If you’ve been contemplating buying small business payroll software for your company here is the latest review from PC World of Intuit Online Payroll.

Stand-alone online payroll preparation service is a good value.

Intuit’s relatively inexpensive (a flat fee of $30 per month) Web-based payroll preparation service is aimed at businesses that don’t use its popular QuickBooks application. To set up Online Payroll, you complete a questionnaire and then take a guided step-by-step tour through the service to pay employees, pay taxes, and file tax forms.

Online Payroll offers 13 types of compensation, from the most common (salary and hourly) to specialized pay types such as piecework, commission, and tips. You can adopt any of four pay intervals: weekly, biweekly, twice per month, or monthly.

Like PayCycle’s competing Payroll Plus 2008, Online Payroll lets you print paper paychecks and pay stubs, and deposit net pay electronically into employees’ bank accounts. Both services also maintain current tax tables, calculate gross pay and deductions, compile your pay and tax records, and can help you prepare your payroll tax forms at filing time.

But Online Payroll provides tax forms for only 19 states; if your state isn’t among these, you’ll have to complete the state tax forms manually. Also, Intuit Online Payroll doesn’t integrate with QuickBooks or any other small-business accounting software. As a result, you’ll have to prepare a manual journal entry after each payroll to specify the payroll and deductions in your accounting records.

This requirement is fine for businesses that keep their books manually, but it’s a significant drawback for businesses that use accounting software. Intuit offers other payroll programs–including Basic Payroll and Enhanced Payroll–that do integrate with QuickBooks.

Despite its shortcomings, Intuit Online Payroll is cost-effective and easy to use.

What are the top things to look for in accounting software for your small business?

Adaptability: Small businesses in particular tend to change over time, and you need to make sure that the software you are buying today will be just as useful tomorrow. Are upgrades offered? How much trouble and expense is required to upgrade? How often are upgrades offered? Today’s software is likely to be obsolete in 5 years.

Support: How much support is offered? How effective is it? Is local service available or will you be restricted to dealing with a call center in India?

Price: Software packages vary greatly in price, not only among brands but also among merchants. Choose an appropriate package and then shop around for the best deal.  Are  there discounts on accounting software available?

User Friendliness: How easy is it to use? If you are a sole proprietor, try using it yourself. Otherwise, have your accountant try using it and get his/her opinion.

Features: Don’t pay for features you don’t need, but look ahead 5 or 10 years when deciding which features you’re likely to need. If you don’t need them now, you can always check and see if your package can be easily upgraded to add features you may need in the future.

QuickBooks is by far the most popular accounting software, but then again there are many versions of Quickbooks available on the market. QuickBooks comes in Basic, Online, Pro, and Premier editions. The Pro Edition features tools such as the Cash Flow Projector and the Vehicle Mileage Tracker. Peachtree offers a premium small business accounting software package with over 125 functions including as in-depth inventory, time and billing and job costing features. Other popular accounting software packages include MYOB Plus Accounting Software and Microsoft Office Small Business Accounting.

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It can be very convenient to classify workers as contractors or 1099s.  That way you don’t have to pay taxes on payroll and you can usually get around workers’ compensation issues.  Make sure sure you know the rules before you tell all your employees they are now contractors.

How do I know when I can classify someone as a 1099?

The general rule is that an individual is an independent contractor if (the person for whom the services are performed) has the right to control or direct only the result of the work, and not what will be done and how it will be done or method of accomplishing the result.

People such as lawyers, contractors, subcontractors, public stenographers, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case. The earnings of a person who is working as an independent contractor are subject to Self-Employment (SE) tax.

Which QuickBooks is right for your small business?  There are a ton of different varieties of QuickBooks and sometimes it can be hard to choose.  I will outline some key decisions about choosing the right accounting software and then offer my opinion on what you should be using.

1. Price: Accounting software is expensive and with a questionable economy you can’t afford to buy something unnecessary.
2. Features: You need to have core accounting features such as invoicing, keeping balance sheets and income statements, and reporting so that you can understand how your business is doing and what you can do to improve.
3. Online vs. Desktop: There are costs and benefits to using online web-based accounting software, but it really comes down to your preferences and how comfortable you are having your data reside on servers that do not belong to you and are out of your reach.  We recommend desktop software for accounting such as QuickBooks because you might not want the IRS peaking into your records.

With that in mind, QuickBooks Pro will probably be the best bet for your business.  It’s one of the cheapers accounting packages out there, has a full set of accounting and bookkeeping features, and keeps the data on your own system so that no one else can access it.

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