How much does it cost to outsource payroll?

As of October 2026, full-service payroll software starts at $35 a month plus $6 per person at Square, and $49 a month plus $6 per person at Gusto. A PEO such as Justworks starts at $79 per employee a month.

If my payroll company makes a mistake, who pays the IRS penalty?

Usually you do. The IRS says the employer stays responsible for depositing and paying federal employment taxes, even when a payroll provider does the work. A certified PEO is the main exception, for the wages it pays.

How do I check that my payroll provider paid my taxes?

Enroll in EFTPS with your own PIN. The IRS says you can then see your federal tax deposit history and spot a missed or late payment.

Is a PEO better than a payroll service?

A PEO suits you when you also want HR help and access to group benefits. If you only need people paid and taxes filed, a payroll service costs less.

Outsource payroll for small business: options and costs

For most small businesses, full-service payroll software is enough. Entry plans run pay and file payroll taxes for $35 to $88 a month plus about $6 per person. A PEO costs more, from $79 per employee a month at one provider, and adds HR and benefits. Whichever you pick, the IRS still holds you responsible for the taxes. Prices are as of October 2026, in US dollars.

The three options

Payroll software with full service. You enter hours and pay. The software calculates, pays and files the payroll taxes. You stay the employer.
A payroll service with people. The same, but a team runs it for you or alongside you. Many software vendors sell a higher plan with this.
A PEO. A professional employer organization co-employs your staff. It runs payroll and taxes under its own tax ID, and usually adds HR support, workers' comp and access to group benefits.

Published prices

Payroll software (from each vendor's pricing page, monthly):

Square Payroll: $35 a month plus $6 per person paid. Contractor-only payroll is $6 per person paid.
Gusto Simple: $49 a month plus $6 per person. Payroll in one state, tax filings included.
Gusto Plus: $80 a month plus $12 per person. Adds multi-state payroll, time tracking and next-day pay.
Gusto Premium: $180 a month plus $22 per person. Adds a named advisor and HR guidance.
QuickBooks Workforce Payroll with QuickBooks Simple Start: $88 a month plus $6.50 per employee. Includes the accounting software.
Justworks Payroll: $50 a month base plus $8 per employee.

Sources: Square, Gusto, QuickBooks and Justworks. QuickBooks showed a three-month discount when checked. The figures above are its standard prices.

PEO (from Justworks, which publishes its rates):

PEO Basic: $79 per employee a month, no base fee. Payroll, compliance help, HR tools and 401(k).
PEO Plus: $124 per employee a month. Adds medical, dental and vision plans and other benefits.

Many PEOs do not publish prices and quote after a call.

What this looks like for a team of five

Say you pay five employees in one state.

Square: $35 + 5 × $6 = $65 a month.
Gusto Simple: $49 + 5 × $6 = $79 a month.
Justworks PEO Basic: 5 × $79 = $395 a month.

The PEO costs about five times more. You are paying for HR help and benefits access, not for payroll alone. Wages, employer taxes and insurance premiums are on top in every case.

Who is responsible for the taxes

This is the part most owners miss. The IRS page on outsourcing payroll duties says the employer is ultimately responsible for depositing and paying federal tax liabilities. That holds even when a third party makes the deposits. If the provider fails to pay, the IRS can charge penalties and interest to you. Some owners can be personally liable for certain unpaid taxes.

The IRS chart of third-party arrangements sets out who carries the liability:

Payroll service provider: you stay liable. No form is filed with the IRS.
Reporting agent, authorized on Form 8655: you stay liable. The agent files and pays under your tax ID.
Section 3504 agent, appointed on Form 2678: you and the agent are both liable.
Certified PEO (CPEO): generally the CPEO alone is liable for the wages it pays to your worksite employees.

A PEO that is not certified by the IRS does not give you that protection. Ask whether a PEO is a CPEO, and check it on the IRS CPEO page. State taxes follow their own rules, so check those with your accountant.

Protect yourself

Enroll in EFTPS with your own PIN. The IRS says you can then view 16 months of deposit history.
Check that deposits appear on time, at least each quarter.
Keep the IRS address of record as your own, not the provider's.
Be wary of anyone contacting you as your payroll provider and asking for tax funds.
Keep payroll records for at least four years, as the IRS asks for employment tax records.

How to choose

Pick payroll software if you have a small team, in one or a few states, and no need for HR advice.
Pick a higher plan with an advisor if you want a person to call about payroll questions.
Pick a PEO if you want better benefits than you can buy alone, or HR support for hiring and firing, and the per-employee price makes sense.

Questions to ask any provider

Payroll provider questions

Do you file and pay federal, state and local payroll taxes, or only calculate them?
Are you a reporting agent, a 3504 agent, a PEO or a certified PEO?
If you make a filing or payment error, what do you cover, in writing?
What is the monthly cost for [number] employees and [number] contractors in [states]?
What do year-end forms, new state registrations and off-cycle runs cost?
How fast is direct deposit, and what does faster deposit cost?
How do I export my payroll history if I leave?