Payroll outsourcing allows employers to entrust their payroll to a payroll professional for a small fee. When the employer uses a payroll provider, he often does not have to hire an in-house payroll staff, which saves him money on salaries and benefits. Consequently, payroll providers are in demand. If you would like to start your own payroll business, and your clientele is small, you can run it from your home. To ensure your clients’ satisfaction, you must conduct your home business in a professional manner.

Step 1.

Make sure you are experienced in payroll processing and related tax laws before you start your home-based business. Many payroll professionals received their training on the job. Still, they had to be computer literate and have solid mathematical skills and good work ethics to get the job. If you have little payroll knowledge, employers will be hesitant to hand over their payroll to you. Furthermore, you will lack the knowledge needed to process the payroll accurately.

Step 2.

Prepare a standard contract for your clients. Think about the services you wish to offer and price them accordingly. A good way to know how to price your services is to call payroll providers directly and ask them their fees. Your services will most likely include check processing; manual check and voided check processing; generating tax documents, such as W-2s; and correcting payroll errors. Depending on the client, you might have to issue actual checks and/or perform direct deposit transactions.

You are responsible for getting your clients’ payroll to them on time each pay date. Use a dependable courier service for this option. If you are handling your client’s payroll taxes, have him sign a document granting you power-of-attorney, which allows you to process his payroll taxes on his behalf.

Step 3.

Get a federal employer identification number (EIN) from the IRS if you have employees. If you are the sole operator of your home-based business, and if you are not filing excise or pension tax returns, you do not need an EIN. In this case, you can use your Social Security number as your taxpayer identification number.

Step 4.

Buy payroll software, such as PenSoft or Quickbooks. Payroll software offers a quick and easy-to-use solution to processing payroll. In most cases, you simply create employees’ files and input the wage data, and the system generates and prints the checks/pay stubs. Payroll software also has the yearly tax rates hard coded in the system, which relieves you from manually computing the taxes. Ensure the software has a direct deposit feature and generates tax documents, such as W-2s. Employers would rather not be bothered with these tasks; therefore, you will gain a prospective client’s business quicker if you offer these services.

Step 5.

Run your home-based business professionally. Have a separate bank account and phone line for the business. If you offer tax processing, follow the IRS’ yearly Circular E guidelines and submit your client’s taxes accurately and on time.


You can become a certified payroll professional, or sharpen your payroll skills, by taking the American Payroll Association’s certification exams or courses. Join the Small Business Administration to learn about programs and resources that can help your business grow.