A guide to small business payroll

Payroll is how a company pays people and sends the taxes that come out of those paychecks. If you have employees, you need it. If you are self-employed and you are the only person getting paid, you may not. Gusto is the payroll service we recommend for a small company that wants the tax filings handled in the same place as the pay run.

When you actually need payroll

You need payroll when the company pays W-2 employees. That includes a small team, a first hire, and an owner who takes a paycheck from their own corporation.

You usually do not need payroll when you are a sole proprietor or a single-member LLC taxed as a sole proprietor, you have no employees, and you simply transfer money to yourself. That transfer is not a paycheck. You still owe income tax and self-employment tax on the profit. A payroll app does not replace that.

Contractors are a third case. You pay them, and you may send a 1099, but they are not on payroll unless the IRS would call them employees. Status is the IRS's call, not a setting in the software. If you are unsure, read the IRS page on employees and independent contractors before you add someone.

What a payroll service does

A full payroll service calculates gross pay, takes out income tax and payroll tax, pays the person, and files the returns. Gusto's plans include unlimited payroll runs, so an extra run in the same month is not a separate line item. Gusto also says you are charged for people who are active, not for empty seats.

The plan you need depends on the company:

• Simple is for payroll in one state. Gusto lists it at $49 a month plus $6 a month per person. It includes tax filings and basic paid time off.
• Plus is the plan when you pay people in more than one state. Gusto lists it at $80 a month plus $12 a month per person. It adds multi-state payroll, time tracking, and next-day pay.
• Premium is the plan with a named support partner and more HR tools. Gusto lists it at $180 a month plus $22 a month per person.

Those figures are the ones on Gusto's pricing page as we reviewed it. Add-ons, benefits, and the contractor plan are priced separately. Read the page again before you start, because the number on that page is the one you will pay.

Gusto's pricing page also has a Pay Myself option. Use that if the question is how the company pays you, not how it pays a team. The price for that path is on the same page.

Why we point people to Gusto

Gusto is our payroll partner. We send readers there because the price is published as a base fee plus a per-person fee, payroll runs are unlimited, and the same login covers the tax filings. We are not ranking every payroll company. We are telling you the one we would use.

Any partner offer, including a bonus after a first payroll, is shown on the signup page. We do not print a bonus amount here. The offer on that page is the one that applies.

See Gusto payroll

The bank account is a separate decision

Payroll pulls money from a business account. Gusto does not replace that account, and it is not a bank. Open the business account first if you do not have one. Our pick is Relay. Relay is a financial technology company, not a bank. Banking services are provided by Thread Bank.

If you are still forming the company, start with how to open an LLC and then what to do after you form an LLC. If you pay vendors who do not take cards, Melio is the bill-pay tool we use. Payroll and bill pay solve different problems.