More and more employers are outsourcing their payroll duties to payroll service providers, so starting a payroll company can be a lucrative endeavor. Even if your payroll company starts off small, it can grow into a relatively large company depending on your vision and how you conduct your business. It's important to start off your payroll company the right way to ensure the business’s success.

Speak with an attorney. He can advise you on the overall legal aspects of the business and prepare a standard contract for your clients. The contract should include all of your services and fees. Also include a document granting you power-of-attorney to handle your clients’ payroll affairs, such as tax-related matters. If you are hiring employees, have the attorney prepare a contract outlining the terms of their employment, including the company’s ethics, termination policies and consequences of unethical practices, such as embezzlement or theft.

Visit the IRS web site, and apply for a federal employer identification number (EIN). Consult with your local secretary of state office to determine if you need a license to operate your payroll company. If the company is a corporation, limited liability company or partnership, you might have to pay a fee. Keep in mind that you can operate your business from home if it's small.

Open a separate bank account for the business. Then buy dependable payroll software that simplifies payroll processing. Payroll software such as QuickBooks, PenSoft and Peachtree are designed for small businesses. The software usually includes direct deposit and the ability to print tax documents, such as W-2s.

Call your competitors, and ask them their rates; set yours accordingly. Typically, payroll software allows you to invoice your customers immediately after processing their payroll. More commonly, your fees will include check processing, direct deposit, tax preparation and filing, benefits administration (if applicable), W-2 processing and courier fees for sending the payroll to the employee each pay date.

Cold call and email prospective clients. Prepare professional proposal packets. Then visit potential customers, and leave a packet with them.


Do not take on more clients than you can handle. Hire a qualified staff, if necessary. Stay on top of IRS employer tax regulations by reading the Circular E for each year.