Is It Time for You to Move Payroll Online?

How do you pay your employees? According to PayCycle, chances are you aren’t tapping software-as-a-service to handle payroll.

The Palo Alto, Calif.-based company, which specializes in online payroll services, says that only 14 percent of small businesses use a payroll service. The rest opt to handle it themselves or have their accountant or bookkeeper take care of it.

According to PayCycle CEO Jim Heeger, now is the time for the 5.2 million U.S.-based small businesses with fewer than 20 employees to move to online payroll. And today’s release of PayCycle 2008, he said, makes it easier than ever.

While PayCycle may not be the household word that ADP and Intuit are, PayCycle is arguably the currrent leader in online payroll services, according to Laurie McCabe, senior vice president of AMI Research. “PayCycle is one of the pioneers. The other vendors are just getting into it,” McCabe said. “It is also different from ADP because PayCycle obsessively focuses on small businesses.”

Heeger said that small businesses are now embracing Internet-based applications, and PayCycle’s “online payroll services are taking off.” The new version focuses on three areas, according to Heeger: easier setup, accounting software integration and customer support.

The new PayToday Setup process is designed to let small businesses sign up and run payroll on the same day, according to Mindy Eiermann, senior product manager at PayCycle. “Seventy percent of visitors to say that they want to setup and run payroll on the same day.” The PayToday Setup process, she said, eliminates time usually required by traditional payroll companies.

PayCycle 2008
PayCycle 2008 is designed to let you sign up for payroll services and process payroll the same day.

(Click for larger image)

PayCycle now integrates with Peachtree Accounting and NetBooks, according to Heeger. Previously, it offered integration only with QuickBooks, Quicken and Microsoft Money. By exporting data to your accounting software, you eliminate the need to re-enter payroll information.

While the integration between accounting and payroll may seem like a natural progression, PayCycle appears to have an edge. Last month, Intuit announced a new online payroll service, but it does not yet allow you to move data between the service and QuickBooks automatically. However, that will change, McCabe said. “Intuit will offer integration with accounting.”

And because no small business owner ever really rests, starting in January, PayCycle says it will offer free customer support on weekends.

“Online services offer significant advancements in ease of use, convenience and affordability,” McCabe said. “Any Web-based service is going to be attractive price-wise compared to traditional payroll services. Small businesses need to ask, what’s included, what’s extra, what do they integrate with?”

While PayCycle isn’t the only payroll game in town, the company is leading the way, Heeger claimed. “ADP is playing catchup,” he said, referring to ADP Run, the payroll giant’s own online offering.

How long can PayCycle sustain itself against bigger players? ADP and Intuit will defintely gain some marketshare, McCabe said, “uness they really mess up.” But PayCycle is positioned well, she added. “It’s a big market. There’s plenty of room for three players. The fact that [PayCycle] got in early and the entrance now of larger players is all good news to PayCycle ”

Heeger said the PayCycle currently has 60,000 small business customers. A third of those he said buy directly through PayCycle, a third buy through their accountants and a third subscribe through a partner (for example, Bank of America offers a private-label version of PayCycle to its small business customers).

While online applications are gaining acceptance by small businesses, PayCycle is aiming its service at a subset of small businesses that it describes as “modern employers.” The company says that about 1.1 million small businesses meet the profile of companies that see the Internet as a critical tool; use technologies such as instant messaging, online chat and podcasts; are not dependent on an accountant; and that trust outsourcing.

One thing that will appeal to everyone is the price. According to Heeger, the cost for five employees is $43 per month. That fee includes direct deposit, e-filing, software integration and support.

Dan Muse is executive editor of’s Small Business Channel, EarthWeb’s Networking Channel and ServerWatch.

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