Payroll outsourcing: what you hand off, what it costs and what stays yours

The three ways to outsource payroll

Software that files taxes

$35 to $180/moplus $5 to $22 per person

Provider with a rep

Quote onlyADP, Paychex, Paycor, Paylocity, Paycom

PEO

$79 to $125per employee per month, published

Prices checked

Oct 16, 2026vendor pricing pages

Every option below is "full service": the provider calculates pay, sends direct deposits, deposits your withholding and files Forms 941, 940, W-2 and the state returns. What changes is how much of the work you still touch and who is legally the employer.

If you mainly want payroll off your desk, start with software. If you want health insurance and HR on top, compare a PEO, and read how a PEO differs from a payroll service first. Larger teams that want a named rep and HR modules end up in the quote-only group, covered on our enterprise payroll page.

What you hand off, and what you still do

The provider handles

• Gross-to-net math: withholding, deductions, garnishments and employer taxes.
• Direct deposit or checks on payday.
• Federal tax deposits and the quarterly Form 941 (the Q3 2026 return is due November 2, 2026, because October 31 is a Saturday, per IRS due date rules).
• Year-end Forms W-2 and W-3 (2026 forms are due February 1, 2027) and Form 940.
• Form 1099-NEC for contractors, which from 2026 payments starts at $2,000 instead of $600 (IRS 1099 instructions, December 2026 revision).
• State withholding and unemployment wage reports in the states you set up.

You keep

• Funding payroll on time. Providers pull the money before payday. Gusto reviewers report payroll blocked for late funds with the fee not waived.
• State registration in most cases. Gusto is the only provider in our research that registers state tax accounts for you (one-time through Middesk, or Business Compliance at $85 per state per month). Paychex says "All employers are required to register and provide Paychex with agency ID numbers." QuickBooks and ADP also expect you to supply the numbers.
• Worker classification. The provider pays whoever you mark as a contractor. QuickBooks' guarantee names misclassification as an exclusion, and the others we read exclude errors caused by your data, which includes how you classify workers.
• Accurate data. Every tax guarantee excludes errors caused by hours, rates or addresses you entered.
• Agency mail. Notices still come to you. Some guarantees only apply if you forward them fast.

For the full step list a provider runs each cycle, see our payroll processing walkthrough.

What outsourced payroll costs for 5, 10 and 25 employees

These are software fees only. Payroll taxes, benefits and workers' comp are separate, and our employee cost calculator adds those for your state.

The bars show the 10-person monthly fee from the table.

Add-ons that change the total

• Extra states: QuickBooks $12 a month per state, Patriot $12, SurePayroll $9.99. Gusto Simple covers one state only, so a second state means Plus. OnPay includes multi-state.
• Faster pay: Gusto Simple next-day pay is $15 a month plus $3 per person; same-day pay is $90 per payroll.
• Forms: Square charges $3 per mailed paper W-2 or 1099. SurePayroll bills W-2 and 1099-NEC forms at $50 plus $5 per form each year.
• Leaving: Gusto charges $100 federal, $100 per state and $5 per form if it files your final returns, and QuickBooks charges $150 for year-end forms after you cancel.

Providers that sell through a rep

ADP and Paychex do not publish prices for any payroll plan. Neither do Paycor, Paylocity or Paycom. The estimates below come from review sites, not the vendors, and some are more than a year old. Our ADP pricing breakdown and Paychex pricing breakdown go deeper.

ADP is offering three free months of RUN payroll processing to new clients with 1 to 49 employees who sign and start payroll by October 22, 2026, credited on months 4 to 6. Paychex waives payroll fees through April 2027 (up to six months) for new clients with 1 to 250 employees who sign a one-year agreement between October 12 and October 31, 2026. Setup and other fees still apply, and Paychex can recover the free months if you leave within the year.

PEO fees

Most PEOs are quote only. ADP's own guide puts industry PEO fees at "2% to 12% of total payroll or about $40 to $160 per employee per month" (updated July 14, 2026). That is a range for the industry, not an ADP TotalSource price. See what a PEO costs per employee for the full breakdown.

What stays your liability after you outsource

This is the part most outsourcing pages skip. Hiring a payroll company moves the work, not the legal duty. Federal law names one exception: a Certified Professional Employer Organization. Under 26 USC 3511(a), for wages a CPEO pays to a worksite employee, the CPEO "shall be treated as the employer (and no other person shall be treated as the employer)" for federal employment taxes.

With a regular payroll service, or a PEO that is not on the IRS certified list, the taxes stay in your company's name. The IRS says employers that outsource payroll remain ultimately responsible for depositing and paying their federal tax liabilities (IRS, Outsourcing payroll duties, checked October 17, 2026). So if the provider files late or deposits short, expect the notice to come to you. Section 3511 is federal only; for state unemployment and withholding, check your state's rules. Check any PEO against the IRS certified PEO list before you sign (the active list we checked has a report date of August 7, 2026).

Three habits protect you whichever provider you use:

• Log in to your state unemployment and withholding accounts each quarter and confirm the wage report posted.
• Check that federal deposits match your payroll registers. You can enroll your own EIN in EFTPS, the Treasury's federal tax payment system, to see deposits made under it; the IRS publishes guidance on monitoring outsourced payroll this way (checked October 17, 2026).
• Open every agency letter the day it arrives and send it to the provider in writing, with the date.

Which model fits your business

Still deciding whether to outsource at all? Our in-house vs. outsourced payroll comparison walks through the time and error risk. If you want HR handled too, read the HR outsourcing options and the all-in-one HR and payroll platforms. Bookkeepers and CPAs running payroll for clients should see payroll programs for accountants.

What buyers complain about after they outsource

• Tax errors and who pays. The biggest payroll complaint in our research. One Gusto reviewer wrote that mistakes "cost me thousands of dollars in penalties, interest, and fees" (Trustpilot, Oct 2, 2026). An ADP reviewer says a misfiled 941 led the IRS to take more than $31,000 from an ERC refund (Trustpilot, Oct 5, 2026).
• Billing after cancellation. Paychex and ADP reviewers report charges months after canceling (Paychex Trustpilot, Oct 13, 2026; ADP Trustpilot, Sep 30, 2026).
• Price increases. An ADP reviewer says the bill rose "more than 10% without any notice" despite a promised freeze (Oct 1, 2026). A QuickBooks user reports payroll for 15 to 20 employees going from $1,566 in 2022 to $2,210 in 2025 (QuickBooks Community).
• Support that does not fix things. Reviewers of ADP, Paychex, Gusto and OnPay describe long waits and repeat calls. OnPay reviewers report ticket replies taking three to four months (Trustpilot, Aug 14, 2026).

Ratings depend on who is asked. On October 16, 2026, ADP RUN scored 4.7 on G2 (6,579 reviews) but adp.com scored 1.2 on Trustpilot (3,126 reviews, all ADP products). Gusto scored 4.6 on G2 (13,492) and 1.9 on Trustpilot (2,535). Trustpilot reviews skew toward billing and cancellation disputes, which is exactly what you want to know before signing.

Contracts, cancellation and your records

Before you sign, get three things in writing: the notice period, any early termination or "transition" fee, and how long you can download W-2s, 941s and payroll registers after you leave. One Gusto reviewer said the company held "W2s and payroll reports hostage" (Trustpilot, Sep 17, 2026), and a Justworks reviewer said old tax records took about three months to get.

How to switch payroll providers mid-year

Switching mid-year works, but the handoff is where state unemployment problems start. One owner on Hacker News said their unemployment insurance rate "went from 0.8% to 12.75%" after quarterly wage reports were missed in a switch (HN, Aug 2026).

1. Pick a quarter start if you can. Switching on January 1, April 1, July 1 or October 1 means each provider owns whole quarters, so one company files each Form 941 and state wage report.
2. Give written notice on the old provider's terms. ADP RUN and OnPay both require 30 days' prior written notice. Gusto cancels immediately but bills the full month after the 5th.
3. Pull year-to-date totals for every employee. The new provider needs gross pay, each tax withheld and each deduction so Social Security stops at the $184,500 wage base and the W-2 shows the full year.
4. Agree in writing who files the open quarter. If you switch in October 2026, the Q3 Form 941 is due November 2, 2026. Name which provider files it, plus the matching state wage report.
5. Hand over state access. Give the new provider your state withholding and unemployment account numbers and any power of attorney or third-party access the state requires. Confirm your current SUTA rate so it is not reset to a new employer rate (see 2026 SUTA rates by state).
6. Download everything before access ends. Wave access ends at month end. QuickBooks keeps payroll data one year. Save registers, tax returns and pay stubs as files you own.
7. Run a parallel check on the first payroll. Compare net pay for a few employees against the old system before you approve.
8. Watch the next quarter's state notices. A missing or zero-wage report shows up as a letter weeks later.

Common mistakes when outsourcing payroll

• Comparing base fees only. At 25 people, the per-person fee is most of the bill: $150 of Gusto Simple's $199.
• Assuming the provider is now liable for your taxes. Only a CPEO takes on federal employment tax liability.
• Signing a one-year promo deal (Paychex) without reading the clawback if you leave early.
• Letting the provider skip state registration in a new state. Ask who registers before the first hire there.
• Not saving records before canceling, then paying a former provider to reissue W-2s.
• Picking a PEO for health insurance without comparing a broker quote. One ADP TotalSource reviewer found a policy at about 75% of the cost by shopping on her own (Capterra, May 2024, more than two years old).