Best payroll service for 2 employees

For a small business with just two employees, the “best” payroll service often boils down to a balance of affordability, ease of use, and essential features. Many experts point to services like Gusto, QuickBooks Payroll, and OnPay as top contenders for small teams due to their intuitive interfaces, automated tax filings, and competitive pricing structures. These platforms simplify the often-complex world of payroll, ensuring your employees are paid accurately and on time, and that your tax obligations are met without a headache. Choosing the right one means freeing up valuable time that you can instead dedicate to growing your business, rather than getting bogged down in administrative tasks.

Choosing the Right Payroll Service for Your Two-Person Team

When you’re running a lean operation with just two employees, every dollar and every minute counts.

The idea of adding another layer of complexity with payroll can feel daunting, but a dedicated payroll service can actually be a huge time-saver and compliance safeguard.

Instead of manually calculating wages, deductions, and tax liabilities, or worse, making mistakes that lead to fines, a good service handles the heavy lifting. This isn’t just about cutting checks.

It’s about ensuring your business stays compliant with local, state, and federal regulations, which can be surprisingly intricate even for a micro-business.

Understanding Your Payroll Needs

Before into specific services, it’s critical to assess what you really need. For two employees, complexity is usually low, but certain features can still be game-changers.

• Payment Methods: Do you prefer direct deposit, printed checks, or both? Most services offer direct deposit, which is highly efficient.
• Tax Filing: This is arguably the most crucial feature. Do you want the service to handle all federal, state, and local tax filings, including W-2s and 1099s? Automated tax filing is a massive advantage.
• Time Tracking Integration: If your employees log hours, seamless integration with a time tracking system can eliminate manual data entry.
• Benefits Administration: Even with two employees, you might offer basic benefits like health insurance or retirement plans. Can the payroll service help manage these deductions?
• Reporting: Do you need detailed reports on payroll costs, tax liabilities, or employee earnings?
• Customer Support: When things go sideways, how quickly can you get help? Good customer support is invaluable.

Cost-Effectiveness: Making Every Dollar Count

For a small business, cost is always a primary consideration.

Payroll services typically charge a base fee plus a per-employee fee.

For two employees, this per-employee fee can add up quickly, so understanding the pricing structure is key.

• Base Fees: These can range from $20 to $40 per month.
• Per-Employee Fees: Expect to pay an additional $4 to $12 per employee per month.
• Hidden Costs: Watch out for extra charges for things like year-end tax filings, W-2/1099 printing, or state unemployment insurance SUI form filing. Some services bundle these, others charge extra.
• Annual Savings: A study by the American Payroll Association APA found that businesses can save an average of 18% on payroll processing costs by outsourcing, primarily due to reduced errors and penalties.

Top Payroll Service Contenders for Small Businesses

Based on a combination of features, ease of use, and pricing suitable for a two-person team, several services consistently rise to the top.

Each has its unique strengths, so the “best” one often depends on your specific priorities. Payroll processing systems

Gusto: User-Friendly and Feature-Rich

Gusto is frequently lauded for its intuitive interface, comprehensive features, and excellent customer support, making it a strong contender for small businesses.

It’s designed to simplify payroll and HR for busy owners.

• Comprehensive Features:
  • Full-Service Payroll: Handles unlimited payroll runs, direct deposit, and check printing.
  • Automated Tax Filings: Automatically calculates, files, and pays federal, state, and local payroll taxes. This is a huge stress reliever.
  • New Hire Reporting: Gusto automatically reports new hires to the government, a legal requirement.
  • Benefits Administration: Integrates with health insurance, 401k plans, workers’ comp, and other benefits, making deductions seamless.
  • Time Tracking: Built-in time tracking or easy integration with popular time tracking apps like Homebase and When I Work.
  • HR Tools: Offers onboarding tools, PTO management, and even employee self-service portals where employees can access pay stubs and W-2s.
• Pricing for Two Employees:
  • Simple Plan: Starts at $40/month base fee + $6/employee per month. For two employees, this is $40 + $6 x 2 = $52/month. This plan offers full-service payroll, tax filing, and basic HR.
  • Contractor-Only Plan: If you only pay 1099 contractors, Gusto has a contractor-only plan for $6/contractor per month, with no base fee.
• Why it’s a Good Fit: Gusto’s clean interface and robust automation mean less time spent on administrative tasks. Its focus on user experience and integrated HR features are a big plus, even for just two employees, as it helps professionalize the employee experience. According to a 2023 survey by Software Advice, Gusto consistently ranks high for user satisfaction among small business payroll solutions.

QuickBooks Payroll: Seamless Integration for QBO Users

If you already use QuickBooks Online QBO for your accounting, QuickBooks Payroll offers unparalleled integration.

This can save you a significant amount of time on reconciliation and data entry.

• Integration Advantage:
  • Automatic Sync: Payroll data automatically flows into your QuickBooks Online ledger, eliminating manual entry and reducing errors. This provides a real-time view of your financial health.
  • Categorization: Expenses are automatically categorized, simplifying tax preparation.
• Key Features:
  • Full-Service Payroll: Offers direct deposit and check printing.
  • Automated Tax Filings: All federal and state payroll taxes are calculated, filed, and paid automatically.
  • Guarantee: Intuit QuickBooks parent company offers a “tax penalty protection” guarantee with their higher-tier plans, covering potential penalties if they make an error.
  • HR Support: Higher-tier plans include HR support, access to HR documents, and even expert HR advisors.
  • Time Tracking: Built-in time tracking available with certain plans.
  • Core Plan: Starts at $45/month base fee + $6/employee per month. For two employees, this is $45 + $6 x 2 = $57/month. This plan covers full-service payroll and automated tax filing.
  • Premium Plan: Around $75/month base + $8/employee. Includes HR support and time tracking.
• Why it’s a Good Fit: The primary appeal is the native integration with QuickBooks Online. If your books are already in QBO, this setup significantly streamlines financial management. Data from Intuit suggests that businesses using QuickBooks Payroll alongside QBO save an average of 42 hours per month on financial tasks compared to manual processes.

OnPay: Affordable and Comprehensive

OnPay is another highly-rated payroll service known for its straightforward pricing, comprehensive features, and dedicated customer support.

It’s often considered a great value for small businesses.

• Simple Pricing:
  • Flat Fee: OnPay offers a single, transparent pricing plan: $40/month base fee + $6/employee per month. For two employees, this totals $52/month. This makes budgeting easy, with no hidden tiers or add-ons for essential features.
• Robust Features:
  • Full-Service Payroll: Unlimited payroll runs, direct deposit, and contractor payments 1099s.
  • Automated Tax Filings: Handles all federal, state, and local payroll tax filings and payments.
  • HR and Benefits: Includes HR tools like onboarding, PTO management, and integration with health insurance and 401k providers.
  • Workers’ Comp Integration: Can integrate with workers’ comp insurance providers, allowing for pay-as-you-go payments based on actual payroll.
  • Customer Support: Praised for its personalized and responsive customer service.
• Why it’s a Good Fit: OnPay’s flat, all-inclusive pricing model is very attractive for small businesses who want predictable costs. It offers a powerful set of features without forcing you into expensive tiers. Many users praise its ease of use and the clarity of its interface. A 2022 survey by PCMag rated OnPay highly for its value and comprehensive feature set for small to medium-sized businesses.

Essential Features to Prioritize for Small Teams

When you’re running payroll for just two people, you might think you don’t need much.

However, even with a tiny team, specific features can dramatically reduce your workload and ensure compliance. Think of these as your non-negotiables.

Automated Tax Filing and Remittance

This is the single most important feature for any payroll service, especially for small businesses.

Navigating federal, state, and local payroll taxes FICA, FUTA, SUTA, state income tax, local taxes is complex, time-consuming, and prone to error. Best payroll and accounting software for small business

Penalties for incorrect or late filings can be significant.

• What it does: The service calculates all necessary taxes, deducts them from employee paychecks, and then remits them directly to the appropriate government agencies on your behalf. They also handle year-end reporting, including W-2s for employees and 1099s for contractors.
• Why it’s critical:
  • Compliance: Ensures you meet all legal obligations. According to the IRS, approximately 33% of small businesses incur tax penalties due to errors or late filings.
  • Time-Saving: Frees up hours that would otherwise be spent researching tax rates, filling out forms, and tracking deadlines.
  • Error Reduction: Minimizes the risk of costly mistakes. A typical small business owner spends 8-10 hours per month on payroll-related administrative tasks if they do it manually, much of it related to tax compliance.

Direct Deposit and Multiple Pay Frequencies

While some businesses still use paper checks, direct deposit is the industry standard for efficiency and employee satisfaction.

• Benefits of Direct Deposit:
  • Convenience: Employees receive their pay directly in their bank accounts, no need to visit the bank.
  • Speed: Funds are typically available quickly.
  • Security: Reduces the risk of lost or stolen checks.
  • Environmental: Less paper waste.
• Pay Frequencies: Your service should support various pay frequencies weekly, bi-weekly, semi-monthly, monthly to match your business needs. While most two-employee businesses might stick to bi-weekly or semi-monthly, flexibility is good.
• Employee Self-Service Portal: A key component of modern payroll is an employee portal where they can view pay stubs, update personal information, and access W-2s. This reduces inquiries to the business owner.

New Hire Reporting and Onboarding

When you hire a new employee even if it’s your first or second!, there are legal requirements to report them to your state’s new hire registry. A good payroll service automates this.

• New Hire Reporting: This helps states track child support obligations and identify potential fraud. Failing to report new hires can result in penalties.
• Onboarding Support: Some services go a step further, offering basic onboarding tools:
  • Digital W-4 and I-9 Forms: Allowing employees to complete these forms electronically.
  • Offer Letters: Templates or features to generate offer letters.
  • Welcome Packets: A place to upload company policies or employee handbooks.
• Why it matters: Even for two employees, professional onboarding sets a positive tone and ensures legal compliance from day one. It reduces administrative burden on the owner.

Considerations Beyond the Core Service

While core payroll processing and tax filing are paramount, a few other factors can significantly influence your overall experience and long-term satisfaction with a payroll provider.

Integrations with Other Business Software

Your payroll service doesn’t operate in a vacuum.

It interacts with your accounting software, time tracking tools, and potentially benefits providers.

• Accounting Software: The most common integration. Seamless syncing between payroll and accounting software like QuickBooks Online, Xero, or FreshBooks prevents duplicate data entry, reduces errors, and provides a real-time, accurate picture of your finances. For instance, if you pay employees $2,000, that amount is automatically debited from your bank account in your accounting software and categorized as payroll expense.
• Time Tracking: If your employees punch in and out, integration with a time tracking app e.g., Homebase, When I Work, TSheets means hours are automatically pulled into payroll, calculating wages without manual transcription. This saves time and minimizes calculation errors, which can lead to wage disputes.
• Benefits Providers: For a two-person team, this might be less critical initially but becomes important as you grow. If you offer a 401k or health insurance, integration can automate deduction calculations and remittance to providers.
• HR Information Systems HRIS: While likely overkill for two employees, some robust payroll services offer HRIS capabilities that can grow with your business, storing employee records, managing performance reviews, and handling other HR functions.

Customer Support and Resources

Even the most intuitive software can present challenges.

Responsive and knowledgeable customer support is invaluable, especially for small business owners who wear many hats.

• Availability: Look for services offering support via phone, chat, and email, ideally with extended hours or weekend availability.
• Knowledge Base: A comprehensive online knowledge base, FAQs, and video tutorials can help you troubleshoot minor issues quickly.
• HR Resources: Some services, particularly those with higher-tier plans, offer access to HR professionals or legal resources. This can be incredibly helpful for questions about compliance, employee handbooks, or termination procedures. For example, Gusto’s higher tiers provide access to certified HR professionals who can answer specific employment law questions. Data from a 2023 survey by Clutch shows that customer support quality is a top factor for small businesses choosing software, ranking above even price for many.

Scalability: Room to Grow

While you currently have two employees, your goal is likely to grow.

Choosing a payroll service that can accommodate future expansion avoids the headache of migrating data to a new provider later. Learn how to do payroll

• Pricing Tiers: Does the service have different pricing tiers that offer more features e.g., advanced HR, multi-state payroll, more complex benefits as your team grows?
• Feature Set: Can the service handle additional complexities like:
  • Multi-state payroll: If you hire remote employees in different states.
  • Garnishments: If you need to deduct funds for child support or tax levies.
  • Advanced reporting: More detailed analytics on labor costs, departmental breakdowns if applicable.
  • Employee self-onboarding: Streamlined processes for larger numbers of new hires.
• User Reviews: Look at reviews from slightly larger small businesses e.g., 10-20 employees to see how the service performs as companies scale. A service that gets great reviews for two employees might struggle with twenty, or vice versa.

Setting Up Your Payroll Service: A Step-by-Step Guide

Once you’ve chosen the best payroll service for your two-employee business, the setup process is crucial to ensure everything runs smoothly from day one.

It’s often easier than you think, especially with modern, user-friendly platforms.

1. Gather Essential Company Information

Before you even log into your new payroll service, have all your company’s vital statistics ready.

This information will be needed to set up your account and ensure proper tax filings.

• Employer Identification Number EIN: This is your business’s unique tax ID, issued by the IRS. You cannot run payroll without it.
• Business Legal Name and Address: As registered with the IRS and your state.
• State Tax ID Numbers: Each state has its own Department of Revenue or equivalent for state income tax and unemployment insurance. You’ll need these specific ID numbers.
• Bank Account Information: Your business bank account details account number, routing number for direct deposit and tax payments.
• Pay Frequency: Decide how often you’ll pay your employees weekly, bi-weekly, semi-monthly, monthly.
• Payroll Schedule: The specific dates for your pay periods and paydays.

2. Input Employee Data

This is where your two employees’ information comes in.

Accuracy is paramount here to avoid errors in pay and tax reporting.

• Employee Personal Information: Full legal name, address, Social Security Number SSN, date of birth.
• W-4 Information: The employee’s W-4 form details their withholding preferences number of allowances, additional withholding. This directly impacts how much federal income tax is withheld.
• Direct Deposit Information: Their bank account and routing numbers for direct deposit.
• Hire Date: The date the employee started working for your company.
• Pay Rate: Their hourly wage or annual salary.
• Deductions: Any pre-tax or post-tax deductions e.g., health insurance premiums, 401k contributions, garnishments.
• Time Tracking: If you use an external time tracking system, link it now. If the payroll service has built-in time tracking, set up their profiles.

3. Configure Payroll Settings and Integrations

Now that the basic company and employee data is in, you’ll configure the specific payroll settings and connect any other software.

• Pay Schedule: Confirm your chosen pay frequency and exact pay dates.
• Tax Setup: Verify that federal, state, and local tax rates are correctly applied based on your location. Most services automate this, but a quick check ensures peace of mind.
• Historical Payroll Data if applicable: If you’re switching from a previous payroll method even manual, you might need to input year-to-date payroll data for current employees to ensure correct W-2s at year-end.
• Integrations: Connect your accounting software QuickBooks, Xero, time tracking apps, and any benefits providers. This is usually done through an API key or by simply logging into the other service through the payroll platform.

4. Run Your First Payroll and Review Carefully

With everything set up, it’s time for your inaugural payroll run. Treat this first one as a test.

• Initiate Payroll: Follow the service’s steps to process your first payroll. This usually involves confirming hours if hourly, reviewing gross pay, deductions, and net pay.
• Review Payslips: Before finalizing, meticulously review the generated payslips for each employee. Check:
  • Gross wages: Are they correct?
  • Tax withholdings: Do they seem accurate based on the W-4?
  • Deductions: Are all applicable deductions present and correct?
  • Net pay: Does the final amount look right?
• Approve and Process: Once you’re confident everything is accurate, approve the payroll run. The service will then initiate direct deposits and begin the tax filing process.
• Record Keeping: Even though the service handles much of it, keep a copy of payroll reports for your records. Most services allow you to download these.

The Cost of Not Using a Payroll Service

While the idea of adding another monthly expense might give you pause, the costs associated with not using a payroll service, especially for a small business, can far outweigh the subscription fees. These hidden costs come in the form of time, penalties, and potential legal issues.

Time is Money: The Hidden Labor Cost

Many small business owners try to handle payroll themselves to save money. Hr payroll service providers

However, the time spent on manual payroll tasks quickly adds up and detracts from core business activities.

• Manual Calculation: Calculating gross pay, overtime, pre-tax deductions, post-tax deductions, and net pay for each employee. This can take hours, especially if you have varying pay rates or commissions.
• Tax Calculation and Filing: This is arguably the most complex part. You need to calculate federal income tax, Social Security and Medicare FICA, Federal Unemployment Tax FUTA, and various state and local taxes. Then, you need to fill out and file forms like 941 quarterly, 940 annually, state unemployment forms, and state income tax withholding forms.
• Compliance Research: Keeping up with ever-changing tax laws and labor regulations at federal, state, and local levels is a full-time job in itself. For example, minimum wage laws, overtime rules, and sick leave policies vary significantly by jurisdiction.
• W-2 and 1099 Preparation: At year-end, preparing and distributing accurate W-2s for employees and 1099s for contractors is a time-consuming task.
• Opportunity Cost: Every hour spent on payroll is an hour not spent on sales, marketing, product development, or customer service. If your time is worth $50/hour, spending 5-10 hours a month on payroll means you’re effectively “paying” yourself $250-$500, often inefficiently. A 2022 survey by SCORE found that administrative tasks, including payroll, consume an average of 40% of a small business owner’s time.

Penalties for Errors and Non-Compliance

The IRS and state tax agencies do not take payroll errors lightly.

Penalties can quickly erode any perceived savings from handling payroll manually.

• Late Filing Penalties: For example, the penalty for failing to file Form 941 Employer’s Quarterly Federal Tax Return can be 5% of the unpaid tax for each month or part of a month that the return is late, up to a maximum of 25%.
• Late Payment Penalties: If you fail to pay taxes on time, penalties can range from 0.5% to 5% of the unpaid tax, depending on how late the payment is.
• Incorrect Information Penalties: Mistakes on W-2s or 1099s can lead to penalties ranging from $50 to $290 per form, depending on the size of the business and the timeliness of correction.
• State-Specific Penalties: Each state has its own set of penalties for late or incorrect state income tax withholding, unemployment insurance contributions, and new hire reporting. These can vary widely, from fixed fees to percentages of unpaid taxes.
• Wage and Hour Violations: Miscalculating overtime, failing to pay minimum wage, or improper deductions can lead to costly lawsuits, back pay, and additional fines under the Fair Labor Standards Act FLSA. A single FLSA violation can result in penalties of up to $2,374 per violation as of 2023.
• Audit Risk: Consistent errors or non-compliance can trigger an IRS or state audit, which is a significant drain on time and resources, regardless of the outcome.

Employee Dissatisfaction and Turnover

Payroll errors directly impact your employees’ financial well-being and can lead to significant dissatisfaction.

• Paycheck Errors: Incorrect paychecks underpayments or overpayments can cause financial stress for employees and lead to distrust. Correcting errors retroactively is also a hassle.
• Late Payments: Missing paydays, even by a day or two, can be a major source of frustration and is often illegal.
• Lack of Clarity: If pay stubs are unclear or hard to access, employees will constantly be asking for explanations, diverting your time.
• Increased Turnover: Employees who feel their pay is consistently mishandled are more likely to seek employment elsewhere. The cost of replacing an employee can be substantial, often 30-50% of their annual salary for entry-level positions, and much higher for specialized roles.

By investing in a payroll service, even for just two employees, you’re essentially buying peace of mind, time, and compliance, which are far more valuable than the monthly subscription fee.

FAQs

What is the best payroll service for 2 employees?

The best payroll service for 2 employees typically balances cost-effectiveness, ease of use, and essential features like automated tax filing. Top contenders often include Gusto, QuickBooks Payroll, and OnPay.

How much does payroll service cost for 2 employees?

For 2 employees, expect to pay a base monthly fee typically $20-$45 plus a per-employee fee usually $4-$12 per employee. Total costs can range from $30 to $70 per month for full-service payroll.

Is Gusto good for 2 employees?

Yes, Gusto is an excellent choice for 2 employees.

Its user-friendly interface, comprehensive features full-service payroll, automated tax filing, basic HR, and clear pricing make it highly suitable for small teams.

Is QuickBooks Payroll good for small businesses with 2 employees?

Yes, QuickBooks Payroll is particularly good for small businesses with 2 employees if you already use QuickBooks Online for accounting. Basic payroll

Its seamless integration saves significant time and reduces errors in financial reconciliation.

Is OnPay suitable for a very small team?

Yes, OnPay is highly suitable for very small teams like two employees.

It offers comprehensive features, including automated tax filing and HR tools, all within a transparent, affordable flat-rate pricing model.

Can I do payroll myself for 2 employees?

Yes, you can do payroll yourself for 2 employees, but it’s not recommended.

It requires significant time for calculations, tax filings, and staying updated on ever-changing federal, state, and local regulations. The risk of costly errors and penalties is high.

What are the main benefits of using a payroll service for 2 employees?

The main benefits include automated tax filing and remittance reducing errors and penalties, time savings freeing you to focus on your business, compliance assurance, direct deposit convenience, and professional employee experience.

What features should I look for in a payroll service for a small team?

For a small team, prioritize automated tax filing, direct deposit, new hire reporting, integration with your accounting software, good customer support, and a clear, transparent pricing structure.

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

Yes, reputable payroll services will automatically handle the preparation and filing of W-2 forms for your employees and 1099 forms for any independent contractors you pay, typically at year-end.

How do payroll services handle federal and state taxes?

Payroll services calculate all federal e.g., FICA, FUTA and state e.g., income tax, unemployment payroll taxes, deduct them from employee paychecks, and then remit them directly to the appropriate government agencies on your behalf. They also handle the necessary tax form filings.

What information do I need to set up payroll for 2 employees?

You’ll need your Employer Identification Number EIN, state tax ID numbers, business bank account details, employees’ personal information name, SSN, address, W-4 forms, and direct deposit information. Payroll software cost

Can a payroll service integrate with my time tracking system?

Yes, most modern payroll services offer integrations with popular time tracking systems e.g., Homebase, When I Work, TSheets, allowing employee hours to be automatically imported for payroll processing.

What is the cost of NOT using a payroll service?

The cost of not using a payroll service includes significant time spent on manual calculations and compliance, potential IRS and state tax penalties for errors or late filings which can be substantial, and increased risk of employee dissatisfaction and turnover due to pay errors.

Do payroll services offer HR support for small businesses?

Many payroll services, especially those with slightly higher-tier plans, offer basic HR support, such as access to HR documents, onboarding tools, PTO management, and sometimes even HR advisory services.

Can I run payroll on my mobile device with these services?

Yes, most leading payroll services like Gusto, QuickBooks Payroll, and OnPay offer mobile-friendly interfaces or dedicated mobile apps, allowing you to manage payroll on the go.

What happens if I make a mistake with my payroll?

If you use a payroll service, they typically guarantee accuracy for tax calculations and filings.

If they make an error, they will often cover any resulting penalties.

If you do it manually, you are solely responsible for correcting errors and paying any penalties.

How often can I run payroll with these services?

Most full-service payroll providers offer unlimited payroll runs as part of their standard plans, meaning you can process payroll as often as needed e.g., weekly, bi-weekly, off-cycle bonuses without extra charges.

Are payroll services secure with my data?

Reputable payroll services employ robust security measures, including encryption, multi-factor authentication, and secure data centers, to protect your sensitive company and employee information.

What is the difference between an employee and a contractor for payroll?

Employees W-2 have taxes withheld from their pay, are subject to minimum wage and overtime laws, and the employer pays half of their FICA taxes. Contractors 1099 are self-employed, receive gross pay with no taxes withheld, and are responsible for their own self-employment taxes. Payroll services handle both. Payroll software for medium sized business

How long does it take to set up a new payroll service?

Setting up a new payroll service typically takes 1-3 hours for a small business with 2 employees, assuming you have all your company and employee information readily available. The initial setup might involve a few administrative days for bank verification before the first pay run.