Best payroll service for 1 employee

Choosing the best payroll service for 1 employee often boils down to balancing affordability, ease of use, and comprehensive features. For a solopreneur or a micro-business with just one employee, services like Gusto, OnPay, and QuickBooks Payroll frequently emerge as top contenders due to their user-friendly interfaces, automated tax filings, and robust support, all while being surprisingly cost-effective. The key is to pick a service that minimizes your administrative burden, ensures compliance with tax regulations, and frees you up to focus on what truly matters: growing your business and serving your customers, rather than getting tangled in paperwork. Think of it as a smart investment in your peace of mind and operational efficiency.

Why Even One Employee Needs Proper Payroll

You might think, “It’s just one person, how complicated can it be?” The reality is, even with a single employee, you’re bound by the same federal and state tax laws as a Fortune 500 company. Cutting corners here isn’t just risky. it can lead to hefty penalties.

Think of it as setting the foundation for your business’s financial integrity.

Navigating Tax Obligations for a Solo Employee

Every time you pay your employee, you’re not just handing over a paycheck.

You’re responsible for withholding federal income tax, Social Security, Medicare, and potentially state income tax.

Then there are unemployment taxes FUTA and SUTA that you, as the employer, have to pay.

• IRS Form W-2: This is the annual wage and tax statement you provide to your employee and the IRS. Miss this, and you’re inviting trouble.
• IRS Form 941/944: These forms report your quarterly or annual federal tax withholdings. Filing incorrectly or late can trigger penalties.
• State-specific forms: Each state has its own requirements, from income tax withholding to unemployment insurance contributions. For instance, California has EDD forms, while New York has IT-2106.

The Cost of Non-Compliance

The IRS doesn’t mess around.

Penalties for late or incorrect payroll tax payments can range from 2% to 15% of the unpaid amount, plus interest. State penalties can pile on top of that.

• Example: If you owe $1,000 in federal payroll taxes and pay 10 days late, you could face a 2% penalty $20. If it’s more than 16 days late, it jumps to 5% $50. And if you completely fail to file, it can be 5% per month, up to 25% of the unpaid tax.
• Time Sink: Manually calculating, deducting, and remitting these taxes takes an enormous amount of time. Time you could be spending on revenue-generating activities. Imagine spending hours on tax forms only to realize you made a mathematical error and have to re-do it, risking penalties all the while.

Top Payroll Service Contenders for Single-Employee Businesses

When you’re running a lean operation with just one employee, you need a payroll service that’s efficient, cost-effective, and handles the nitty-gritty tax stuff without a fuss. Forget the complex enterprise solutions. you need something streamlined.

Here are some of the top picks that consistently deliver for single-employee businesses.

Gusto: User-Friendly & Comprehensive

Gusto is often lauded as the gold standard for small businesses, and for good reason. Payroll processing companies canada

Its intuitive interface makes running payroll feel almost effortless, even if you’re a complete novice.

They handle everything from direct deposit to tax filings, ensuring you stay compliant.

• Pricing for a single employee: Gusto’s “Simple” plan is usually around $40/month base fee + $6/employee/month, making it about $46/month for one employee. This often includes unlimited payroll runs, direct deposit, and automated tax filings.
• Key Features for Solo Operations:
  • Automated Tax Filing: This is a huge win. Gusto calculates, files, and pays your federal, state, and local payroll taxes automatically. You literally set it and forget it.
  • Direct Deposit: Your employee gets paid on time, every time, directly into their bank account.
  • New Hire Reporting: They handle the mandatory reporting of new hires to state agencies.
  • Worker’s Comp Integration: In many states, Gusto can integrate with workers’ compensation insurance providers, calculating premiums based on actual payroll. This avoids those pesky lump-sum payments or estimated upfront costs.
  • Benefits Administration Optional: While you might not need it for just one employee, Gusto offers health insurance, 401k, and other benefits options should you grow.
• User Experience: Gusto’s dashboard is clean, easy to navigate, and designed for clarity. Running payroll takes just a few clicks. They even send reminders for paydays and tax deadlines.

OnPay: Great Value & Personalized Support

OnPay might not have the same flashy marketing as some competitors, but it consistently receives high marks for its value and excellent customer support.

It’s particularly strong if you have unique payroll needs or just prefer a more hands-on approach from your service provider.

• Pricing for a single employee: OnPay typically has a flat monthly fee of around $40/month + $6/employee/month, bringing it to approximately $46/month for one employee. This simple pricing structure is appealing.
  • Full-Service Tax Filing: Similar to Gusto, OnPay handles all federal and state tax filings and payments. They guarantee accuracy and take on the liability for errors.
  • Pay-as-you-go Workers’ Comp: This feature is fantastic for cash flow. Premiums are calculated and paid each payroll run, adjusting automatically to changes in wages.
  • HR Tools: Even for one employee, having a centralized place for HR documents, offer letters, and onboarding checklists can be a lifesaver. OnPay includes these.
  • Integrations: Connects seamlessly with popular accounting software like QuickBooks Online, Xero, and more.
• Customer Support: This is where OnPay truly shines. Users consistently praise their responsive and knowledgeable U.S.-based customer service team. If you ever have a payroll question, you’ll get a real person who knows their stuff.

QuickBooks Payroll: Seamless Integration for QBO Users

If you’re already using QuickBooks Online for your bookkeeping, then QuickBooks Payroll is a natural fit.

The integration is seamless, reducing data entry and potential errors.

• Pricing for a single employee: QuickBooks Payroll offers different tiers. The “Core” plan starts at around $45/month + $6/employee/month, so about $51/month for one employee. Higher tiers offer more features like HR support and time tracking.
  • Direct Integration with QuickBooks Online: This is the biggest advantage. Payroll data flows directly into your general ledger, simplifying reconciliation and reporting.
  • Automated Tax Payments & Filings: Like the others, QuickBooks Payroll handles all necessary tax forms and payments.
  • Time Tracking: Higher tiers include basic time tracking, which can be useful if your single employee works varying hours.
  • HR Support: Their “Elite” plan offers a dedicated HR advisor, which might be overkill for one employee but good to know for growth.
• Considerations: While the integration is excellent, some users find the user interface less intuitive than Gusto’s, and the pricing can be slightly higher for comparable features.

Essential Features to Look For in a Single-Employee Payroll Service

When it’s just you and your one employee, you don’t need all the bells and whistles of an enterprise solution.

Focus on these core features to ensure compliance, efficiency, and peace of mind. Think of these as your non-negotiables.

Automated Tax Filing and Remittance

This is arguably the most crucial feature.

The complexities of federal, state, and local payroll taxes can be overwhelming. Online payroll system

A service that automatically calculates, files, and pays these taxes on your behalf is worth its weight in gold.

• Why it’s critical: Imagine trying to keep up with IRS Form 941 quarterly federal tax return, FUTA Federal Unemployment Tax Act, and all your state’s specific unemployment insurance and withholding forms. Each state has unique requirements. For instance, California requires reporting to the EDD Employment Development Department for unemployment and disability insurance. New York has its own set of forms like Form NYS-45. A good payroll service stays current with all these regulations.
• Data Point: According to a small business survey, over 40% of small business owners spend more than 5 hours per month on payroll and related tasks. Automated tax filing drastically cuts this time.
• Benefits:
  • Time Savings: No more manual calculations or filling out obscure forms.
  • Penalty Avoidance: The service guarantees accuracy and takes on the liability for errors, protecting you from costly IRS or state penalties.
  • Peace of Mind: You know taxes are being handled correctly and on time.

Direct Deposit for Employee Payments

It’s faster, more secure, and eliminates the need for physical checks.

• Employee Preference: Most employees prefer direct deposit for its convenience. It ensures they get paid on time, every time, directly into their bank account.
• Security: Reduces the risk of lost or stolen checks.
• Efficiency for You: No need to print, sign, and distribute paychecks. Saves time and money on printing supplies and postage.
• Feature Details: Look for services that offer unlimited direct deposit runs and typically process payments within 2-4 business days. Some even offer next-day or same-day direct deposit for an extra fee.

New Hire Reporting

When you bring on that single employee, you’re legally required to report their information to your state’s new hire registry.

This helps states track child support obligations and prevent unemployment insurance fraud.

• Legal Compliance: All states require employers to report new hires within a specific timeframe often 20 days of hire. A payroll service automates this process for you.
• What’s reported: Typically includes the employee’s name, address, Social Security Number, and your company’s Federal Employer Identification Number FEIN.
• Why it matters: Failure to report can result in penalties, varying by state. For example, some states impose fines of up to $25 per un-reported new hire, while others might have higher daily fines for intentional non-compliance.

W-2 and 1099 Generation If Applicable

At year-end, you’ll need to provide your employee with a W-2 form, summarizing their wages and tax withholdings.

If you also use independent contractors, you’ll need to issue 1099-NEC forms.

• Automated Creation: A good payroll service will automatically generate and file these forms on your behalf, both for your employee and with the relevant tax authorities.
• Online Access: Many services provide online portals where employees can securely access their W-2s, reducing your administrative burden.
• Importance: Incorrect or late W-2s can lead to IRS penalties, impacting both you and your employee.

Basic HR Functions and Resources

While you might not need a full-blown HR suite for one employee, some basic capabilities can be incredibly helpful.

• Employee Self-Service Portal: Allows your employee to update their personal information, view pay stubs, and access W-2s online. This cuts down on requests to you.
• Document Storage: A secure place to store employee documents like offer letters, signed contracts, and onboarding paperwork.
• HR Guides/Templates: Some services offer access to basic HR resources, like compliance guides or templates for offer letters, which can be useful as you navigate employment laws.

Cost Considerations for Single-Employee Payroll

When you’re a small business with just one employee, every dollar counts.

You want a payroll service that’s affordable, but also comprehensive enough to handle all your compliance needs.

It’s about finding that sweet spot where value meets functionality. In house payroll software

Understanding Pricing Structures: Base Fees vs. Per-Employee Fees

Most payroll services use a two-tiered pricing model.

This is crucial to understand, especially when you only have one employee.

• Base Fee: This is a fixed monthly charge for using the service, regardless of how many employees you have. It covers the core software and features. For single-employee businesses, this base fee typically ranges from $30 to $50 per month.
• Per-Employee Fee: This is an additional charge for each active employee you pay through the system. For a single employee, this is usually an extra $4 to $12 per employee per month.
• Total Cost Calculation:
  • Example 1 Gusto Simple Plan: $40 base fee + $6 per employee fee = $46 per month for one employee.
  • Example 2 OnPay: $40 base fee + $6 per employee fee = $46 per month for one employee.
  • Example 3 QuickBooks Payroll Core: $45 base fee + $6 per employee fee = $51 per month for one employee.

Hidden Fees to Watch Out For

While the base and per-employee fees are transparent, some services might have additional charges for specific features or actions. Always read the fine print.

• Setup Fees: Some older or less user-friendly services might charge a one-time setup fee. Most modern, cloud-based services for small businesses have eliminated this.
• Tax Filing Penalties if they occur due to service error: While reputable services guarantee their tax filings, understand their liability if an error on their part leads to a penalty for you.
• Additional Services:
  • Year-end W-2/1099 printing/mailing: Some services charge extra if you want physical copies mailed rather than relying on online employee portals.
  • Expedited direct deposit: Need your employee paid next-day or same-day? That might cost an extra few dollars per payroll run.
  • Advanced HR features: If you upgrade to plans with more comprehensive HR support, background checks, or time tracking, expect higher fees.
  • State new hire reporting fees: While most services include this, confirm it’s not an add-on.

Comparing Value Beyond Just the Monthly Price

It’s not just about the cheapest option. it’s about the value you receive. A service that costs a few dollars more but saves you hours of manual work and stress is often the better investment.

• Time Savings: How much is your time worth? If a slightly more expensive service automates tax filings, new hire reporting, and year-end forms, it frees you up to focus on growing your business. For instance, if you value your time at $50/hour, saving just one hour a month means you’ve saved $50, making a $5 difference in monthly fees negligible.
• Accuracy & Compliance: The cost of penalties for payroll tax errors can quickly dwarf any monthly savings. A service that guarantees accurate tax filings offers immense value.
• Customer Support: When you have a question about a tax form or an employee’s pay, quick and knowledgeable support is invaluable. Look for services with strong customer service reviews.
• Scalability: While you have one employee now, consider if the service can grow with you. If you anticipate hiring more staff in the future, choosing a scalable solution upfront can save you migration headaches later.

Integrations and Ecosystem: Playing Nicely with Other Tools

For a small business owner, your tech stack needs to work together seamlessly. Your payroll service shouldn’t be an island.

It should integrate smoothly with your accounting software, time tracking tools, and potentially even benefits platforms.

This interconnectedness saves you time, reduces manual data entry, and minimizes errors.

Accounting Software Integration QuickBooks Online, Xero, etc.

This is arguably the most critical integration.

Manually inputting payroll data into your accounting ledger is a recipe for errors and a huge time sink.

• The Power of Synchronization: When your payroll service integrates directly with your accounting software like QuickBooks Online, Xero, or FreshBooks, every payroll run automatically updates your general ledger.
• What gets synced:
  • Gross Wages: The total amount paid to your employee before deductions.
  • Employee Tax Withholdings: Federal income tax, state income tax, Social Security, Medicare.
  • Employer Payroll Taxes: FUTA, SUTA, employer’s portion of Social Security and Medicare.
  • Deductions: Any pre-tax or post-tax deductions like health insurance premiums or 401k contributions even for one employee, these might come up.
  • Net Pay: The actual amount deposited into your employee’s bank account.
  • Reduced Manual Entry: Eliminates the need to manually transfer payroll data, drastically cutting down on human error.
  • Real-time Financial Reporting: Your profit and loss statements and balance sheets are always up-to-date with accurate payroll expenses.
  • Simplified Reconciliation: Makes reconciling your bank accounts and tracking payroll liabilities much easier at month-end.
  • Data Point: Businesses that automate accounting processes see a 40-75% reduction in manual data entry time.
• Leading Integrators:
  • Gusto: Known for robust integrations with QuickBooks Online, Xero, FreshBooks, and more.
  • OnPay: Excellent integration capabilities with major accounting platforms.
  • QuickBooks Payroll: As an Intuit product, its integration with QuickBooks Online is native and seamless, often considered the best in class for QBO users.

Time Tracking Software Integration

If your single employee works varying hours or if you pay them hourly, integrating with a time tracking solution is a huge convenience. Workful time tracking

• Automated Wage Calculation: Employee hours recorded in the time tracking app flow directly into your payroll system, automatically calculating gross wages.
• Popular Integrations: Look for compatibility with services like Homebase, When I Work, TSheets now QuickBooks Time, or Clockify.
  • Accuracy: Ensures employees are paid precisely for the hours they work, reducing disputes.
  • Efficiency: Eliminates manual calculation of hours from timesheets or spreadsheets.
  • Compliance: Helps maintain accurate records for wage and hour laws.

Benefits Administration Integration Optional, but good to know

While you might not offer extensive benefits for one employee, if you do provide something like a health stipend, a SIMPLE IRA, or other contributions, having your payroll system integrate with a benefits administrator can simplify things.

• Streamlined Deductions: Automated deductions for benefits premiums directly from paychecks.
• Contribution Tracking: Accurate tracking and reporting of employer contributions.
• Examples: Some payroll services, particularly Gusto, offer their own integrated benefits administration, or they connect with third-party brokers.

HR Management Systems HRIS Integration

Even for one employee, managing basic HR functions can be simplified if your payroll integrates with an HRIS.

This might include onboarding, document storage, and employee self-service.

• Centralized Employee Data: All employee information personal details, pay rates, deductions, emergency contacts is in one place.
• Automated Onboarding: Streamlines the process of bringing on a new employee, handling I-9s, W-4s, and other necessary forms.
• Employee Self-Service: Allows your employee to access their pay stubs, update personal info, and view company documents without needing to ask you.

Security and Data Protection: Safeguarding Your Payroll Information

Your payroll service handles sensitive information – employee Social Security Numbers, bank account details, and your company’s financial data.

Entrusting this data to a third party requires absolute confidence in their security measures.

Encryption and Secure Data Transmission

Any reputable payroll service will use robust encryption protocols to protect data both when it’s in transit e.g., from your computer to their servers and when it’s at rest stored on their servers.

• SSL/TLS Encryption: Look for services that use industry-standard Secure Socket Layer SSL or Transport Layer Security TLS encryption. This is typically indicated by “HTTPS” in the website address and a padlock icon in your browser. This encrypts data as it travels over the internet, preventing eavesdropping.
• Data at Rest Encryption: Data stored on their servers should also be encrypted. This protects information even if a breach were to occur.
• Regular Security Audits: Top-tier providers undergo regular security audits e.g., SOC 2 compliance by independent third parties to ensure their systems meet stringent security standards. Don’t be afraid to ask about these.
• Data Point: A study by IBM found that the average cost of a data breach is $4.45 million. For a small business, a data breach could be catastrophic.

Multi-Factor Authentication MFA

This is a non-negotiable security feature for accessing your payroll account.

MFA adds an extra layer of security beyond just a password.

• How it works: After entering your password, you’re required to verify your identity using a second method, such as:
  • A code sent to your phone via SMS.
  • A unique code generated by an authenticator app e.g., Google Authenticator, Authy.
  • A biometric scan fingerprint, face ID on your mobile device.
• Why it’s crucial: Even if a hacker manages to steal your password, they won’t be able to access your account without that second factor.
• Mandatory for sensitive data: For any service handling financial or personal data, MFA should be enabled by default or strongly recommended.

Robust Access Controls and Permissions

Even with one employee, you might eventually bring on an accountant or a bookkeeper.

Your payroll service should allow you to grant specific access levels. Payroll providers near me

• Granular Permissions: You should be able to control exactly what each user can see and do within the system. For instance, your accountant might need access to tax forms and financial reports, but not necessarily the ability to change employee pay rates.
• Audit Trails: The system should maintain a detailed log of all actions taken within the account, including who did what and when. This is invaluable for security monitoring and troubleshooting.

Physical Security of Data Centers

While you interact with the payroll service through a website, your data is stored on physical servers.

The physical security of these data centers is just as important as digital security.

• Measures to look for:
  • 24/7 Surveillance: Constant monitoring of the facility.
  • Biometric Access Controls: Fingerprint or retina scans for entry.
  • Redundant Power Supplies: Ensures continuous operation even during power outages.
  • Fire Suppression Systems: Protects equipment from damage.

Disaster Recovery and Data Backup

What happens if there’s a catastrophic event e.g., natural disaster, major system failure? A reliable payroll service will have robust disaster recovery plans.

• Regular Backups: Your data should be backed up frequently and stored in geographically separate locations.
• Redundancy: Systems should be designed with redundancy so that if one component fails, another takes over seamlessly.
• Business Continuity Plan: The provider should have a clear plan for how they will restore services and data in the event of a major outage.

By scrutinizing these security measures, you can confidently choose a payroll service that protects your sensitive information and ensures the continuity of your business operations.

Employee Self-Service Portals: Empowering Your Single Employee

Even with just one employee, providing them with a self-service portal is a must.

It empowers them to manage their own information, reduces administrative overhead for you, and enhances their overall experience.

Think of it as a digital front desk for your single employee.

Access to Pay Stubs and Payment History

This is the most fundamental and frequently used feature of an employee self-service portal.

• Instant Access: Your employee can securely log in at any time, from anywhere, to view and download their current and past pay stubs. No more printing and handing out paper stubs, and no more fielding requests for copies.
• Detailed Breakdown: Pay stubs typically show:
  • Gross pay
  • Federal, state, and local tax withholdings
  • Deductions e.g., health insurance, 401k contributions, if applicable
  • Net pay
  • Year-to-date totals for wages and taxes
• Benefits for the employee:
  • Financial Management: Helps them track their income and deductions for budgeting.
  • Loan Applications: Often needed for loan applications or rental agreements.
  • Dispute Resolution: If there’s ever a question about their pay, they can easily review the details themselves.
• Benefits for you:
  • Time Savings: Eliminates requests for old pay stubs. According to some payroll providers, employee self-service can reduce payroll-related inquiries by up to 60%.
  • Reduced Printing Costs: Saves money on paper and toner.

Access to Tax Forms W-2, 1099-NEC

Come tax season, the self-service portal becomes incredibly valuable for distributing essential tax forms.

• Digital W-2/1099 Access: Employees can securely download their W-2 forms for employees or 1099-NEC forms for independent contractors, if applicable directly from the portal.
• IRS Compliance: The IRS encourages electronic delivery of W-2s as long as employees consent.
• Efficiency: Automates the distribution process, saving you time and postage costs.
• Security: Reduces the risk of mail fraud or lost tax forms.

Updating Personal Information

Life happens. Payroll companies in nj

Employees move, change phone numbers, or update their direct deposit information.

A self-service portal allows them to initiate these updates directly.

• Employee Empowerment: Gives the employee control over their own data.
• Accuracy: Reduces the chance of outdated contact or banking information, which can lead to communication issues or delayed payments.
• Streamlined Process:
  • Address Changes: Ensures W-2s are mailed to the correct address if they opt for paper.
  • Bank Account Updates: Critical for ensuring direct deposits go to the right account.
  • Emergency Contacts: Keeps vital information current.
• Your Role: While the employee initiates the change, you typically review and approve it before it becomes active in the payroll system. This maintains accuracy and control.

Viewing Company Documents and Policies

Beyond just pay-related documents, some self-service portals offer a secure repository for important company information.

• Employee Handbook: Make your employee handbook easily accessible.
• Company Policies: Post policies on vacation, sick leave, expense reporting, etc.
• Announcements: Share important updates or announcements.
• Benefits Information: If you offer any benefits, this is a great place to store details about plans, enrollment periods, and contact information.

By leveraging an employee self-service portal, you not only simplify payroll administration for your single employee but also foster a more transparent and efficient working relationship.

When to Consider a Professional Employer Organization PEO or HR Service Even for One Employee

While a dedicated payroll service handles tax compliance and payments, a Professional Employer Organization PEO or a broader HR service takes on a much larger chunk of your employer responsibilities.

For a single employee, a full PEO might seem like overkill, but there are specific scenarios where their comprehensive offering, or at least a more robust HR component, makes compelling sense.

What is a PEO?

A PEO enters into a co-employment relationship with your business.

This means they become the “employer of record” for tax purposes, handling virtually all aspects of HR, payroll, benefits, and compliance, while you retain control over day-to-day management.

• Key Services Offered by PEOs:
  • Full-Service Payroll: All tax filings, payments, direct deposit, W-2s.
  • Benefits Administration: Access to large-group health insurance, 401k plans, life insurance, etc., often at better rates than you could get on your own.
  • Workers’ Compensation: Manage claims, safety programs, and potentially lower rates.
  • HR Compliance: Ensure you’re compliant with all federal and state labor laws, from hiring to termination.
  • HR Support: Access to HR experts, employee handbooks, performance management tools.
  • Unemployment Claims: Handle unemployment claims and responses.

Scenarios Where a PEO Makes Sense for One Employee

While they are generally more expensive than a standalone payroll service, PEOs can be a strategic choice if you fall into one of these categories:

• You Want Access to Fortune 500-Level Benefits: This is often the primary driver. Even with one employee, a PEO can give you access to group health insurance, dental, vision, and 401k plans that would be unaffordable or inaccessible on your own. This is a huge competitive advantage for attracting and retaining talent, even if it’s just your one key person.
  • Data Point: Small businesses under 50 employees pay an average of 8-18% more for health insurance premiums than large businesses. PEOs leverage their massive employee pools to get better rates.
• You Operate in Multiple States or Have Complex Compliance Needs: If your one employee works remotely from a different state, or if your industry has particularly complex labor laws, a PEO can be invaluable. They handle all the multi-state registrations and compliance nuances.
• You Have Zero Interest in HR Administration: If the thought of dealing with onboarding paperwork, unemployment claims, or understanding FMLA even for a single employee, these laws can apply fills you with dread, a PEO completely takes that burden off your plate.
• You Plan for Rapid Growth: If you foresee hiring more employees quickly, starting with a PEO means you’ve already established a scalable HR and payroll infrastructure.
• High-Risk Industry: If your business is in an industry with high workers’ compensation risks, a PEO’s ability to offer better rates and manage claims can be a significant cost-saver.

Cost of PEOs vs. Standalone Payroll

PEO pricing is typically calculated as a percentage of your total payroll often 2-12% or a per-employee per-month fee that includes all services e.g., $100-$150+ per employee per month. Free payroll system

• Standalone Payroll e.g., Gusto, OnPay: ~$45-$60/month for one employee. Focuses primarily on payroll and tax compliance.
• PEO e.g., TriNet, ADP TotalSource, Justworks: Potentially $100-$150+/month for one employee, but includes comprehensive benefits, HR support, and compliance.

When to Stick with a Standalone Payroll Service

For most single-employee businesses, a dedicated payroll service remains the most cost-effective and sensible choice if:

• You don’t need comprehensive benefits administration through your employer.
• You are comfortable managing basic HR tasks and compliance yourself.
• Your business operations are relatively simple and localized within one state.
• You prioritize lower monthly costs over extensive HR outsourcing.

Ultimately, the decision between a standalone payroll service and a PEO for one employee boils down to your specific needs, budget, and appetite for HR administrative tasks.

For the vast majority, a dedicated payroll service is sufficient, but knowing the PEO option exists can be powerful for strategic growth or complex situations.

The Pay-as-You-Go Workers’ Compensation Advantage

Workers’ compensation insurance is a non-negotiable for almost every employer. It protects both your business and your employee in case of a work-related injury or illness. However, traditional workers’ comp payments can be a burden on cash flow for small businesses, especially with fluctuating payrolls. This is where pay-as-you-go workers’ compensation shines.

What is Pay-as-You-Go Workers’ Comp?

Traditional workers’ comp policies require you to estimate your annual payroll upfront and pay premiums based on that estimate.

This often results in a large lump-sum payment or significant quarterly payments.

If your payroll deviates from your estimate e.g., you pay overtime, give a raise, or your employee has fluctuating hours, you could end up with an audit at year-end and owe a large catch-up payment, or conversely, be overpaying.

Pay-as-you-go workers’ comp integrates directly with your payroll service. Instead of estimating, your premiums are calculated each pay period based on your actual payroll for that period. The payment is then automatically debited along with your payroll taxes.

• How it Works:

  1. You run payroll for your employee.

  2. The payroll service calculates the precise workers’ comp premium based on the actual wages paid. Cheap payroll service for small business

  3. The premium is automatically deducted from your account and sent to the workers’ comp provider.

  4. No upfront deposits, no large quarterly bills, and significantly reduced risk of year-end audit surprises.

Benefits for a Single-Employee Business

This model offers significant advantages, even for a single employee, ensuring better cash flow management and compliance.

• Improved Cash Flow: This is the biggest benefit. Instead of a large upfront deposit or hefty quarterly payments, you pay smaller, more manageable amounts each pay period. This is crucial for small businesses that need to carefully manage every penny.
  • Example: A traditional policy might demand an upfront deposit of $500, even if your actual premium for the first month is only $50. Pay-as-you-go avoids this.
• Eliminates Large Year-End Adjustments/Audits: Because premiums are based on actual payroll, there’s little to no discrepancy between what you paid and what you owe. This drastically reduces the chance of owing a big lump sum after an annual audit. Audits become simpler, often just confirming data rather than uncovering major shortfalls.
• Accurate Premiums: Whether your employee works consistent hours, takes time off, or gets a raise, the system automatically adjusts the premium accordingly. You pay exactly what you owe, no more, no less.
• Simplified Administration: The payroll service handles the calculations and remittances, saving you time and reducing the administrative burden of managing another separate bill.
• Compliance Peace of Mind: You can be confident that you’re always paying the correct amount and staying compliant with workers’ comp regulations.

Payroll Services Offering Pay-as-You-Go

Many leading payroll services for small businesses integrate with workers’ compensation providers to offer this feature.

• Gusto: Excellent for pay-as-you-go workers’ comp integration. They often partner with AP Intego to provide competitive quotes and seamless payment integration.
• OnPay: Also highly regarded for its seamless pay-as-you-go workers’ comp solution, often directly integrated with their platform.
• QuickBooks Payroll: Can integrate with workers’ comp providers to facilitate pay-as-you-go options.

When selecting your payroll service, specifically ask about their workers’ compensation integration and whether they offer a pay-as-you-go option.

It’s a small feature that can make a big difference in your financial planning and reduce year-end surprises.

FAQs

What is the best payroll service for 1 employee?

The best payroll service for 1 employee is generally Gusto, OnPay, or QuickBooks Payroll, offering a balance of affordability, automated tax filing, and ease of use. Gusto is known for its user-friendly interface, OnPay for value and customer support, and QuickBooks Payroll for seamless integration if you already use QuickBooks Online for accounting.

How much does payroll cost for 1 employee per month?

For 1 employee, payroll services typically cost between $45 and $60 per month. This usually includes a base fee around $30-$50 plus a per-employee fee around $4-$12.

Do I need payroll for just one employee?

Yes, absolutely.

Even with one employee, you are legally obligated to withhold and remit federal, state, and local payroll taxes, file various tax forms like W-2s and 941s, and comply with labor laws. Global payroll software

Using a payroll service ensures you meet these requirements accurately and on time.

Can I do payroll myself for 1 employee?

Yes, you can do payroll yourself, but it’s highly complex and risky. You would need to manually calculate withholdings, track tax deadlines, file various federal and state forms e.g., W-4, I-9, W-2, 941, state unemployment forms, and ensure compliance with ever-changing regulations. The time commitment and risk of penalties for errors make a payroll service a much more efficient choice.

What are the risks of doing payroll manually for a single employee?

The risks of manual payroll include calculation errors, missed tax deadlines, incorrect tax filings, and failure to comply with labor laws.

These can lead to significant IRS and state penalties, fines, interest charges, and costly audits, easily outweighing the cost of a payroll service.

Does Gusto work for one employee?

Yes, Gusto is an excellent choice for one employee.

Their “Simple” plan is designed for small businesses and offers full-service payroll, automated tax filing, direct deposit, and new hire reporting at a very competitive price point for a single employee.

Is OnPay good for single-employee businesses?

Yes, OnPay is very good for single-employee businesses.

It offers full-service payroll, automated tax filings, excellent customer support, and includes HR tools, all at a competitive flat monthly fee plus a per-employee charge, making it cost-effective for one employee.

Is QuickBooks Payroll suitable for one employee?

Yes, QuickBooks Payroll is suitable for one employee, especially if you already use QuickBooks Online for your accounting.

It offers seamless integration, automated tax filing, and direct deposit. Best online payroll services for small business

Its pricing can be slightly higher than some competitors for basic features.

Do payroll services handle state taxes for one employee?

Yes, nearly all full-service payroll providers like Gusto, OnPay, QuickBooks Payroll handle all state income tax withholdings, state unemployment insurance SUTA, and other state-specific tax filings and payments for your employee.

What about workers’ compensation for 1 employee?

You will likely need workers’ compensation insurance for your single employee, as it’s mandatory in most states.

Many payroll services integrate with workers’ comp providers, offering “pay-as-you-go” options where premiums are calculated and paid each payroll run based on actual wages, improving cash flow.

Do I need an EIN for 1 employee?

Yes, if you hire an employee not an independent contractor, you will need a Federal Employer Identification Number EIN from the IRS to report wages and taxes.

This is different from your Social Security Number SSN.

How do I pay my 1 employee legally?

To pay your 1 employee legally, you must:

1. Obtain an EIN.

2. Have your employee complete Form W-4 and I-9.

3. Withhold federal, state, and local income taxes, Social Security, and Medicare. Global payroll systems

4. Pay employer payroll taxes FUTA, employer portion of Social Security/Medicare, SUTA.

5. File required forms 941, W-2, state tax forms on time.

6. Use direct deposit or checks. A payroll service automates most of this.

Can I use a PEO for only one employee?

Yes, you can use a Professional Employer Organization PEO for one employee, though it’s generally more expensive than a standalone payroll service.

PEOs are beneficial if you need access to large-group benefits like health insurance, comprehensive HR support, or operate in multiple states, as they handle virtually all HR and compliance aspects.

What forms do I need for 1 employee?

For 1 employee, you’ll need:

• Form I-9: To verify employment eligibility.
• Form W-4: To determine federal income tax withholding.
• Form W-2: Annual wage and tax statement.
• Form 941 or 944: Employer’s Quarterly or Annual Federal Tax Return.
• State-specific forms: For income tax, unemployment, and new hire reporting.

Is there a free payroll service for 1 employee?

Generally, no reputable payroll service offers a truly “free” option for full-service payroll that includes tax filing and payments.

While some basic services might exist for self-managed payroll, they often lack the crucial automated tax compliance features.

The cost of a paid service is usually well worth the peace of mind and time savings.

How often should I pay my 1 employee?

Most businesses pay employees weekly, bi-weekly, or semi-monthly. Paycheck software

The frequency is often dictated by state law, so check your state’s requirements for payment frequency. Bi-weekly is a common and efficient choice.

What is an employee self-service portal?

An employee self-service portal is an online platform provided by payroll services that allows your employee to securely access their pay stubs, W-2s, update personal information like address or direct deposit, and view company documents, reducing administrative tasks for you.

Can a payroll service help with onboarding my 1 employee?

Yes, many payroll services offer basic onboarding features.

This often includes tools to complete and store Forms I-9 and W-4, gather personal information, and securely share relevant documents with your new employee.

What if my single employee is also an independent contractor for another role?

If your single employee also performs services for your company as an independent contractor, you’ll need to clearly distinguish between their employee wages reported on W-2 and their contractor payments reported on Form 1099-NEC if payments exceed $600 in a calendar year. Your payroll service can help manage both types of payments.

Is unlimited payroll runs included for 1 employee?

Yes, most full-service payroll plans for small businesses, including those designed for one employee, offer unlimited payroll runs.

This means you can pay your employee as often as needed weekly, bi-weekly, etc. without incurring extra charges per run.