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Online Payroll for Your Small Business

Paying your employees is probably not your favorite part of doing business. After all, it’s so time-consuming. You not only have to calculate their wages, but you also must withhold employment (income, Social Security and Medicare) taxes, as well as any additional deductions for health or retirement plans. And then there’s all the paperwork of reporting and paying withheld taxes to the government(s).

Fortunately, you no longer have to do this with cumbersome spreadsheets and manual inputting. Payroll software — either as part of your accounting system or a stand-alone app — automates much of the work for you.

Choosing Payroll Software

  • Here are some questions to get answered before you decide which product to buy.
  • Does the accounting software you already use have payroll functionality? If not, can you add a plug-in to it? (Saves money)
  • Is the stand-alone software compatible with your system as well as the systems your financial consultants use? (Makes it easy to share files)
  • Is it cloud-based? (Improves access, reduces hardware and IT support needs)
  • Does it keep real-time records? (Ensures up-to-date information)
  • Does it provide the right reports? (Simplifies business operations)
  • Does it have features relevant to your business, such as timesheet processing or direct deposit payments? (Saves time)
  • Is it scalable? (Avoids the hassle of changing systems as you grow)

Using Online Payroll Software

For best performance, start off on the right foot with your new system. Set it up with complete and accurate information, including:

  • Your employer identification number (required by the IRS)
  • Your business registration number (required by some states)
  • Required employee data (varies according to federal and local regulations) such as name, address, social security number, deductions, contact information, salary, days off, sick days, overtime and any other compensation
  • Methods of compensation you’ll be using in the system: salary, hourly, commission, tips and supplemental wages (covers anything else such as back pay, severance pay, bonuses and accumulated sick leave)

Archiving Payroll Records

Employers are required by the government to keep records for the current and previous three tax years. Your online payroll software will be a big help with this, but may not do everything — especially since local requirements can vary. In addition, you must keep some paper records, such as tax forms. Archived information should include:

  • Employee’s name, address and social security number
  • Dates of hire and termination (if applicable)
  • Copies of all relevant forms supplied to (and by) the employee
  • Amounts and dates of all wage, annuity and pension payments
  • Fringe benefits and expense reimbursements
  • Sickness or injury payments
  • Tax deposits you made
  • Copies of returns filed and confirmation numbers

Xero accounting software that comes included with your Xendoo package integrates directly into Gusto, an automated payroll solution. Check for current online payroll offers here.


This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.


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