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Outsourced Payroll Options Compared: Software, a PEO, a Payroll Service or a Managed Payroll Team
There are four common ways to outsource payroll. They differ in who enters each payroll, who is the employer on paper, and whose tax ID the filings go out under. Here is how each option works and who it fits.
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At a glance
Four options, side by side
Who runs payroll and who is the employer
ADP alternatives that run payroll for you
Facts checked November 3, 2026
The options
What are the main ways to outsource payroll?
Most employers choose among four options: payroll software you run yourself, a payroll service that processes the hours you send, a PEO that becomes a co-employer, or a managed payroll team that runs payroll inside your own system. They differ in who does the work each payday and who is the employer.
| Option | Who enters each payroll | Who is the employer | Whose EIN the tax returns use | Benefits and HR | Usually fits |
|---|---|---|---|---|---|
| Payroll software | You or your staff | You | Yours | Add-ons on some plans | A business with someone in-house who has time every pay period |
| Payroll service | The provider or a payroll specialist, from the data you send, depending on the package | You | Yours | Optional HR and benefits packages | A business that wants a large provider and has someone to send and approve payroll data |
| PEO | The PEO, from the data you send | You and the PEO, as co-employers | Usually the PEO's; a certified PEO files under its own EIN | Bundled: pooled health plans, workers' comp and HR | A business that wants benefits and HR in one contract and accepts co-employment |
| Managed payroll team | The team, start to finish; you approve every run | You | Yours | You keep your own plans and broker; the team runs the payroll deductions | A business where nobody in-house should be running payroll, or the payroll person left |
Examples, as each company describes itself on its own website: payroll software such as Gusto and RUN Powered by ADP; payroll services such as Paychex, which offers the option of a dedicated payroll specialist, and ADP Comprehensive Services; PEOs such as Paychex HR PEO. PayAdvisors is a managed payroll team. Product names are trademarks of their owners, and PayAdvisors is not affiliated with any of them.
Software or service
What is the difference between payroll software and a payroll service?
With payroll software, you enter hours, pay changes and new hires, and the software calculates pay and usually files the payroll taxes from your numbers. A payroll service adds people on the provider's side who can process payroll from the data you send. In both cases, someone at your company still gathers and checks that data.
Both are a good fit when someone in-house has time every pay period and you want the tools of a large provider. Comparing specific providers? See PayAdvisors vs Gusto and PayAdvisors vs ADP and Paychex.
PEOs
What does a PEO do, and when is it the better choice?
A PEO (professional employer organization) becomes a co-employer of your staff. It runs payroll, usually reports payroll taxes under its own EIN, and often bundles pooled health plans, workers' comp and HR. A PEO can be the better choice when access to a large-group health plan matters more to you than keeping the employer role.
Under the IRS third party arrangement chart, a certified PEO (CPEO) files aggregate returns under its own EIN and is generally solely liable for the employment taxes on the wages it pays to worksite employees. Certification is a voluntary IRS program, so ask any PEO whether it is certified. NAPEO, the PEO industry association, says 14 percent of employers with 20 to 499 employees use a PEO. See PayAdvisors vs a PEO, or, if you are leaving one, PEO exit payroll.
Managed payroll
What is a managed payroll team?
A managed payroll team is an outside team of payroll professionals that runs your payroll start to finish, in the payroll system you already use and under your own EIN. You stay the only employer and approve every run. It works like an in-house payroll department, without hiring one, and it covers tax filings and agency notices.
PayAdvisors is a managed payroll team: 25+ payroll and HR professionals, founded in 2022, serving businesses, CPA firms and HR firms in all 50 states. The work that moves to our team:
- Each payroll processed start to finish, and you approve every run
- New hires, terminations, deductions and garnishments
- Off-cycle runs and corrections
- Federal, state and local tax filings and agency notices
- W-2s and 1099s at year end
- Employee paycheck questions
- Backup coverage when someone is out
See payroll processing and all services.
Choosing
How do I choose the right outsourced payroll option?
Start with two questions. Does someone at your company have time to run payroll every pay period? Do you want to stay the only employer? If you have the time, software or a payroll service fits. If you want bundled benefits and accept co-employment, look at a PEO. If you want neither, consider a managed payroll team.
Still deciding whether to hire a payroll person instead? See hire vs outsource payroll. If payday is at risk right now, start with emergency payroll support.
ADP alternatives
What are the alternatives to ADP if I want payroll done for me?
If you use ADP but nobody on your team should be running payroll, you have three paths: a provider's managed service, a PEO, or an outside payroll team. You may not need to leave ADP at all. A managed payroll team can run payroll inside your existing ADP account, so records, history and reports stay put.
- ADP's own managed options. ADP lists ADP Comprehensive Services, managed HR and payroll with designated professionals, and Comprehensive Outsourcing Services for large employers.
- Another payroll provider. Paychex offers packages with the option of a dedicated payroll specialist. You still provide the payroll data each pay period.
- A PEO. Payroll, benefits and HR come in one contract, and the PEO becomes a co-employer. See PayAdvisors vs a PEO.
- A managed payroll team in your ADP account. PayAdvisors runs payroll inside ADP Workforce Now and RUN. You keep your ADP account and approve every run. See ADP payroll outsourcing.
Comparing by name? See PayAdvisors vs ADP and Paychex.
Switching
Do I have to switch payroll systems to outsource payroll?
Not always. Payroll software, payroll services and PEOs usually run payroll on their own platform, so you move your employee data to them. A managed payroll team can work in the system you already have, such as ADP, Paychex or QuickBooks, so employee records and payroll history stay where they are.
Tax liability
Who is responsible for payroll taxes when I outsource payroll?
It depends on the arrangement. Under the IRS third party arrangement chart, when a payroll service provider or reporting agent files under your EIN, you as the employer remain liable for timely returns and deposits. A certified PEO is generally solely liable for employment taxes on the wages it pays. Ask any provider how it files.
This is general information from the IRS, not tax advice. Confirm your situation with your CPA or tax professional. See payroll tax filing and compliance.
More questions about outsourced payroll options
Is PayAdvisors a PEO?
No. PayAdvisors does not co-employ anyone. Our team runs your payroll under your own EIN, you stay the only employer, and you keep your own benefit plans and broker.
Is PayAdvisors affiliated with ADP, Paychex or Gusto?
No. PayAdvisors is an independent payroll team and is not affiliated with, sponsored by or endorsed by ADP, Paychex, Gusto or any PEO named on this page.
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About this page
Last verified and sources
Last verified November 3, 2026. This page is general information, not tax or legal advice. Confirm your situation with your CPA or tax professional.
Related
- PayAdvisors vs Gusto
- PayAdvisors vs Gusto Solo
- PayAdvisors vs Collective
- PayAdvisors vs ADP and Paychex
- PayAdvisors vs a PEO
- ADP payroll outsourcing
- Hire vs outsource payroll
- All services
Sources
- IRS, Third party arrangement chart: who files under whose EIN and who stays liable (page updated June 30, 2026; checked November 3, 2026)
- IRS, Certified professional employer organization: the voluntary CPEO certification program (checked November 3, 2026)
- NAPEO, What is a PEO: 14 percent of employers with 20 to 499 employees use a PEO (checked November 3, 2026)
- Paychex, Compare payroll packages: the dedicated payroll specialist option and HR PEO (checked November 3, 2026)
- ADP, RUN Powered by ADP payroll packages: payroll entered by computer, mobile app or phone (checked October 27, 2026)
- ADP Comprehensive Services: managed HR and payroll with designated professionals (checked October 27, 2026)
- ADP Comprehensive Outsourcing Services: payroll outsourcing for large employers (checked October 27, 2026)
- Gusto, Pricing and plans: payroll plans with tax filing (checked October 2026)
ADP, RUN Powered by ADP, Workforce Now, Paychex, Gusto, QuickBooks and other product names are trademarks of their owners. PayAdvisors is an independent firm and is not affiliated with, sponsored by or endorsed by them.