Payroll Software for Small Business: 3 Tools Compared (2026)
Payroll software for small business compared honestly: Patriot Software's cheapest self-service vs full-service split, OnPay's one flat plan for employees and contractors together, and Gusto's tiered path into HR, so you can tell which one actually fits a small team.
This article is for educational and informational purposes only and does not constitute financial, tax, legal, or accounting advice. Groundwork is not a licensed financial advisor, accountant, or attorney. Before making decisions, consult a qualified professional.
Payroll software calculates wages, withholds the right taxes, and files them on your behalf so you are not doing that math by hand every pay period. Patriot Software is the cheapest option and lets you choose whether it files your taxes for you or you file them yourself. OnPay has just one plan at a flat price that handles W-2 employees and 1099 contractors together with no tier decisions to make. Gusto costs more but is the one built to grow past payroll into benefits and HR as your team gets bigger. For a solo founder hiring their first employee or contractor, the right pick comes down to one question: do you want the cheapest way to run payroll correctly, or a platform that can grow with you past just the paycheck.
- What payroll software actually does for a small business
- Key terms you need to understand
- What to look for before choosing
- The 3 tools compared
- Patriot Software: the cheapest option, your choice how hands-on
- OnPay: one plan, handles employees and contractors together
- Gusto: the option built to grow into HR
- What payroll software cannot do
- How to get started running your first payroll
- Frequently asked questions
The first time you hire someone, whether that is a part-time contractor or your first full-time employee, payroll stops being a spreadsheet problem and becomes a compliance problem. Get the tax withholding wrong, miss a filing deadline, or misclassify a worker, and the cost is not a bounced invoice, it is a penalty letter from a tax agency.
Payroll software exists to make that math and those deadlines automatic instead of manual. This guide covers three tools built for a small business paying anywhere from one person to a small team, what actually separates them, and where payroll software's job ends and an accountant's begins.
What Payroll Software Actually Does for a Small Business
Every tool in this guide does the same core job: you tell it who you are paying and how much, it calculates gross pay, withholds the correct federal, state, and sometimes local taxes, and either pays that money out (direct deposit or a check) or hands you the numbers to pay it out yourself. The better tools also file the withheld taxes with the right agencies on the right schedule, which is the part most small business owners actually want off their plate.
Where the three tools in this guide genuinely differ is how much of that filing work is included by default, whether contractors and employees are treated as one system or two, and how far the tool goes beyond payroll into HR functions like benefits and time off.
Key Terms You Need to Understand
W-2 employee vs 1099 contractor
A W-2 employee has taxes withheld from every paycheck and gets benefits eligibility. A 1099 contractor is paid gross with no withholding and handles their own taxes. Misclassifying one as the other is a real legal risk, not just a paperwork preference.
Full-service vs self-service payroll
Full-service means the provider files and deposits your payroll taxes for you. Self-service means it calculates the numbers but you are the one submitting the filings and payments. Self-service is cheaper and carries more of the compliance risk yourself.
Pay run
One execution of payroll for a given pay period, covering everyone paid in that cycle. Most tools in this guide allow unlimited pay runs at no extra charge, which matters if you ever need an off-cycle bonus or correction run.
Per-worker fee
Nearly every payroll tool prices as a flat base fee plus a per-person add-on. That per-worker fee matters more than the base price once you are paying more than one or two people, since it compounds every month.
Multi-state payroll
Paying a worker who lives or works in a different state than your business adds a second state's tax filings. Some tools charge extra per additional state, and some gate multi-state payroll behind a higher tier entirely.
Year-end forms
W-2s for employees and 1099-NECs for contractors, plus the summary forms (W-3, 941, 940) filed with tax agencies. Full-service plans generate and file these automatically; self-service plans leave this to you.
What to Look For Before Choosing
Four questions to answer before picking a tool.
The 3 Tools Compared
| Tool | Entry price | Tax filing included? |
|---|---|---|
| Patriot Software | $17/month + $4/worker (Basic) | No on Basic. Yes on Full Service ($37/mo + $5/worker) |
| OnPay | $49/month + $6/worker | Yes, one plan, always included |
| Gusto | $49/month + $6/person (Simple) | Yes, on every tier |
Pricing sourced live from each vendor's own pricing page as of this writing. Payroll pricing changes more often than most software categories, Gusto raised its entry tier from $40 to $49 a month in March 2026, so confirm current pricing before budgeting.
Patriot Software: The Cheapest Option, Your Choice How Hands-On
Patriot splits into two plans that answer the tax-filing question directly instead of burying it in fine print: Basic Payroll calculates everything but leaves filing to you, Full Service Payroll files and deposits your payroll taxes automatically.
Best for
A founder who wants the lowest possible payroll bill and is either comfortable filing payroll taxes themselves (Basic) or wants that handled for a modest step up in price (Full Service). The choice between the two tiers is explicit, not hidden behind an upsell.
Not suited for
A founder who picks Basic Payroll to save money without realizing they are now personally responsible for submitting withheld taxes on schedule. That is a real deadline, not a formality, and missing it carries a penalty. Also not a fit if you need multi-state payroll often, each additional state filing adds $12/month.
Pricing
Basic Payroll: $17/month plus $4 per worker paid. Full Service Payroll: $37/month plus $5 per worker paid, includes federal, state, and local tax filing and deposits plus year-end forms (940, 941, W-2, W-3). Additional state filings run $12/month each on Full Service. A 30-day free trial is available, with a promotional 50% off for 6 months for new signups.
OnPay: One Plan, Handles Employees and Contractors Together
OnPay's whole pitch is refusing to make you choose a tier. One plan, one price, and it treats W-2 employees and 1099 contractors as the same system instead of charging extra to mix the two.
Best for
A founder who has, or expects to have, a mix of W-2 employees and 1099 contractors and does not want to think about which plan tier unlocks which feature. Everything, including full tax filing and hiring/onboarding tools, is included at the one price.
Not suited for
A solo founder paying only themselves or one contractor, where the $49 base fee is a bigger jump from Patriot's $17 than the single-plan simplicity is worth. There is no cheaper self-service tier to step down into.
Pricing
$49/month base plus $6 per worker per month, one plan, no tiers. Includes full federal, state, and local tax filing, unlimited pay runs, hiring and onboarding tools, an employee self-service portal, and benefits administration support. New customers get one month free plus free setup and data migration.
Aziz's take: Do not pick Patriot's Basic plan just because it is the cheapest line item on this page. If you have never filed payroll taxes before, the $20 a month you save by self-filing is not worth the afternoon you will lose figuring out a deadline you did not know existed, or worse, the penalty for missing it. Pay for full-service filing until you have run payroll enough times to know exactly what you are opting out of.
Gusto: The Option Built to Grow Into HR
Gusto is the most recognized name in this category for a reason: it is the only one of the three built as a real tiered product, with a path from "just run payroll" up to a dedicated HR advisor and benefits administration as your team grows.
Best for
A founder who expects to hire past 3 to 5 people within a year and wants the payroll tool to still fit once benefits, multi-state hiring, and next-day pay become real requirements, not hypotheticals.
Not suited for
A founder who just wants to pay one or two people correctly and stop thinking about it. Gusto's Simple tier costs the same base fee as OnPay's only plan while doing less (single-state only, no time tracking), so you are paying Gusto's price for a feature set you will outgrow OnPay's equivalent, not a reason to choose it.
Pricing
Simple: $49/month plus $6/person, single-state payroll, unlimited runs, tax filing, basic PTO tracking. Plus: $80/month plus $12/person, adds multi-state payroll, time tracking, and next-day pay. Premium: $180/month plus $22/person, adds a dedicated service advisor, certified HR expert access, priority support, and custom reporting.
What Payroll Software Cannot Do
These tools solve the calculation and filing problem well. A few adjacent decisions still need something, or someone, else.
What you still need elsewhere
The correct decision on who is an employee and who is a contractor
No payroll tool tells you whether a worker legally qualifies as a W-2 employee or a 1099 contractor. That classification decision happens before payroll software ever gets involved, and getting it wrong is a compliance risk no software catches for you.
Knowing when you are legally required to run payroll at all
If you formed an S-corp, the IRS requires you to pay yourself a "reasonable salary" through payroll before taking distributions, a rule that trips up a lot of new S-corp owners. Our LLC vs S-Corp guide covers when that requirement kicks in.
Making sure payroll numbers land correctly in your books
Payroll software runs payroll. It does not replace reconciling that expense against your actual books. Our AI tools for accounting guide and best accounting software guide cover the tools that handle that side.
How to Get Started Running Your First Payroll
The setup sequence is close to identical across all three tools.
Step 1
Get your federal EIN and state tax accounts set up first
Every tool in this guide needs these before it can file anything on your behalf. If you do not have them yet, this is the actual first step, before comparing software.
Step 2
Classify each worker as W-2 or 1099 before you add them
Decide this correctly up front. Reclassifying a worker after the fact is far more painful than getting it right on day one.
Step 3
Enter pay rate, pay schedule, and direct deposit details
All three tools walk you through this with a guided setup. Confirm your pay schedule (weekly, biweekly, semimonthly) matches what you actually intend to run, since changing it later means re-notifying every worker.
Step 4
Run a test payroll before the real one, if the tool allows it
Confirm the withholding numbers look right before real money moves. A mistake caught before the first live run costs nothing. A mistake caught after means correcting it with the tax agency directly.
Aziz's take: Set up payroll software before you need it, not the week your first hire starts. The EIN and state tax registration steps alone can take longer than you expect, and running your very first payroll under a deadline is exactly when a mistake happens. Treat payroll setup as part of the hiring process, not something you scramble to handle after someone has already agreed to start.
For the tax-filing obligation payroll unlocks if you are structured as an S-corp, see our LLC vs S-Corp guide. For the bookkeeping side once payroll is running, our AI tools for accounting guide and best accounting software guide cover what happens to that expense in your books. If you are tracking your own hours before you ever hire anyone, our time tracking software for freelancers guide covers that earlier stage. For the complete financial picture, start from our small business finance guide.
Frequently Asked Questions
