How do you use Quickbooks for payroll services?

UPDATE: Time never stands still, and that aphorism certainly applies in the payroll service world. This article has become one of our most popular, so with all of the changes in payroll services for QuickBooks customers, it was overdue for a refresh. At long last, here it is.

As every business owner knows, it takes a lot of work to turn timesheets into a completed payroll either in the form of paychecks or direct deposits, calculate all deductions, and process all payroll taxes. That’s where payroll software and services prove their value on a regular basis. In response to a request, we undertook a comparison of 3 big payroll services: Intuit, ADP, and Paychex.

We did our initial comparison in late 2008, and we freshened that analysis at the start of 2011. Since our initial analysis, there were some big changes in the payroll processing world. In 2009, Intuit acquired PayCycle for about $170 million.

PayCycle was one of the largest players in the online payroll processing market, and the acquisition added significantly to its share of this market. The big impact: Intuit’s focus on online payroll products has increased. Since we conducted our initial analysis more than 2 years ago, the cost of Intuit’s online payroll offerings has either dropped by 24% or gone up by 4%, depending on the product you choose, and there are more online products from which to choose.

In the same time period, the effective cost of its desktop payroll products has jumped by 32%. It’s easy to see that Intuit is encouraging users to process payroll online by making the online service offerings more capable and widening the price gap to similar desktop products. Let’s see how the 3 payroll service providers stack up in 2011.

First, the basics. Our objective was to find the right software or service to prepare payroll and file/pay all payroll taxes for a firm with a payroll of 10 employees paid weekly in a specific northern Virginia zip code. Payroll costs should easily integrate with the QuickBooks GL.

Once implemented, the firm will be switching from the current manual payroll system. We started with online quote systems and supplemented what we learned with phone calls and emails to pin down the details. In payroll processing, as you’ll soon see, the devil is in the details.

If you need to distribute physical checks to employees, there are some fundamental differences between Intuit’s service offerings and the competitors we evaluated. For all of the Intuit services, an organization must print any physical checks it needs to distribute. For all but 1 service plan (Assisted Payroll) it also needs to print any forms that will be distributed to employees, such as W2?s.

For ADP & Paychex, delivery of physical checks and forms is either included or available as an extra-cost service. Printing checks and forms is a routine task that QuickBooks users perform regularly. Therefore, if the savings are significant, the small amount of extra work to print any required payroll checks isn’t a big hurdle to adopt Intuit’s services.

Intuit Online Payroll provides the “anytime, anywhere” advantage of Software as a Service (SaaS), allowing you to manage payroll from any web-accessible PC. It covers up to 100 employees (a practical limit). Depending on the version of Online Payroll you choose, it includes the tax payment and filing capability of its more expensive relative, QuickBooks Enhanced Payroll.

Of course, it integrates with QuickBooks. Intuit Online Payroll comes in 2 flavors: Basic and Plus with monthly costs of $25 and $39 respectively.1 Quoted monthly costs don’t tell the whole story. The standard monthly fee includes service for 1 employee, and every additional employee costs $1.50 per month.

For a 10 employee company, that takes the monthly costs up to $38.50 for Basic and $52.50 for Enhanced. Offsetting that jump in monthly cost is the fact that Intuit Online Payroll does not charge extra for direct deposit fees. Another consideration is that Online Basic doesn’t support paying 1099 contractors, but Online Plus does.2 Online Basic doesn’t complete state tax forms – an important task in payroll processing.

One other wrinkle: Intuit Online Payroll Plus provides state tax processing for 1 state at its standard monthly rate; every additional state is an extra $12 per month. Although we include it in our comparison table, we can’t consider Online Basic as a viable contender in our comparison. QuickBooks Basic Payroll is targeted at firms that need to process payroll and want up-to-date tax tables for payroll calculations but will prepare, file, and pay payroll taxes either on their own or with the assistance of their outside accountant.

Despite the “Basic” in its name, this is a desktop product and is separate from Online Basic. QuickBooks Basic Payroll is a good value for firms with up to 3 employees, and for an extra cost it can handle an unlimited number of employees. Payroll can be completed by printing a check or making a direct-deposit, but direct deposits carry an extra fee of $1.25 per deposit.

When combined with your payroll frequency, this direct deposit fee has a big impact on the smart choice for payroll processing. If you pay frequently, it tips the scales to a service like Online Payroll Plus that doesn’t carry a direct deposit fee. Like Online Basic’s lack of state payroll tax processing, QuickBooks Basic Payroll doesn’t meet one of our requirements – filing and paying payroll taxes.

Therefore, the desktop Basic Payroll is just included for completeness. QuickBooks Enhanced Payroll is designed for firms that want to process payroll and prepare, file, and pay payroll taxes. Enhanced, just like Basic, can make payroll with either a paycheck or a direct-deposit, and direct-deposits carry the same extra charge of $1.25 per deposit made.

With Enhanced Payroll, a company can file payroll taxes at no cost with E-File and pay those taxes with E-Pay. At year-end, Enhanced Payroll provides the links for a firm to print W2? S on its own hardware and forms.

QuickBooks Assisted Payroll extends the service of Enhanced Payroll3 to include Intuit preparing, filing, and paying payroll taxes. It also has an extra cost option to supply complete W2 forms at year-end. Of course, strong integration with the QuickBooks GL is standard.

One of the important differentiators for Intuit payroll service offerings is the number of different employer identification numbers supported. An employer identification number (EIN), or tax identification number, is a unique number issued to a business. If you need to process payroll for several businesses, don’t overlook the number of EIN’s supported, because this detail can completely change the outcome of this comparison.

QuickBooks Assisted Payroll and Intuit Online Payroll, including Basic and Plus, are designed to process payroll for a single EIN. If you have 3 companies that need payroll processing, plan on buying 3 subscriptions. QuickBooks desktop-based Basic and Enhanced handle up to 3 EIN’s.

All of the Intuit payroll offerings feature direct deposit. Many employers are finding that some employees want to be paid by funding a debit card. That’s a common need for employees that don’t have easy access to a bank or don’t feel comfortable using online banking features.

Intuit has addressed this need with its own Intuit-branded debit card called the Intuit PayCard, and any direct deposit payroll payment can make use of this capability. For small businesses, ADP has 3 packages: Compliance, Compliance with Pay Convenience, and Compliance with Pay Convenience and Reporting. Note: The links open images of the actual ADP quotes.

Compliance is similar to QuickBooks Basic Payroll except that ADP will supply printed paychecks or make direct deposits; payroll taxes are calculated, but not filed or paid. Compliance with Pay Convenience and Reporting is the most expensive of the 3, and the extra cost is for additional reporting which could be useful in certain environments (e.g. , a unionized workplace). ADP’s standard reporting covers most needs.

Therefore, we’ll focus on ADP’s Compliance with Pay Convenience, which includes making payroll by paycheck or direct deposit4 and paying/filing all payroll taxes. It also includes a QuickBooks GL interface at no cost if a company’s accountant is a contact for the service. For Paychex, we evaluated two options: its Flexible pay package and Small Biz paperless option.

Flexible was the option quoted on the web, but the quote omitted the cost of a number of services to meet our requirements. Small Biz is a new paperless option quoted by the local Paychex rep that offers a cost significantly lower than other Paychex programs, but it lacks a true QuickBooks GL interface and is only a good choice if all employee payments are made by direct deposit. In fairness to both ADP and Paychex, we didn’t spend a lot of time updating their pricing, but their approach to marketing their services is to blame.

For all of the Intuit offerings, any visitor to the company’s website can see a plainly visible price. To be sure, that price needs to be adjusted for details often buried in footnotes.