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Micah Fairchild Paychex’s Payroll: A Small Business Solution Independent Analysis

3.5 stars Average rating: 3.5 (from 206 votes)
 By Micah Fairchild

Paychex’s Small Business Payroll: A Hybrid Solution in an Outsourced World

Part payroll outsourcing service and part web-based payroll software, Paychex is another company within the small business payroll world that operates under a hybrid model. Founded in 1971, Paychex is hands-down one of the leading providers of payroll, human resource, and benefits outsourcing solutions for the SMB market—serving nearly 600K clients and remaining on a sales increase that has extended for several years. And while not always the best solution for the lower end of the small business market, the fact is that the company does offer a set of comprehensive payroll services (e.g. payroll processing, payroll tax administration, and employee pay services such as direct deposit and check signing), HR services (e.g. 401(k) plan recordkeeping, section 125 plans, a PEO, and time/attendance solutions), and other administrative business services that are uniquely-situated to work well for small businesses writ large.

Paychex’s Payroll Options

As mentioned above, historically (and to most of the payroll technology buying world) Paychex has been associated with payroll outsourcing services—a distinction that the company excels at. Recent developments however with the company’s Paychex Online software offering have expanded the Paychex reach, and given small businesses in particular more options for handling the task of paying their employees. Specifically, Paychex Online offers businesses the capability to simply (and literally) fill in the blanks with employees’ details (e.g. compensation and withholdings); define adjustments; and select a payment option (i.e. direct deposit or check). Paychex then offers the calculation options of gross-to-net/net-to-gross pay and then payroll is processed. All-in-all then, this makes the Paychex solution incredibly quick and understandable, but also basic and limited for companies that have more complex payroll issues to solve. Additional considerations include:


  • Cost: Paychex’s pricing model represents one of the costliest options on the market charging a premium of $28.74 for the first employee followed by a per-employee fee that is based on a sliding scale (decreasing directly in correlation with the number of paid employees a company has). Not only that, but unlike many of its competitors, Paychex also charges upwards of $15 per payroll for direct deposit processing; and nearly $50 (plus $2.50 for each subsequent employee) for its end-of-year W-2 processing services. However, thanks to the company’s ever-increasing footprint, expertise across state lines is easily leveraged and doesn’t require additional monies to handle interstate processing.

  • Support: For organizations that opt to go for the Paychex Online Payroll software solution, support is provided via the traditional avenues of built-in instructions, system indexes, and help functions. As well, self-directed support can be found by visiting Paychex’s website for tutorials and user issue forums. However, users can also leverage Paychex’s live, complimentary phone support if needed; and for premium service fees can even have a dedicated payroll specialist step in. Still, perhaps the best offering in the support arena that Paychex offers can actually be found in the company’s knowledge center; where tax alerts, calculators, regulatory news, and topic-divided resources for payroll and HR can be found.

  • Mobile Functionality: Though not appearing to be a natively built app for the mobile form factor, Paychex Mobile does provide an optimized screen (for iOS, Android, and Blackberry devices) for easy viewing; allowing connection to a customized dashboard of favorite tasks. It should be noted that this delivery method really fails to take advantage of what mobile can do as far as capabilities go, but nevertheless certain functionalities do still perform well. Namely, Paychex Mobile allows businesses to stay connected with a message center dashboard; provide mobile paystub and 401(k) access for employees; process payroll (and view a payroll journal for accuracy checks); and access Paychex’s Online Reports, flexible spending accounts (FSAs), time/attendance records, and COBRA administrative details.

  • Tax Handling Capabilities: In line with small business needs, Federal and state returns for Paychex users are generated and updated quarterly (W-2s annually), with owed tax monies being forwarded to the appropriate authorities. However, the company’s Taxpay functionality is the piece of the payroll puzzle that most businesses will be keen to take advantage of. Specifically, this option allows businesses to enroll in the Electronic Federal Tax Payment System (which meets IRS requirements for businesses that must file Forms 940, 941, and 944 electronically); serves as the transfer machine for social security and FUTA tax to be debited from your company’s bank account each pay period; files business tax returns (and notes remaining taxes to be paid from your company’s account at quarter and/or year-end); helps manage State Unemployment Insurance (SUI) obligations; and ensures applicable state and local taxes are transferred on the check date and deposited by their respective due dates.

Paychex’s Strengths

  • As the second largest payroll services outfit (behind ADP), Paychex has an impressive brand weight that is well-respected and utilized by hundreds of thousands of customers worldwide.
  • Recent Trefix analysis indicates that organizations with populations of fewer than 50 employees represent the fastest growing market for small businesses—a particularly important statistic given that Paychex explicitly targets its solutions for these companies.
  • Paychex’s Peer Process Program (called P4) is a uniquely strategic element of the company’s continuous improvement process—providing their organization with insight into risk exposure for compliance, operations, auditing, and financial services.
  • Current Paychex customers are frequently cited as being extremely satisfied with the vendor’s software and service ease of use.
  • Paychex offers an exception-based payroll software solution; meaning that once new information is entered that data is automatically populated for the next payroll cycle—allowing customers to only amend previously-stored files when needed.
  • Paychex, Inc. ranks as the largest 401(k) recordkeeper by number of plans for the second year in a row, according to a recent national survey from Plansponsor magazine.
  • Paychex Mobile offers the capability to leverage all aspects of their solution through mobile technology optimized for iOS, Blackberry, and Android-powered devices.
  • Interstate processing is included in the Paychex solution’s base price.

Paychex’s Weaknesses

  • One of the most commonly cited issues with the Paychex solution from small business owners is early fund withdrawal—a product of Paychex’s size that forces payroll funds (that will be debited) to be allocated and effectively moved into the Paychex queue well in advance of the actual payroll date.
  • Although the company’s General Ledger Reporting service does allow payroll data transfers to QuickBooks, the bulk of these capabilities are sorely lacking and often winds up being a generic, exported text file rather than true integration.
  • Paychex’s relatively late entrance into the SaaS game has allowed for ADP and Intuit to corner market share (especially in terms of mobile deployment); and faces an increasingly uphill battle to win potential customers over for this side of their payroll business.
  • Paychex’s target market of businesses with under 50 employees unfortunately creates an inextricable link between the overall economy and the company’s success. Essentially this means that as economic indicators improve, so does Paychex; but negative market trajectory has an inordinately bad effect on Paychex’s company performance—a fact that can lead to instability if not managed properly.
  • While the software is expertly designed to be easy to use (which directly impacts time to value for new customers), Paychex’s user interface is dated and often described as cumbersome.
  • Businesses with operations that fall outside of the normal workweek (i.e. Monday-Friday) are likely to find the Paychex’s customer support services lacking.
  • Users have frequently been cited as complaining about the site’s slow speed and unnecessary use of Java.
  • Paychex Online lacks a number of the adjustments (e.g. contributions, withholdings, etc.) that similarly-situated solutions carry.
  • Although Paychex’s main menu does provide instructions for entering data, the lack of a commonly-used set-up wizard causes unnecessary delays.

Short List Paychex When:

  • Your business falls into the category of small companies with less than 50 employees.
  • Your organization’s priorities are such that payroll outsourcing is supported but desire still exists for management, monitoring, and advisement to be handled by the customer.
  • Seeking an established Tier 1 payroll technology provider.
  • You’re looking for an exception-based payroll software solution.
  • Your business deploys staff across state lines.

Consider an Alternative Payroll Solution When:

  • You are a small business with an employee population that exceeds 100 employees.
  • Your payroll cycles involve a great deal of exceptions or new data entry.
  • Your needs for customer support are likely to fall during weekend hours.
  • Your needs include a modern user interface or cloud payroll functionality.
  • Seeking a payroll solution that allows for last-minute payroll fund allocations.
  • Seeking a global payroll partner. End

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 Filed In Categories: Small Busines Payroll
 Tags Tags: Small Business Solutions, Paychex
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Author  Author: Micah Fairchild
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Historically Paychex has only been associated with payroll outsourcing services—a distinction that the company excels at. Recent developments however with the company’s Paychex Online software offering have expanded the Paychex reach, and given small businesses in particular more options for handling the task of paying their employees.




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