Ideal For: Businesses that want an all-in-one, highly automated solution and are willing to pay a slight premium for peace of mind and excellent user experience.

QuickBooks Payroll: Seamless Integration for QBO Users

If you’re already using QuickBooks Online for your accounting, adding QuickBooks Payroll can provide seamless integration and a unified financial management system.

• QuickBooks Payroll Core Plan:
  • Cost: Approximately $45/month + $5/employee per month. For one employee, this is ~$50/month.
  • Key Features: Full-service payroll, automated tax calculations and filings, direct deposit next-day available, health benefits, and 401k integrations.
  • Pros: Deep integration with QuickBooks Online, making reconciliation and expense tracking much simpler. Handles all tax forms 941, 940, W-2s. Offers strong reporting.
  • Cons: Can be more expensive than some bare-bones options. The user interface can be a bit more clunky than Gusto for some.
  • Ideal For: Existing QuickBooks Online users looking for integrated payroll that simplifies their accounting workflow. The efficiency gains from integration can justify the cost.

Patriot Payroll: Budget-Friendly with Strong Features

Patriot Payroll is often lauded for its affordability without sacrificing essential features, making it a strong contender for budget-conscious small businesses.

• Patriot Full Service Payroll:
  • Cost: Around $30/month + $4/employee per month. For one employee, this is ~$34/month.
  • Key Features: Full-service payroll tax calculations, filings, deposits, direct deposit, employee portal, W-2s. Offers a simpler “Basic Payroll” plan for $10/month + $4/employee if you prefer to handle tax filings yourself not recommended for most.
  • Pros: Very competitive pricing for full-service payroll. Good customer support. Straightforward to use. Offers a free trial.
  • Cons: User interface is not as modern or visually appealing as Gusto or QuickBooks. Fewer integrations with other business software compared to larger players.
  • Ideal For: Small businesses looking for the absolute cheapest full-service payroll option that still automates tax filings and offers reliable service.

Square Payroll: Great for Contractors, Growing for Employees

Square Payroll is known for its free contractor payment services and competitive pricing for employee payroll, especially if you already use Square’s other products.

• Square Payroll Employee Plan:
  • Cost: Around $35/month + $5/employee per month. For one employee, this is ~$40/month.
  • Key Features: Full-service payroll, tax filings and remittances, direct deposit next-day, time tracking integration if using Square POS or Team Management, W-2s and 1099s.
  • Pros: Free contractor-only payroll processing and 1099 filing. Excellent for businesses that employ both W-2s and 1099s. Seamless integration with other Square products POS, scheduling. User-friendly mobile app.
  • Cons: Less robust benefits administration compared to Gusto. Might not be ideal if you don’t use other Square services.
  • Ideal For: Businesses that primarily rely on contractors but are now adding a W-2 employee, or those already embedded in the Square ecosystem for payments or POS.

Considerations Before Choosing: Beyond the Price Tag

While price is a primary driver, several other factors can significantly impact your experience and overall cost-effectiveness.

Don’t compromise on these essentials just to save a few dollars. Top payroll companies

Ease of Use and Setup Process

You’re a small business owner, not a payroll expert.

The service you choose should be intuitive, with a clear setup process and easy navigation.

• Onboarding: How straightforward is it to get started? Do they offer guided setup or import tools?
• Daily Operations: Can you easily run payroll, add new hires, or make adjustments without needing to consult a manual or customer support every time?
• Employee Self-Service: Does your employee have access to a portal to view pay stubs, update personal info, and manage tax withholdings W-4? This significantly reduces administrative burden on you.

Tax Filing and Compliance Management

This is where the rubber meets the road.

Incorrect or late tax filings lead to penalties, which quickly erase any savings from a “cheaper” service.

• Automated Federal, State, and Local Tax Filings: Ensure the service automatically calculates, files, and remits all necessary payroll taxes Form 941, 940, state unemployment, etc.. This is non-negotiable for true peace of mind.
• New Hire Reporting: Compliance with state new hire reporting laws is crucial. Does the service handle this automatically?
• Year-End Forms: Does the service generate and file W-2s for employees and 1099s for contractors, and deliver them to the relevant parties?

Integration with Accounting Software

A major time-saver and accuracy booster is a payroll service that integrates seamlessly with your existing accounting software e.g., QuickBooks Online, Xero, FreshBooks. Workful pricing

• Eliminate Manual Entries: Automatic syncing of payroll data to your general ledger prevents double entry and reduces errors.
• Real-time Financial Picture: Integrated systems give you a more accurate and up-to-date view of your business’s financial health, including payroll expenses.
• Report Generation: Easier to pull comprehensive financial reports that include payroll costs for budgeting and analysis.

Customer Support Quality and Accessibility

When you have a payroll question, you need answers fast.

Good customer support can be the difference between a minor hiccup and a major headache.

• Channels: Do they offer phone, email, and chat support?
• Hours of Operation: Are they available during your working hours, or are you limited to specific windows?
• Knowledge Base: Is there a robust online help center or FAQ section for self-service problem-solving?
• Responsiveness: How quickly do they respond to inquiries? Check online reviews for common complaints or praises regarding support.

Free and Low-Cost Alternatives: When to Consider Them

For some very specific scenarios, you might consider alternatives to traditional full-service payroll software.

However, proceed with caution, as these often shift the burden of compliance onto you.

Manual Payroll Not Recommended

While technically “free” in terms of software cost, manual payroll is incredibly risky and time-consuming, even for one employee. Free payroll software for small business

• Risks: High probability of errors in calculations, missed deadlines, and non-compliance with tax laws, leading to significant fines and penalties.
• Time Sink: Requires you to manually calculate gross pay, withholdings federal, state, local income tax, FICA, FUTA, SUTA, net pay, and then manually file and remit all taxes. This is a complex and often updated process.
• Best Use Case: Absolutely none. The potential savings are dwarfed by the risks and time investment. Avoid this path.

Using Free Contractor Payment Services e.g., Square Payroll’s Free Plan

If your “employee” is actually an independent contractor, you have a much cheaper and simpler path.

• Square Payroll Free for Contractors: This is genuinely free for paying 1099 contractors and handles their year-end 1099-NEC filings.
• PayPal/Venmo for Contractors: While you can send payments, these platforms don’t handle 1099 filing or compliance for you. You’d still need to track payments and issue 1099-NECs manually or via a separate service.
• Benefits: Saves significant money if you only deal with contractors.
• Drawbacks: Does not handle W-2 employees. Misclassifying an employee as a contractor can lead to serious legal and financial repercussions. Always consult a tax professional or legal expert if unsure about classification.

DIY Payroll Tax Filings e.g., Patriot Basic Payroll

Some services offer cheaper plans if you handle the tax filings yourself.

This is a step up from fully manual but still carries significant risk.

• Patriot Basic Payroll: Offers payroll calculations, direct deposit, and employee portals, but you are responsible for filing all federal, state, and local payroll taxes yourself.
• Risks: You must stay up-to-date on all tax laws, filing deadlines, and correct forms. One missed deadline or incorrect form can lead to penalties. Payroll taxes involve several different federal and state forms e.g., Form 941 quarterly, Form 940 annually, state unemployment and withholding forms, W-2s.
• Best Use Case: Only for highly experienced business owners with a strong understanding of payroll tax laws, or those working closely with a dedicated accountant who handles all filings. For most, the added cost of full-service payroll for automated tax filing is a worthwhile investment.

Ensuring Halal Practices in Your Business Operations

As a Muslim professional, ensuring your business operations adhere to Islamic principles is paramount.

This includes how you manage finances, employees, and contracts. Hr for small businesses

While payroll services themselves are typically neutral, the underlying financial principles of your business should align with halal guidelines.

Avoiding Riba Interest in Financing and Debt

Many small businesses rely on loans or lines of credit.

It’s crucial to seek out interest-free financing options.

• Conventional Loans and Credit Cards: These typically involve interest riba, which is strictly forbidden in Islam. Even if your payroll service integrates with financial tools that offer interest-based credit, avoid using those specific features.
• Halal Alternatives:
  • Qard Hasan Goodly Loan: An interest-free loan, often from family or friends, repaid in full without addition.
  • Murabaha Cost-Plus Financing: Where a financial institution buys an asset you need and sells it to you at a pre-agreed profit margin. This is common in Islamic banking for equipment or property.
  • Musharakah Partnership: A joint venture where both parties contribute capital and share profits and losses according to a pre-agreed ratio.
  • Saving and Self-Funding: The most straightforward halal approach is to operate within your means and save up for necessary investments.
• Impact on Payroll: While direct payroll services don’t charge interest, if you rely on interest-based debt to meet payroll, the overall operation would be non-compliant.

Ethical Employment Practices

Islam emphasizes fairness, justice, and kindness in all dealings, especially with employees.

• Fair Wages: Pay your employee a just wage that allows them to live honorably and meet their needs. The Prophet Muhammad peace be upon him said, “Give the laborer his wages before his sweat dries.”
• Timely Payments: Ensure salaries are paid on time, as delayed payments can cause hardship. Payroll services facilitate this through direct deposit.
• Clear Terms of Employment: Have clear contracts that outline responsibilities, hours, and compensation. Most payroll services help with new hire reporting and offer employee self-service portals to view pay stubs, promoting transparency.
• Respect and Dignity: Treat your employee with respect, dignity, and kindness. This is a core Islamic value.
• Safety and Well-being: Provide a safe working environment and ensure their well-being is considered.

Transparency and Honesty

In all financial transactions, transparency and honesty are key Islamic principles. Online payroll services for small business

• Accurate Records: Maintain accurate and transparent payroll records, which is a strength of automated payroll services.
• Tax Compliance: Fulfilling tax obligations to the government as long as the taxes themselves are not collected for forbidden activities is generally considered a civic duty in Islam, as it contributes to the welfare of society. Payroll services help ensure accurate tax calculation and timely filing.
• Avoidance of Deception: Do not engage in any form of deception, fraud, or misrepresentation in your business dealings or employee relations.

By integrating these Islamic ethical considerations into your business, you not only ensure compliance with your faith but also build a more robust, respected, and sustainable enterprise.

The selection of a payroll service should be viewed through the lens of efficiency and compliance, allowing you to focus on the broader ethical conduct of your business.

Optimizing Payroll Workflow for One Employee

Even with one employee, an optimized payroll workflow can save significant time and prevent stress.

The right payroll service empowers this efficiency.

Setting Up Payroll Correctly from Day One

Getting the initial setup right is crucial. Most payroll services offer guided setup wizards. Online payroll services

• Business Information: Ensure your Federal Employer Identification Number EIN, state tax IDs, and business address are accurately entered.
• Employee Information: Collect all necessary details from your employee: name, address, Social Security Number, W-4 form for federal tax withholdings, and state tax withholding forms if applicable.
• Pay Schedule: Decide on a consistent pay frequency weekly, bi-weekly, semi-monthly, monthly. Bi-weekly or semi-monthly are common.
• Direct Deposit: Encourage your employee to set up direct deposit. It’s faster, more secure, and usually included with payroll services.
• Benefits if offered: If you’re providing health insurance, retirement plans, or other benefits, ensure these deductions are accurately set up.

Leveraging Automation for Recurring Tasks

The primary benefit of a payroll service is automation. Maximize it.

• Auto-Payroll: Many services offer “auto-payroll” features where, once set up, payroll runs automatically if hours are consistent. You simply review and approve.
• Automated Tax Filings: Confirm your chosen service handles all federal, state, and local tax calculations, filings, and payments automatically. This is a huge time-saver and compliance safeguard.
• New Hire Reporting: Ensure the system automatically reports new hires to the relevant state agencies.
• Year-End Forms: The service should automatically generate and file W-2s and 1099s.

Time Tracking Integration If Applicable

If your single employee has variable hours or works on projects, integrating time tracking is vital.

• Built-in vs. Third-Party: Some payroll services have built-in time tracking, while others integrate seamlessly with popular time tracking apps e.g., TSheets, When I Work.
• Accuracy: Ensures employees are paid accurately for the hours they work, reducing disputes and errors.
• Efficiency: Time data automatically flows into payroll, eliminating manual entry.

Employee Self-Service Portals

Empower your employee to manage their own information.

• Access to Pay Stubs: Employees can view and download their current and past pay stubs anytime, reducing requests to you.
• Update Personal Information: Employees can update their address, direct deposit information, or W-4 forms directly through the portal, reducing your administrative burden.
• W-2 Access: At year-end, they can securely access their W-2 forms.

Potential Pitfalls and How to Avoid Them

Even with the “cheapest” service, mistakes can be costly. Be proactive in avoiding common payroll pitfalls.

Misclassifying Employees vs. Contractors

This is the biggest and most expensive mistake. The IRS scrutinizes worker classification. Payroll companies

• IRS Guidelines: Review IRS Publication 15-A Employer’s Supplemental Tax Guide and Form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding if unsure.
• Control Test: The IRS primarily uses the “control test.” Do you control what work is done and how it’s done? Do you provide tools, training, and set hours? If so, they’re likely an employee.
• Consequences: Misclassification can lead to back taxes employer and employee portions, interest, and significant penalties. The IRS can assess penalties up to 100% of unpaid taxes plus interest.
• Solution: When in doubt, consult a tax professional or labor attorney. If you have an employee, use an employee payroll service. If you have a contractor, a free contractor-only service might suffice.

Missing Tax Deadlines or Incorrect Filings

Payroll taxes are due frequently quarterly, annually and have strict deadlines.

• Consequences: Penalties for late payment can be up to 15% of the unpaid tax, plus interest. Penalties for failure to file can also apply.
• Solution: Use a full-service payroll provider that automates tax calculations, filings, and remittances. This is the single best way to avoid these penalties. Set up reminders and double-check that payments have been made on time.

Inaccurate Record Keeping

Poor records can lead to disputes with employees, tax auditors, or even former employees.

• Consequences: Difficulty in proving compliance, potential lawsuits, or inability to defend against tax audits.
• Solution: Leverage your payroll software’s robust reporting features. Maintain digital records of all pay stubs, tax forms, and employee details. Back up your data regularly. Most reputable payroll services securely store all your payroll records.

Choosing a Service That Doesn’t Scale

While you only have one employee now, your business might grow.

• Consequences: Having to switch payroll providers can be a hassle, involving data migration, new setup, and employee re-onboarding.
• Solution: Consider providers that offer tiered plans like Gusto or QuickBooks Payroll that can easily accommodate additional employees and more complex needs as your business expands, without requiring a complete system overhaul. Look at their next-tier pricing structure.

Final Recommendations for One Employee Payroll

For the absolute cheapest and most reliable payroll service for one employee, focus on providers that offer comprehensive tax filing and remittance at a competitive price.

• For the Budget-Conscious but Compliance-Focused:
  • Patriot Full Service Payroll: At around $34/month, it’s hard to beat for full-service tax automation. It’s lean, effective, and reliable.
• For the User Experience and Integrations Enthusiast:
  • Gusto Simple Plan: At about $46/month, it provides an incredibly intuitive interface, robust automation, and excellent support, making payroll feel effortless.
• For Existing QuickBooks Users or Square Ecosystem Users:
  • QuickBooks Payroll Core: Around $50/month, offering seamless integration with QuickBooks Online, which can significantly streamline your overall accounting.
  • Square Payroll Employee Plan: Around $40/month, especially compelling if you already use Square’s other services or also deal with 1099 contractors for whom their service is free.

Ultimately, the goal is to make payroll a non-issue. Arachnospace.com Reviews

Invest a little upfront in a reliable service that automates the complexities, handles your tax obligations, and leaves you free to focus on what truly matters: growing your business in a halal and ethical manner.

Don’t compromise on compliance to save a few dollars.

The penalties for non-compliance are far more expensive.

Frequently Asked Questions

What is the cheapest payroll service for one employee?

The cheapest full-service payroll options for one employee typically include Patriot Full Service Payroll around $34/month, Square Payroll around $40/month, and Gusto Simple around $46/month.

Can I do payroll myself for one employee?

Yes, you can do payroll yourself for one employee, but it is highly discouraged. It’s complex, time-consuming, and carries significant risks of errors, missed tax deadlines, and hefty IRS penalties. Rankozy.com Reviews

Is Gusto or QuickBooks Payroll cheaper for one employee?

Patriot Full Service Payroll is generally cheaper than both Gusto and QuickBooks Payroll for one employee.

Between Gusto and QuickBooks, Gusto’s Simple plan around $46/month is often slightly cheaper than QuickBooks Payroll Core around $50/month for a single employee.

How much does it cost to run payroll for one person?

The cost to run payroll for one person using a dedicated service typically ranges from $30 to $50 per month, encompassing the base fee plus the per-employee fee.

Do I need payroll software for one employee?

Yes, it is strongly recommended to use payroll software for one employee to ensure accuracy, compliance with tax laws, and automation of tax filings and payments.

Can Square Payroll be used for just one employee?

Yes, Square Payroll offers a plan specifically for W-2 employees around $35/month plus $5/employee and a free plan for paying independent contractors. Pampeano.co.uk Reviews

What’s the difference between an employee and a contractor for payroll purposes?

An employee W-2 is someone you control how and when they work, and you withhold taxes from their pay. An independent contractor 1099 controls how they work and you generally don’t withhold taxes, only report their earnings via Form 1099-NEC. Misclassifying them can lead to significant penalties.

What payroll taxes do I pay for one employee?

For one employee, you typically pay federal income tax withholding collected from employee, Social Security and Medicare taxes FICA – both employer and employee portions, Federal Unemployment Tax FUTA, and state unemployment tax SUTA, plus any state or local income tax withholding.

How do payroll services help with tax filings?

Most full-service payroll providers automatically calculate, file, and remit all federal, state, and local payroll taxes on your behalf, ensuring compliance and preventing late payment penalties.

Do payroll services handle W-2s and 1099s?

Yes, reputable full-service payroll services will automatically generate, file, and distribute W-2 forms for employees and 1099-NEC forms for independent contractors at year-end.

Is direct deposit included in cheap payroll services?

Yes, direct deposit is a standard feature included in virtually all modern payroll services, even the cheaper ones, as it’s efficient and preferred by employees. Realboilerservicing.com Reviews

Can I get a free payroll service for one employee?

You can get a free payroll service for paying independent contractors e.g., Square Payroll’s free plan. However, there are no truly free full-service payroll options for W-2 employees that handle all tax filings, as this involves significant compliance responsibility.

What happens if I make a payroll error for one employee?

Payroll errors can lead to underpayment or overpayment of wages, incorrect tax withholdings, and potentially significant penalties from the IRS or state tax authorities for incorrect or late filings.

How long does it take to set up payroll for one employee?

Setting up payroll for one employee with a service can typically be done within an hour or two, assuming you have all your business and employee information readily available.

Do I need to report new hires for a single employee?

Yes, all new hires, even a single employee, must be reported to the relevant state new hire reporting agency. Most payroll services automate this process.

What integrations should I look for in a payroll service?

Look for integrations with your existing accounting software e.g., QuickBooks Online, Xero and potentially time tracking software if your employee’s hours vary. Second-nature.nl Reviews

Can a payroll service help with benefits administration for one employee?

Yes, many payroll services, even their lower-tier plans, offer integrations or basic support for health benefits, 401k, and other benefits, although the cost of the benefits themselves would be separate.

Is customer support important for one-employee payroll?

Yes, absolutely. Even with one employee, payroll can be confusing.

Good customer support phone, chat, email can save you a lot of headaches when questions or issues arise.

How often do I need to run payroll for one employee?

The frequency depends on your chosen pay schedule e.g., weekly, bi-weekly, semi-monthly, monthly. Most small businesses opt for bi-weekly or semi-monthly.

What if my single employee is also my spouse or family member?

Payroll rules apply similarly for family members who are legitimate employees. Vintage-motorcycle.com Reviews

However, there can be specific tax implications or exceptions for spouses, especially in terms of FUTA and Medicare/Social Security taxes, which a good payroll service or tax advisor can clarify.