For the first three years of running a small dev shop (just me and four contractors), I handled payroll manually. Spreadsheet, bank transfer, a prayer that I hadn't transposed anyone's hours. It worked — until it didn't.
The breaking point was a mid-year audit flag on contractor vs. employee classification. Nothing serious, but it exposed how much I'd been winging the compliance side. That was when I actually sat down and evaluated payroll tools properly instead of just Googling "cheap payroll software" and picking whatever had a free trial.
Here's what I learned after testing six different platforms over about four months.
The real cost isn't the monthly fee
Every payroll tool has a base fee ($6–$40/month) plus a per-employee or per-contractor charge. For a small team under ten people, the base fee barely matters — the per-run or per-person charge is what adds up.
What caught me off guard: some tools charge per payroll run, not per month. If you do biweekly payroll for five people, that's 26 runs/year. A platform that looks cheap at $5/run turns into $130 just in run fees before you've paid for a single employee.
Gusto's pricing is $40/month + $6/person. For five people it's $70/month — that felt steep at first. But I was comparing it to tools that charged less monthly and more per-run, and when I did the math, Gusto came out similar or cheaper for my actual usage pattern.
Contractor-only is a different use case
I have a mix: two actual employees (me + one full-time), and three contractors. This caused me real headaches because most tools price employees and contractors very differently.
- Gusto handles both in the same interface, with 1099s included in most plans
- Rippling is overkill for under 10 people but incredibly clean for mixed teams — the HR module is baked in rather than bolted on
- Wave Payroll is cheap but contractors are almost an afterthought in the UX
If you're fully contractor-based (common in dev shops), you might be better served by a tool that focuses on 1099 management rather than trying to use a full payroll system.
What "automated tax filing" actually means
Every payroll tool claims to handle taxes. What varies is which taxes and how much they do automatically vs. what you still need to touch.
The basics (federal + most state payroll taxes) — nearly all tools handle this. Where they diverge:
- Multi-state employees: if even one employee is in a different state, some tools charge extra or require manual setup
- New hire reporting: legally required, often forgotten — Gusto and Rippling both automate this
- Year-end W-2/1099 filings: included in most mid-tier plans, but sometimes a paid add-on on entry-level plans
Read the fine print on what "full-service payroll" means in each plan tier before assuming it handles your specific situation.
The three questions I'd ask before picking anything
- Does it handle my specific mix? (employees only, contractors only, or both)
- What's the all-in cost at my exact headcount? (base + per person + any per-run fees)
- Does it automate my state specifically? (a few states have unusual requirements that some tools don't fully cover)
I ended up on Gusto — not because it "won" some feature comparison, but because it handled my 2-employee + 3-contractor mix cleanly, the tax filing actually worked without me having to do anything after setup, and the interface doesn't feel like it was designed in 2009.
If you want a fuller breakdown across more tools — including Rippling, Deel (which I looked at for the contractor side), and a few budget options — I went deep on this at HRPayPick's payroll software guide. Might save you the four months of trial-and-error.
One thing I wish someone had told me earlier: don't pick payroll software based on what's popular for 500-person companies. The priorities are completely different when you're under 10 people and the "HR team" is also the founder.
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