Free & Low-Cost Payroll Software for Small Business

Every tool here has a legitimate use case for some business. The right one depends on your employee count, whether you need direct deposit, and how much of the IRS filing you want to handle yourself. Read the “Watch Out” column carefully — that’s where most businesses get surprised.

These cover the most searched questions about payroll software — with real answers that go past the promotional copy on every vendor’s homepage.

• 1
  Is there a free payroll app for small businesses? Yes — Payroll4Free (up to 25 employees), TimeTrex Community Edition (unlimited), ExcelPayroll, and Zoho Payroll (up to 10) are genuinely free · Direct deposit and auto tax filing usually cost extra on every free platform

  The most truly free option with the longest track record is Payroll4Free.com — it handles payroll calculations, generates federal and state tax forms (W-2, 940, 941), and supports up to 25 employees at zero monthly cost. The catch: it only runs on Windows, requires completely manual data entry every pay period, and does not automatically submit your tax deposits to the IRS. You generate the number; you log into EFTPS and send it yourself. If that sounds manageable, it works well for small solo or family businesses. If you want full automation without manual IRS steps, you’re looking at Homebase’s payroll add-on, Wave, OnPay, or Gusto — all of which start at $40+ per month but handle the entire deposit and filing process for you.
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  Is Zoho Payroll free? Yes — Zoho Payroll has a free tier for up to 10 employees · Includes pay stubs, direct deposit, and an employee self-service portal · US feature set is still expanding compared to its India-facing product

  Zoho Payroll is one of the more full-featured free options, especially if you already use other Zoho products. The free tier handles automatic payroll calculations, tax deduction summaries, employee pay stubs, and direct deposit integration. The self-service portal lets employees check their own pay history and documents without calling you — a feature that most free tools don’t include. The caution: Zoho’s payroll product is more developed for markets outside the U.S., and not every state’s tax rules are fully automated in the current U.S. version. Verify that your state is supported before committing — and don’t assume that tax form generation means the system is also submitting those deposits to the IRS on your behalf.
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  Can ChatGPT do payroll? No — not in any compliant or reliable way · AI tools can explain payroll concepts and help you build spreadsheets, but they cannot access EFTPS, file tax forms, or guarantee calculations meet IRS standards · Using AI as your payroll system is a compliance risk

  AI assistants like ChatGPT can help you understand payroll concepts, draft employee offer letters, build a basic spreadsheet layout, or explain how to calculate withholding. They cannot connect to the IRS, file your 941, push payments through EFTPS, or ensure your state-level calculations are current and accurate. Using an AI chatbot as your actual payroll processing system would put you at serious risk — the IRS does not accept “I used an AI” as a defense for a missed deposit. The legitimate use of AI in payroll is as a research and explanation tool to help you understand rules before choosing a real payroll system. The processing itself still requires either software connected to official IRS and state tax systems, or a licensed payroll service bureau.
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  Is Excel payroll free? Yes — free to build yourself if you have Excel, or download ExcelPayroll (free) · Works as a payroll calculator but has no IRS connection, no EFTPS deposit capability, no compliance updates, and no data security · Safe only for very simple situations with rigorous manual backup

  ExcelPayroll is a free, downloadable payroll spreadsheet that handles wage calculations, tax deductions, and pay stub generation. If you’re comfortable with Excel and have a simple operation — one or two employees, all in the same state, straightforward hourly pay — it genuinely works for the math. The serious limitations are about what it can’t do: it has zero connection to the IRS or state tax agencies, no automatic updates when tax rates change (and they do, every year), and no built-in security. If your laptop gets stolen, infected with malware, or the file corrupts, your payroll records are gone. The IRS requires employers to maintain payroll records for at least four years. An Excel file with no cloud backup does not meet that standard reliably. If you use ExcelPayroll, pair it with a cloud backup system and manually verify your state and federal tax tables every January.
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  What is EFTPS and why does every small business need it? EFTPS is the IRS’s Electronic Federal Tax Payment System — the government’s official portal for submitting payroll tax deposits · All employers must use it · Not enrolled yet? Takes up to two weeks to activate — register before your first payroll run

  EFTPS stands for Electronic Federal Tax Payment System, and it is the IRS’s mandatory payment portal for federal payroll tax deposits. Under rules now fully in effect, mailing a paper check for a Form 941 deposit triggers an automatic failure-to-deposit penalty — the IRS no longer accepts paper checks for this purpose. EFTPS is completely free to use and has no transaction fee; you simply enroll at eftps.gov, link your business bank account, and schedule deposits based on your deposit schedule (either monthly or semi-weekly depending on your total tax liability in the prior lookback period). The most important timing point: EFTPS enrollment takes up to two weeks to complete because the IRS mails a PIN to your address. If you hire your first employee and then try to enroll in EFTPS, you may miss your first deposit deadline while waiting for the mail. Enroll the day you receive your Employer Identification Number — not the day before your first payroll.
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  What payroll taxes does a small business have to pay? Federal income tax withheld from employee wages · Social Security: 6.2% employee + 6.2% employer match · Medicare: 1.45% employee + 1.45% employer match · FUTA (unemployment): 6% employer only, on first $7,000 · State income and unemployment taxes vary by state

  Every employer — even a business with a single part-time employee — is responsible for three separate categories of payroll obligation. First, you withhold federal income tax from employee wages based on their W-4 and deposit it to the IRS via EFTPS on a monthly or semi-weekly schedule. Second, you collect the employee’s share of Social Security (6.2%) and Medicare (1.45%) and match it dollar-for-dollar out of your business funds — together called FICA taxes. Third, you pay Federal Unemployment Tax (FUTA) entirely from business funds at 6% on the first $7,000 of each employee’s annual wages, reduced to 0.6% if your state unemployment taxes are current. On top of federal obligations, every state has its own income tax withholding requirements and state unemployment insurance rate, which vary significantly. A payroll tool that only calculates federal taxes and ignores your state is only solving half the problem.
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  What’s the difference between a W-2 employee and a 1099 contractor for payroll? W-2 employees: you withhold taxes, pay employer FICA match, and issue W-2 at year-end · 1099 contractors: no withholding, no employer FICA, you issue 1099-NEC if you pay them $600+ in a year · Misclassifying an employee as a contractor triggers severe IRS and DOL penalties

  This classification distinction is where small business owners get into the most expensive trouble with the IRS and Department of Labor. If you hire someone and call them a “contractor” to avoid payroll taxes but they work set hours, use your equipment, and follow your direction on how the work gets done — the IRS considers them an employee regardless of what you call them. Misclassification penalties can include back payroll taxes, interest, and a 100% Trust Fund Recovery Penalty personally assessed against the business owner. The IRS uses a multi-factor behavioral and economic control test to determine classification; it is not solely up to you as the employer. If you’re genuinely uncertain whether someone should be on payroll or receive a 1099, IRS Form SS-8 lets you request an official determination — free of charge — before you commit to a classification that costs you later.
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  How do I do payroll myself for one employee without expensive software? Get an EIN from irs.gov (free) · Register for EFTPS (free) · Register for state unemployment insurance · Collect W-4 and I-9 from employee · Calculate wages + withholdings manually or use free tool · Deposit via EFTPS · File Form 941 quarterly and W-2 annually

  For a single part-time or full-time employee, manual payroll is genuinely feasible — but requires discipline about deadlines. The IRS’s own Publication 15 (Circular E) is a free, detailed employer’s tax guide that walks through every calculation with examples; download it at irs.gov/pub/irs-pdf/p15.pdf before you start. The steps are: collect the employee’s W-4 (federal withholding elections) and I-9 (employment eligibility); use the IRS tax withholding tables in Publication 15 to calculate each paycheck’s federal income tax withholding; add the employee’s 6.2% Social Security and 1.45% Medicare deductions; issue the paycheck (by check or bank transfer); then deposit all withheld taxes plus your employer FICA match through EFTPS on your schedule. File Form 941 within 30 days after each quarter ends (April 30, July 31, October 31, January 31). Mail your employee’s W-2 by January 31 of the following year. If this sounds manageable for one person but overwhelming as you grow, that’s exactly the point where a $40/month tool like OnPay or Wave starts paying for itself in time saved and penalties avoided.

Use the buttons below to find SCORE mentors (free small business advice), local IRS Taxpayer Assistance Centers, accountants who specialize in small business payroll, or SBA district offices near you.