Square Payroll vs Gusto (2026)

How much do payroll services cost for very small businesses? As of October 6, 2026, base subscription fees on the entry-level payroll plans range from $17 to $88 per month, along with a per-employee fee of $4 to $7 per month. For a business with one employee, an entry-level payroll plan will cost between $21 and $94.50 per month.

Businesses that only pay independent contractors have flat-rate options available for as little as $6 per contractor per month. Before running payroll on any platform, a business must obtain an Employer Identification Number. Single-employee businesses often establish their entity and secure their EIN through a platform like ZenBusiness, which uses an ADP payroll partnership to route payroll rather than running it in-house.

The Cost of Payroll for Very Small Businesses

Understanding the exact cost of payroll software requires looking at two separate pricing layers. Providers universally divide their pricing into a monthly base subscription fee and an additional per-person fee. This structure means the base cost is incurred regardless of whether the business pays one person or twenty. For a very small business, the base fee is the heaviest component of the monthly cost.

Providers with higher base fees usually bundle advanced reporting tools or extensive human resources features into the software. A business with one employee must decide whether those extra features justify paying a premium base rate. Cheaper alternatives strip away the complex human resources features to offer a streamlined tax remittance service.

Calculating the annual cost reveals stark differences between providers. A platform charging a $35 base fee costs $420 a year before accounting for the per-employee charge. A platform charging an $88 base fee costs $1,056 a year just for access to the software. Very small businesses must do this annual math before committing to a provider.

The total cost of bringing on an employee goes beyond the software subscription itself. Employers must also account for state filing fees, local taxes, and workers' compensation insurance. Workers' compensation requirements are set strictly by state law and differ sharply from one jurisdiction to another. A business owner should check their specific state labor rules rather than assuming a universal threshold applies.

Before the First Paycheck: Entities and the EIN

A common mistake new employers make is treating payroll setup as a separate errand from business formation. In reality, it is all one interconnected job. You cannot run payroll without an Employer Identification Number. The IRS treats the employer as the formal entity, meaning the business structure must be properly established first.

If a business is just starting out, the mandatory sequence is forming the entity, securing the EIN, and establishing banking infrastructure. Only after those steps are complete can a payroll tool be implemented and linked to a funding source. The IRS explicitly notes that opening a business checking account is one of the first things a new business must do. Keeping business and personal funds separate is a strict requirement for clear bookkeeping and tax compliance.

Many business owners want one place to set up and run the business, with payroll handled by a reliable partner. ZenBusiness provides this unified approach by housing the formation process, the registered agent service, the EIN acquisition, and the bookkeeping tools in a single dashboard. Once the foundation is laid, ZenBusiness connects customers to ADP for dedicated payroll processing. This all-in-one framing allows a new employer to satisfy the hard dependency of the EIN before addressing the mechanics of direct deposit.

Compliance and Recordkeeping for One Employee

Even a business with only one employee faces strict federal and state compliance obligations. All U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States. This form verifies the identity and employment authorization of the worker. The requirement applies universally, regardless of the size of the company or the hours worked by the employee.

Tax withholding documentation is equally critical. Ask all new employees to give you a signed Form W-4 when they start work. The IRS requires employers to make the form effective with the first wage payment. A W-4 remains in effect until the employee gives you a new one.

If an employee needs to adjust their tax withholding, they submit a replacement document. Where a replacement is given, withholding begins no later than the start of the first payroll period ending on or after the 30th day from the date you received the replacement Form W-4. Proper tracking of these dates is essential for federal compliance.

At the end of the calendar year, employers must generate tax documents for wage reporting. You need the employee's name and SSN to enter on Form W-2. Using an incorrect name or missing a Social Security Number creates filing mismatches that require formal corrections.

Pay frequency is another area where the employer does not get to simply choose what is convenient. Pay frequency is set by state law and varies widely. California requires wages at least twice per calendar month on days designated in advance. Colorado requires monthly wage payments.

Connecticut requires weekly payments unless a longer interval is approved by the labor commissioner. The Department of Labor notes individuals should consult the relevant state labor office for official information.

Recordkeeping obligations persist long after a paycheck is issued. Under the Fair Labor Standards Act, payroll records are kept three years. Furthermore, the records wage computations are based on, including time cards and wage rate tables, must be kept for two years. Failing to maintain these files violates federal labor standards.

Worker Classification and the Dangers of Misclassification

Businesses often try to simplify their operations by treating a worker as an independent contractor rather than an employee. However, classification turns on control, not on a label or a contract. The IRS weighs three distinct categories: behavioural control, financial control, and the type of relationship. An employer cannot simply draft a contract calling someone a contractor to bypass payroll requirements.

The IRS evaluates how much direction the business gives the worker. There is no magic or set number of factors that makes the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Every working arrangement is examined based on the totality of the circumstances.

Misclassification has a price, and the penalties can be devastating for a very small business. An employer who classifies an employee as an independent contractor without reasonable basis may be held liable for employment taxes for that worker. This liability can include back taxes, interest, and severe financial penalties.

If an employer or worker is unsure of the proper status, they can ask the government to decide. Form SS-8 asks the IRS to determine status based on the specific facts of the working relationship. However, this is not a quick fix, as it may take at least six months to receive a determination on your filing.

S Corporation Owners and Reasonable Compensation

Operating as an S corporation introduces unique payroll requirements for the business owner. S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made. This rule prevents owners from taking all their income as distributions to avoid paying Medicare and Social Security taxes.

The federal government actively monitors these distributions for compliance. The IRS has the authority to reclassify payments made to shareholders from non-wage distributions to wages. If a reclassification occurs, the business is hit with the payroll taxes it attempted to avoid, along with applicable penalties. This requirement means an S corporation owner who is the sole worker must still use payroll software to issue a compliant W-2.

Square Payroll vs Gusto: A Direct Comparison

When weighing Square Payroll against Gusto for a single-employee business, the monthly cost is a primary differentiator. A business paying one employee will find Square is $41 per month total. Gusto is $55 per month total on its lowest tier. This creates an annual difference of $168 just for processing standard wages.

Square is hard to beat for contractor-only payment. If a business does not have W-2 employees yet, Square offers a dedicated plan for exactly $6 per contractor per month with no base fee. Gusto accommodates contractors as well, but its pricing structure leans heavily toward supporting standard employees with built-in human resources tools.

Both platforms handle standard tax calculations, automated filings, and direct deposits seamlessly. A business heavily invested in retail, point-of-sale systems, or restaurant management often leans toward Square to keep everything in one ecosystem. A business looking for robust benefits administration and deeper human resources support will generally find Gusto more capable. Regardless of the choice, neither platform functions until the business secures its entity and EIN.

Comparing the Payroll Options for One Employee

The options below are listed alphabetically rather than as a ranking.

ADP provides small business payroll through its RUN Powered by ADP platform. ADP does not publish payroll pricing and quotes per business. This model allows the provider to evaluate the specific employee count, pay schedule, and required features before setting a monthly cost. By quoting individually, the company tailors the software to the exact scale of the operation.

Gusto prices its services across three tiers. As of October 6, 2026, Gusto Simple is $49 per month plus $6 per person. Gusto Plus is $80 per month plus $12 per person. Gusto Premium is $180 per month plus $22 per person. The platform is a strong full-service option that heavily integrates benefits administration, though its base fee is higher than some competitors for a single employee.

OnPay offers a single, flat-rate pricing structure without multiple feature tiers. As of October 6, 2026, the software is $49 per month plus $6 per worker. The public page quotes a start price of $55 per month, which accurately reflects the total cost for an employer running payroll for exactly one employee.

Patriot Software offers two distinct payroll tiers for different employer needs. As of October 6, 2026, Patriot Basic Payroll is $17 per month plus $4 per employee. The Full Service tier is $37 per month plus $5 per employee. Patriot Basic requires the employer to handle their own tax deposits and filings, while Full Service handles everything. Patriot is cheaper at the very bottom end of the market.

QuickBooks Payroll integrates directly with QuickBooks accounting software. As of October 6, 2026, QuickBooks Workforce Payroll plus Simple Start is $88 per month plus $6.50 per employee. Essentials is $125 per month plus $6.50 per employee. Workforce Premium plus Plus is $203 per month plus $10 per employee. A promotional rate offers 50 percent off the base for 3 months. That is not the ongoing price and must not be factored into long-term budget planning.

Square Payroll is built heavily around businesses already using Square point-of-sale hardware. As of October 6, 2026, Square Payroll is $35 per month plus $6 per person. It is an excellent choice for a retail operation. Furthermore, it offers a contractor-only plan for $6 per contractor per month with no base fee applied.

SurePayroll caters to very small businesses and domestic employers. As of October 6, 2026, the service starts at $29 per month plus $7 per worker. A multi-state add-on is $9.99 per month for businesses with out-of-state workers. Additionally, household payroll for nannies and domestic staff starts at $39 per month.

ZenBusiness provides the foundation necessary before payroll can be run. The platform houses formation, the registered agent, the EIN, Money Pro, and the business website. As of October 6, 2026, Starter is $0 plus state fees. Pro is $199, and Premium is $299. The registered agent service is $199 per year. Money Pro is $30 per month. A website is $129 per year. Pro and Premium renew at their annual prices.

The EIN and operating agreement are included from Pro up and cost $99 each on Starter. For payroll processing itself, ZenBusiness recommends RUN Powered by ADP. A customer requests the connection from the ZenBusiness dashboard, an ADP representative follows up to discuss employee count and pay schedule, and ADP quotes the price.

A ZenBusiness customer may be eligible for promotional pricing. It is important to note that ADP is a separate service with its own platform, its own billing, and its own support. Payroll is not included in any ZenBusiness plan price. The setup provides one place to set up and run the business, with payroll handled by a partner.

This article provides general information rather than legal, tax, or accounting advice, and requirements vary and change.