10 Questions to Ask When Choosing a Payroll Service Provider

Payroll services are a convenient way for small business owners to meet their payroll and tax filing obligations. Rather than struggling to run payroll on your own as you grow, outsourcing to a third-party payroll service provider can save time and make the entire process less complicated.

Whether you’re outsourcing for the first time or considering changing providers, choosing the right payroll specialist for your business is important. Asking these ten questions will ensure you find the best payroll service provider.

Ten Questions to Ask a Payroll Service Provider

1. Which payroll service features does my business require?

The first question you should ask is which payroll service features do you actually need for your small business? To get started, identify any specific payroll or human resources requirements your business may have to determine the best fit. While providers offer a range of service features, some may be less relevant to your situation than others. 

For example, you may or may not require:

• Auto-processing and direct deposit
• Time tracking and access to payroll reports via mobile app
• Online pay stubs and employee self-service portal

2. Which payroll and HR services does the provider offer?

Most big-name, cloud-based payroll providers—like Payworks, Intuit QuickBooks, and ADP—offer a variety of automatic online payroll services with access to custom reports. By engaging a fully-managed payroll service (like Enkel, for example), you can typically expect: 

Payroll Calculation

• Calculation of gross wages or salaries based on hours worked and agreed-upon pay rates.
• Deduction of taxes and other withholdings like social security contributions, public pension plan contributions, health taxes, and federal and provincial taxes.
• Calculation of net pay after all deductions.

Tax Filing and Compliance

• Handling of federal, state, and local tax filings.
• Management of year-end tax forms such as T4s in Canada.
• Ensuring compliance with employment tax laws and updating payroll systems according to new regulations.

Direct Deposit and Payment Processing

• Direct deposit services for electronic transfers of funds into employee bank accounts.

Benefits Administration

• Management of deductions for benefits such as health insurance, retirement plans, and other employee benefits.
• Integration with benefits providers to ensure accurate and timely benefit deductions.

Time and Attendance

• Tracking employee work hours, overtime, sick days, and vacation time.
• Integration with timekeeping systems to ensure accurate pay based on actual hours worked.

Reporting

• Provision of detailed payroll reports for record-keeping and financial analysis.
• Customizable reports on payroll expenses, tax deductions, and other payroll-related metrics.

Employee Self-Service Portals

• Online portals where employees can view their pay stubs, tax forms, and payroll information.
• Features allowing employees to update their personal and direct deposit information.

Customer Support

• Access to payroll experts for help with payroll-related questions and issues.
• Support for both employers and employees regarding payroll and tax inquiries.

Whichever provider you choose, just make sure they comply with payroll legislation and offer support for CRA queries or audits involving payroll.

3. Do they understand my industry?

Since requirements can vary from business to business, it’s important to ask if a payroll service provider has experience in your industry. The more time they’ve spent working with similar companies, the more likely they are to have a thorough understanding of any laws or compliance matters pertaining to your particular business. Here are some examples of industry-specific payroll processing needs:

Restaurants

• Tip Reporting and Allocation: Handling the complexities of tip reporting, including tip credits and pooled tips.
• Compliance with Minimum Wage Laws: Adjusting pay to ensure compliance with the federal and provincial minimum wage laws, as well as special provisions for tipped employees.

Retail

• Seasonal Employment Management: Adjusting payroll systems to manage high turnover rates and seasonal employment spikes, particularly around holidays.
• Flexible Scheduling: Accounting for varied and often unpredictable work schedules, ensuring accurate payroll according to hours worked.
• Commission and Bonus Handling: Incorporating commissions or bonuses into payroll calculations, which can vary greatly from one pay period to another.

Manufacturing

• Union Requirements: Managing union-specific requirements such as wage scales, dues deductions, and benefit contributions.
• Overtime and Shift Differentials: Accurate calculation of overtime pay and shift differentials, which are common in manufacturing settings.
• Safety and Compliance Training Deductions: Deducting costs for mandatory safety gear or compliance training directly from payroll.

Office Work

• Remote Work Reimbursements: Handling reimbursements for expenses incurred by remote workers, such as internet costs or home office supplies.
• Performance Bonuses: Managing and processing performance-based bonuses, which are common in corporate environments.
• Benefits Administration: Integrating complex benefits packages pension plans, health insurance, and other perks.

4. What is their pricing structure?

It’s especially important to consider price when short-listing payroll providers since you’ll want to ensure their service's entire cost fits within your budget. Here are a few initial points to keep in mind:

• Costs can vary depending on the features and integrations a payroll service provides.
• Different providers may charge monthly, annually, or by the pay period. 
• Since cloud-based software is typically used, it’s worth asking individual payroll service providers whether software fees are included or charged separately from service rates.

We recommend compiling and comparing price quotes (including additional fees) side-by-side. Since some providers will offer savings in certain circumstances, you should inquire about these in advance. 

5. How frequently can they process payroll?

Different payroll services routinely offer different processing frequency options. Since your business may have specific expectations around when employees are paid, it’s important to inquire whether a given provider processes payroll weekly, bi-weekly, monthly, or semi-monthly. In Canada, payroll frequency—how often employees are paid—is usually determined by the employer and will vary by industry and company policy. Here are the most common payroll frequencies used by Canadian payroll service providers:

• Weekly: Employees are paid once every week, typically resulting in 52 pay periods per year. This is common in industries with hourly workers, such as construction or hospitality, where employees may prefer more frequent payments.
• Bi-weekly: Employees are paid every two weeks, leading to 26 pay periods per year. This frequency is common across a variety of industries.
• Semi-monthly: Employees are paid twice monthly, often on the 15th and the last day of the month, resulting in 24 pay periods per year. This is frequently used for salaried employees in professional settings.
• Monthly: Employees receive one monthly payment, totalling 12 pay periods per year. This frequency is less common but might be found in governmental or corporate environments.

Each frequency has its benefits and challenges, such as cash flow management for the employer and budgeting ease for the employees. Employers must comply with the minimum standards set by employment legislation in their province or territory, which sometimes dictates the minimum pay frequency.

6. What tax obligations do they handle?

While a good online payroll service will handle all your payroll tax obligations accurately and on time, not every provider assumes the same level of responsibility. This is an important distinction because if you don’t process payroll correctly, you risk incurring financial penalties.

Be sure to ask prospective providers if they:

• Cover year-end tasks like CRA filings and T4 or T4A preparation 
• Submit ROEs automatically to Service Canada
• Offer tax penalty protection

Many automated payroll services, for example, will take responsibility for payroll processing errors.

7. Which payroll software do they use? 

Since you’ll likely need to use cloud-based software to work with an external payroll service provider, it’s important to find out:

• Which software package they use 
• Whether there’s a free trial or demo available to help you determine its user-friendliness

Ideally, you should take any business-managed payroll software you’re considering for a “test drive” before you commit. At the very least, research key components like set-up, dashboard management, and tax law compliance. 

8. How much training will I need?

It’s also a good idea to inquire about the amount of training needed to use a payroll service’s software—and how much of that training they will provide. This will help you gauge the time investment required as you compare the accessibility of different services. 

Don’t forget to clarify exactly what the payroll process will look like and whether you or the service provider defines it. 

9. How secure is their service? 

Your payroll service provider will be handling personal and confidential information. Since a breach could put your business at risk, you must verify they’re well-equipped to safeguard your data’s privacy, integrity, and availability with:

• Firewalls and data encryption technology 
• Multi-factor authentication
• Stringent backup policies

In addition to inspiring trust, your payroll service should support smart integration with budgeting or accounting software you already use (like QuickBooks or Xero, for example) or would like to try using. 

10. What is their customer support like?

Every payroll service provider will have its customer care system. Since you’ll want to know there’s a professional available to assist you when you’re experiencing payroll processing issues, be sure to ask about:

• Customer service contact options (including hours of availability)
• Communication channels are used to provide support. (Can you expect assistance via phone, chat, email, or video call?)
• Whether your business will have a designated payroll specialist or whether you’ll have to speak with someone new each time you need help

Don’t forget the importance of choosing a payroll service provider that can ease workforce management by scaling alongside your business. For example, ensure you can add users and employees to your account as needed.

Ultimately, the more questions you ask, the easier it will be to sift through your service provider options and find the best fit for accurate, timely, hassle-free payroll processing.

Do you have questions about finding an end-to-end payroll solution for your small business? Enkel can help!