How to Know If You're Overpaying for Payroll Processing

Do you know how much you actually pay for payroll every month?

If you’re like most small business owners, you probably don’t. And that’s not surprising.

When payroll is working, it’s one of those things you don’t want to touch. It runs, your people get paid, and it feels safer not to mess with it.

But you may be paying too much for payroll. And it’s not always obvious.

At Whirks, we've been helping businesses with payroll for over two decades, and we've seen how confusing this industry can be. Pricing is all over the map, and most business owners simply don't understand all the other things that payroll companies are charging them for.

Why Most Business Owners Have No Idea What They're Actually Paying

For most businesses, payroll is out of sight and out of mind. The system runs, a lump sum comes out of your account every pay period, and the amount stays roughly the same each time. So you assume everything’s fine.

But in our experience, 8 out of 10 business owners are shocked to discover they’re dramatically overpaying when we review their payroll systems.

Why does this happen?

• You're not seeing detailed invoices regularly. Most business owners just see the bank draft. $150 one week, $200 the next, maybe $175 after that. It varies, but it's "about what it was last time," so they don't dig deeper.
• Payroll pricing is complicated. There are base fees, per-employee fees, per-check fees, processing fees, tax filing fees, new hire reporting fees... the list goes on. 
• Hidden fees add up over time. That innocent-looking "postage fee" or "direct deposit setup" charge doesn't seem like much until you multiply it by 26 pay periods.
• Contracts are written in payroll speak. Unless you're in the industry, terms like "per employee per payroll run" versus "per employee per month" can get confusing.

The result? Business owners who think they're paying $2,500 per year who are actually paying $4,000. Or owners who think they're getting a great deal at $5 per employee per month when they're actually paying $15 once you factor in all the extras.

Understanding How Payroll Companies Actually Charge You

Before you can figure out if you're overpaying, you need to understand how payroll pricing actually works. The key is understanding which model your provider uses, because it dramatically affects your total cost. 

The Most Common Billing Methods

1. Base Fee + Per Employee/Per Check: This is still the most common model. You pay a base fee (maybe $25-50) per payroll run, plus $3-8 per employee per payroll. So if you have 10 employees and run payroll twice a month, you might pay $50 + (10 × $5 × 2) = $150/month.
2. Per Employee Per Month: This is how we structure our pricing at Whirks. You pay a flat rate per employee per month regardless of how often you run payroll. Our base rate is $10.25 per employee per month, period.
3. Tiered Pricing: Some companies use sliding scales—the first 10 employees cost X, employees 11-25 cost Y, and so on.

The Hidden Fees That Add Up

Beyond your base processing fees, here are the extras that can really drive up your costs:

• Postage fees for mailed checks
• New hire reporting fees
• Tax filing fees (sometimes charged per state)
• Direct deposit setup fees
• Employee self-service portal charges
• Voided check or NSF processing fees
• Out-of-cycle payroll charges
• Prior period adjustments and amended forms
• Document storage fees (yes, this is a real thing now)

Some of these are legitimate! If you need an emergency payroll run, that does require extra work. But others feel like nickel-and-diming, especially when they're not clearly explained upfront.

You're Definitely Overpaying If...

Here are some clear warning signs that you need to take a closer look at your payroll costs:

You're Paying More Than $50 Per Employee Per Month

Unless you have a very complex setup or need extensive HR services bundled in, $50+ per employee per month is high for basic payroll processing. This often happens when you've been with a big national provider for years and they've gradually added services you may not even use anymore.

You Can't Easily Find Your Contract or Invoices

If your payroll company makes it difficult to access your contract or detailed invoices, that's a red flag. Transparency should be the norm, not the exception.

You're Getting Hit with Surprise Fees Regularly

Occasional fees for genuine mistakes or special requests? Fine. But if you're constantly seeing unexpected charges you didn't know about, something's wrong.

You're Being Charged for Basic Features

Things like direct deposit, employee self-service portals, and basic reporting should be standard. If you're paying extra for these basics, you're probably overpaying.

How to Audit Your Current Payroll Costs

Ready to figure out what you're really paying? Here's your step-by-step process:

1. Find Your Contract and Read It

I know, nobody wants to read contracts. But this is important. If you can't find your contract, call your payroll company and ask for a copy. If they can't provide it easily, that's concerning.

Here's a tip: Upload your contract to ChatGPT and ask it to break down all the ways you could be charged. It'll give you a helpful summary of the fee structure.

2. Gather Several Months of Invoices

Don't just look at one invoice. Grab 6-12 months of detailed invoices if you can. This will show you patterns, seasonal variations, and any fees that only hit occasionally.

3. Calculate Your True Cost Per Employee

Add up everything you paid for a full year and divide by your average number of employees. This gives you your real cost per employee per month.

For example: $6,000 per year ÷ 12 months ÷ 15 employees = $33 per employee per month

4. Identify What You're Actually Getting

Make a list of all the services included in your current setup:

• Basic payroll processing
• Tax filing
• New hire reporting
• Direct deposit
• Employee self-service
• HR support
• Benefits administration
• Time tracking integration

5. Compare to Market Rates

• Good deal range: $5-15 per employee per month for basic payroll processing
• Market average: $15-25 per employee per month including standard features
• Premium/full-service: $25-40 per employee per month with extensive HR support

Remember, very small companies (1-5 employees) will typically pay more per employee due to fixed costs that can't be spread across many people.

Wondering how different types of providers stack up? If you're comparing a smaller, specialized company like Whirks to the big national brands, there are some important differences in pricing, service, and approach. Check out our detailed comparison in Whirks vs. Big Box Payroll Providers to see which model might be the better fit for your business.

When NOT to Switch Providers

Here's some honest advice: if your only issue is feeling like you might be overpaying a little, and everything else is working perfectly, DON'T switch.

Changing payroll providers is a hassle. You'll spend time setting up new systems, training your team, and dealing with inevitable hiccups during the transition. Unless you're saving significant money or gaining important functionality, it's probably not worth it.

Consider staying if:

• You're only saving $25-50 per month
• Your current system integrates perfectly with your other software
• Your team knows the current system inside and out
• You have complex needs that your current provider handles well

Consider switching if:

• You're paying dramatically more than market rates
• You're getting charged for services you don't use
• Your current provider has poor customer service
• You need features your current provider can't offer

Don't just sign up with the first provider that popped up in your Google search. How to Choose a Payroll Provider in 2025 covers what to look for, what questions will separate the real deals from the smooth talkers, and the red flags that should send you running.

The Value of Transparent Pricing

One thing that frustrates us about the payroll industry is how many providers play games with pricing. They'll advertise low rates, then load you up with fees and extras. Or they'll give you a "promotional rate" for the first year that jumps dramatically.

At Whirks, we publish all our pricing at whirks.com/pricing. Every service, every fee, everything. No hidden costs and no promotional rates that disappear.

We believe transparency builds trust. And in a relationship as important as payroll, trust matters more than clever marketing. When you're evaluating payroll providers look for companies that are upfront about their full pricing structure. 

4 Action Steps to Take

If you're ready to get serious about understanding your payroll costs, here's what to do:

1. Start with Your Process, Then Look at Price

Before you worry about what you're paying, make sure you understand what you need. Document your current payroll process, identify pain points, and figure out what would make your life easier. Price is important, but it shouldn't be your only consideration.

2. Have an Honest Conversation with Your Current Provider

If you like your current provider but feel like your costs have gotten out of hand, just ask. Say something like, "I've been with you for three years and I feel like my fees have crept up. Can we review my account and see if there are services I'm paying for that I don't need?"

3. Get Everything in Writing

Whether you're staying with your current provider or shopping around, make sure you understand exactly what you'll pay and when. Ask for examples of invoices from similar clients. Don't accept vague answers.

4. Set a Calendar Reminder to Review Annually

Put a recurring appointment in your calendar to review your payroll costs once a year. It doesn't have to be a full audit every time, but at least check that you're still getting good value for what you're paying.

Ready to Take Control of Your Payroll Costs?

Your payroll company isn't exactly incentivized to help you spend less money with them. They're pretty happy if you never look too closely at your invoices.

But you're smarter than that.

If you’ve discovered you’re overpaying and it’s time to make a change, Breaking Up with Your Payroll Provider shows you how to approach the transition thoughtfully. It outlines 10 questions to ask before switching, how to handle data transfer, what to watch for in your contract terms, and how to time the move without disrupting payroll.

After all, we believe that informed business owners make better decisions. And better decisions are good for everyone.