Cheapest Payroll Solutions for Startups Under 5 Employees (2026 Cost Comparison)
🔑 Key Takeaways
• Patriot Full Service ($37/mo + $4/EE) is the cheapest full-service payroll that files your taxes — $49/mo for 3 employees
• Wave Payroll ($20/mo + $6/EE) is even cheaper but only available in 14 states for full-service
• Square Payroll contractor-only plan ($6/person, no base fee) is the cheapest option for 1099 contractors
• The true annual cost difference between the cheapest and most popular options is only $120-250/year
• Hidden fees (W-2 prep, extra state filings, off-cycle runs) can make "cheap" options more expensive than they appear
• Don't do payroll manually — even the cheapest software ($25/mo) costs less than one IRS penalty
Updated: March 7, 2026 • 20 min read
Patriot Full Service
Budget champion for startups
The cheapest nationally-available full-service payroll. Reliable tax filing, no hidden fees, and the lowest per-employee cost at $4/person.
When you're bootstrapping a startup, every dollar matters. The cheapest payroll for a small business startup under 5 employees isn't necessarily the worst option — some budget payroll services are genuinely good. But "cheap" can become expensive fast if you don't account for hidden fees, limited features, or the risk of tax filing errors.
This guide breaks down exactly what you'll pay for each option — not just the advertised price, but the true annual cost including W-2 preparation, state filings, and those fees that only show up in the fine print.
The True Cost Comparison (No Surprises)
Every payroll article shows monthly prices. Here's what you'll actually pay over a year with 3 employees, including all fees:
*Plus your time filing taxes
Prices as of March 2026 for 3 W-2 employees in a single state. Your costs may vary with additional states or employees.
💡 The Real Perspective
The difference between the cheapest full-service option (Patriot at $588/year) and the most popular option (Gusto at $696/year) is $108/year — that's $9/month. For most startups, this difference is negligible compared to the hours saved and features gained. Don't agonize over $9/month.
Ranked: Cheapest to Most Expensive
1. Patriot Basic Payroll — $17/mo + $4/employee
💰 The Absolute Cheapest — But You File Your Own Taxes
Cost for 3 employees: $29/month ($348/year)
Patriot Basic is the cheapest payroll software that calculates taxes correctly. It handles tax calculations, generates paychecks, and provides tax liability reports. The catch: you are responsible for actually filing payroll tax returns and making tax deposits with the IRS and your state.
Who this works for:
- Startup owners with accounting knowledge who are comfortable filing their own taxes
- Businesses working with a bookkeeper who handles filings
- People who want the lowest possible cost and are willing to put in extra time
Who should avoid this:
- Anyone who doesn't understand payroll tax filing (Form 941, deposits, state returns)
- Busy founders who don't have time to learn tax filing procedures
- Anyone uncomfortable with the risk of filing errors
2. Wave Payroll — $20/mo + $6/employee (14 States)
💰 Cheapest Full-Service — But State Availability Is Limited
Cost for 3 employees: $38/month ($456/year) in supported states
Wave Payroll offers full-service tax filing (they file for you) at the lowest price point — but only in 14 states: Arizona, California, Florida, Georgia, Illinois, Indiana, Minnesota, New York, North Carolina, Tennessee, Texas, Virginia, Washington, and Wisconsin.
If you're not in one of those states, Wave offers "self-service" at $40/month + $6/employee — same price as Gusto but with fewer features. At that point, there's no reason to choose Wave over Gusto.
Pros: Lowest full-service price, integrates with free Wave accounting, simple interface for basic payroll.
Cons: Limited to 14 states for full-service, minimal customer support, no benefits administration, acquired by H&R Block (uncertain future), fewer features than competitors.
3. Patriot Full Service — $37/mo + $4/employee
🏆 Best Budget Pick — Cheapest Nationally-Available Full-Service
Cost for 3 employees: $49/month ($588/year)
Patriot Full Service is our top budget recommendation. It's the cheapest full-service payroll available in all 50 states. They handle all federal and state tax filings, W-2 preparation, and direct deposit. The per-employee fee of $4 (vs $6 at most competitors) gives it an increasing cost advantage as you add employees.
Pros: Cheapest full-service option in all states, $4/employee (lowest per-person fee), W-2s included, free setup, US-based support, no hidden fees.
Cons: Dated interface, fewer integrations, no built-in benefits, basic reporting, no employee self-service portal (employees can't access pay stubs online without an add-on).
4. Square Payroll — $35/mo + $6/employee
Best for Square Users + Contractor-Only Businesses
W-2: $53/mo for 3 employees ($636/year) • Contractors: $6/person, no base fee
Square Payroll isn't the absolute cheapest for W-2 employees, but it earns a spot here for two reasons: (1) if you use Square POS, the integration saves real time, and (2) the contractor-only plan at $6/person with no base fee is unbeatable for businesses that only pay 1099 contractors.
The contractor-only math: 3 contractors = $18/month ($216/year) with automatic 1099 filing. No other provider comes close for contractor payroll.
5. SurePayroll — ~$30/mo + $5/employee
SurePayroll's pricing looks attractive, but Reddit reviews are mixed. Several users report hidden fees for W-2 preparation ($25-100/year), off-cycle payroll runs, and year-end forms. After adding these, the true cost approaches Gusto's pricing but with fewer features and inconsistent support.
6. Gusto Simple — $40/mo + $6/employee
Gusto is included here not because it's the cheapest, but because the price premium over budget options is small and the value difference is significant. At $58/month for 3 employees vs Patriot's $49/month, you're paying $9/month more for a dramatically better interface, employee self-service, benefits options, and ecosystem.
For a deeper dive on Gusto and all other options, see our complete payroll software comparison.
Hidden Fees That Make Cheap Payroll Expensive
Before choosing based on advertised price, watch out for these common hidden costs:
W-2/1099 Preparation
$25-200/year
Who charges: SurePayroll, some smaller providers
Free at: Gusto, OnPay, Patriot, Square — all include W-2s
Year-End Form Delivery
$5-10/employee
Who charges: Some budget providers charge to mail/email W-2s to employees
Free at: Most modern providers include digital delivery
Additional State Filings
$20-50/state/month
Who charges: Some providers if you have employees in multiple states
Free at: Gusto, OnPay — multi-state included in base price
Off-Cycle Payroll Runs
$10-25/run
Who charges: Some providers charge for bonus, termination, or correction runs
Free at: Gusto, Square — unlimited payroll runs included
Setup/Implementation Fee
$50-200
Who charges: Traditional payroll companies (ADP, Paychex)
Free at: All modern providers (Gusto, Patriot, Square, OnPay) — free setup
Account Closure Fee
$50-150
Who charges: Some traditional providers charge to close your account
Free at: Modern providers don't charge this
Direct Deposit
$1-3/employee/pay period
Who charges: Rare now, but some budget providers still charge
Free at: Standard inclusion at all major providers
The "Manual Payroll Is Free" Myth
Every cost-comparison conversation on Reddit eventually includes someone saying "just do payroll yourself, it's free." Here's why that's almost always bad advice for W-2 employees:
If your time is worth more than $6/hour (and if you're starting a business, it is), payroll software pays for itself in time savings alone. Add in the penalty risk, and manual payroll is only "free" until it isn't.
Bootstrap Payroll Tips: Saving Money Beyond Software Choice
If you're bootstrapping and want to minimize total payroll costs (not just software costs), here are strategies that actually work:
Use bi-weekly pay instead of weekly
💰 Cuts processing time in half
26 pay runs per year instead of 52. Same employee experience, half the administrative work.
Set up auto-pay for salaried employees
💰 Near-zero time per payroll run
If your employees are salaried, set up automatic payroll. Most software can run payroll automatically on schedule.
Use employee self-onboarding
💰 30-60 minutes per new hire
Let new employees enter their own W-4, I-9, and direct deposit info through the payroll software's self-service portal.
Connect payroll to accounting software
💰 1-2 hours/month on bookkeeping
Automatic sync between payroll and QuickBooks/Xero eliminates manual journal entries.
Choose a provider that includes W-2s
💰 $50-200/year
Gusto, Patriot, OnPay, and Square all include W-2 preparation and filing. Don't pay extra for this.
Start with the right classification
💰 Potentially thousands in penalties
Classify workers correctly from day one. Fixing misclassification later is expensive. See our setup guide for details.
Get pay-as-you-go workers' comp
💰 Eliminates large upfront premium
Gusto and OnPay offer workers' comp that bills monthly based on actual payroll. No large annual premium payment.
When to Upgrade from Budget Payroll
Budget payroll software works great for many startups, but here are signs it's time to upgrade:
- You're offering health insurance or 401(k) — budget providers don't support benefits administration. Gusto, OnPay, and Rippling do.
- You're hiring in multiple states — make sure your provider handles multi-state tax filing without extra fees.
- Employees are asking for self-service — pay stubs, tax documents, and PTO tracking through an employee portal. Gusto excels here.
- You need time tracking integration — Homebase or Gusto Plus handle this natively. Patriot has an add-on.
- You're spending more than 15 minutes per payroll — better software can automate what you're doing manually.
Quick Decision Guide
Only paying 1099 contractors?
→ Square Payroll contractor-only — $6/person, no base fee
Want the absolute cheapest with tax filing?
→ Patriot Full Service — $37/mo + $4/EE
In one of Wave's 14 supported states?
→ Wave Payroll — $20/mo + $6/EE (if you want the lowest possible price)
Already using Square POS?
→ Square Payroll — $35/mo + $6/EE (integration saves time)
Willing to pay $9/mo more for significantly better features?
→ Gusto — $40/mo + $6/EE (the sweet spot of price and quality)
The Bottom Line
Patriot Full Service ($37/mo + $4/EE) is the best budget payroll for startups. It's reliable, files your taxes, and costs 20-30% less than Gusto. But here's the honest truth: the gap between "cheapest" and "best" payroll is only $9-15/month. If Gusto's better interface and features would save you even 30 minutes a month, it's paying for the price difference in your time. Choose the cheapest option you won't regret — for most startups, that's Patriot if you're counting pennies, or Gusto if you want the best experience at a still-affordable price.
For a full feature comparison beyond price, see our best payroll software for 1-5 employees guide. If you're setting up payroll for the first time, start with our step-by-step payroll setup guide. And to understand exactly what payroll taxes you'll be paying, check our payroll taxes explained guide.
Ready to Choose? Top 3 Budget Picks
Frequently Asked Questions
What is the absolute cheapest payroll service for a small business?
Patriot Basic Payroll at $17/month + $4/employee is the cheapest option, but you must file your own payroll taxes. For full-service payroll (where the provider files taxes for you), Wave Payroll at $20/month + $6/employee is cheapest — but only in 14 states. Nationally available, Patriot Full Service at $37/month + $4/employee is the cheapest full-service option. For a startup with 2 employees, costs range from $25/month (Patriot Basic) to $49/month (Patriot Full Service).
Is there any truly free payroll software?
No legitimate full-service payroll software is completely free in 2026. Wave used to offer free payroll in some states but now charges $20-40/month. Some accounting software includes very basic payroll calculations (not filing) for free, but you'd still need to file taxes yourself. The closest to free is Square Payroll's contractor-only plan at $6/person/month with no base fee — if you only pay 1099 contractors.
Is it worth paying more for Gusto over a cheaper option like Patriot?
It depends on what you value. Gusto costs about $10-20/month more than Patriot but gives you a significantly better user interface, employee self-service portal, built-in benefits (health insurance, 401k), and more integrations. Reddit users who've tried both say Gusto 'just works' with less friction. For a startup focused purely on cost, Patriot is excellent. For one that wants a polished employee experience or plans to offer benefits, Gusto is worth the premium.
What hidden fees should I watch for with cheap payroll services?
Common hidden fees include: W-2/1099 preparation and filing ($50-200/year at some providers — free at Gusto and OnPay), year-end tax form delivery to employees ($5-10/employee at some), state tax filing in additional states ($20-50/state/month), off-cycle payroll runs ($10-25 each at some providers), and account setup fees ($50-200 at traditional providers). Always ask about these before signing up.
Should I just do payroll manually to save money as a startup?
Almost certainly not. Manual payroll for W-2 employees requires calculating federal income tax, Social Security (6.2%), Medicare (1.45%), FUTA, SUTA, and state taxes — then filing quarterly 941s, annual 940s, and W-2s. One mistake can trigger IRS penalties starting at 2% and reaching 15%. Even Patriot Basic at $25/month (for 2 employees) is cheap insurance against penalties that could cost hundreds or thousands. The only scenario where manual makes sense is if you're an accountant yourself.
How much does payroll software actually cost for a startup with 3 employees?
Here are exact monthly costs for 3 employees: Patriot Basic: $29/month (you file taxes), Patriot Full Service: $49/month, Wave Payroll: $38/month (14 states only), Square Payroll: $53/month, Homebase: $57/month, Gusto Simple: $58/month, OnPay: $58/month. Annual costs range from $348 (Patriot Basic) to $696 (Gusto/OnPay). That's $29-58/month for complete payroll compliance.
Can I use QuickBooks for payroll to save money?
QuickBooks Payroll starts at $45/month + $6/employee — not actually cheap compared to alternatives. It's $53/month for 1 employee vs Patriot's $41 full-service. The only cost advantage is if you already pay for QuickBooks accounting and can bundle. Reddit sentiment on QB Payroll is notably negative — common complaints include constant upsells, poor support, and the interface being clunky. Most Reddit users recommend Gusto or Patriot over QuickBooks Payroll.
When should a startup upgrade from a cheap payroll option to a full-featured one?
Consider upgrading when: (1) you hit 5-6+ employees and need better employee self-service, (2) you want to offer health insurance or 401(k) through your payroll platform, (3) you're spending significant time on payroll tasks that better software would automate, (4) you need time tracking, PTO management, or HR features, or (5) you're hiring in multiple states. The cost difference between Patriot and Gusto is about $120-240/year — if upgraded features save you even 1-2 hours/month, it's worth it.
Is Square Payroll cheaper than Gusto?
Yes — Square Payroll's base fee is $35/month vs Gusto's $40/month, with the same $6/employee fee. For 3 employees, Square is $53/month vs Gusto's $58/month — a $60/year savings. Square also offers a contractor-only plan at $6/person with no base fee, which Gusto doesn't match. However, Gusto offers more features (benefits, HR tools, better integrations). If you're counting every dollar and don't need benefits, Square wins on price.
What's the cheapest way to pay contractors (1099 workers)?
Square Payroll's contractor-only plan at $6/contractor/month with no base fee is the cheapest. It handles payments and 1099-NEC filing at year end. If you only have 1-2 contractors, you could also just pay them via bank transfer/Venmo and file 1099-NEC forms yourself at year end (free through IRS FIRE system). For more than 2-3 contractors, Square's automation is worth the $6/person.