DIY payroll true cost in 2026
DIY payroll without a SaaS tool is technically free. In practice it costs 6 to 12 hours per year per employee in compliance time, plus the risk of an IRS late-deposit penalty starting at 2 percent and climbing to 15 percent. This page works the hour-by-hour breakdown and the breakeven against the cheapest paid options.
DIY payroll time cost versus paid SaaS, by headcount
| Headcount | DIY hours/yr | DIY cost at $50/hr | Patriot Basic/yr | Patriot Full/yr |
|---|---|---|---|---|
| 1 EE single state | 6-10 | $400 | $252 | $492 |
| 3 EE single state | 15-22 | $925 | $348 | $588 |
| 5 EE single state | 20-35 | $1,375 | $444 | $684 |
| 10 EE single state | 30-50 | $2,000 | $684 | $924 |
| 5 EE multi-state | 35-55 | $2,250 | $444 | $684 |
| 10 EE multi-state | 50-80 | $3,250 | $684 | $924 |
Patriot Basic numbers assume you self-file taxes (so the time cost is not eliminated, just reduced). Patriot Full Service eliminates the compliance time entirely.
Where the 6 to 80 hours per year actually go
Per-pay-period withholding calculation. For each pay run you look up federal withholding in IRS Publication 15-T using the employee's W-4 settings, calculate FICA (7.65 percent each side), calculate state withholding from the state tables, and arrive at the net pay amount. Estimate 15 minutes per employee per pay run. For one employee on monthly payroll that is 3 hours a year. For one employee on weekly payroll that is 13 hours a year.
Federal tax deposit. Each pay period or each month (depending on your deposit schedule), you transfer the withheld federal income tax plus the employer and employee FICA to the IRS via the Electronic Federal Tax Payment System. 15 minutes per deposit. For monthly deposits that is 3 hours a year.
Form 941 quarterly. Calculate quarterly totals from your payroll log, complete Form 941 (about 30 lines), submit electronically. 1 to 2 hours per quarter, so 4 to 8 hours a year.
State unemployment and state withholding. Varies by state. California's EDD is among the most demanding (quarterly DE 9 plus DE 9C). Texas DWC requires a quarterly Employer's Quarterly Report. Estimate 2 to 4 hours per quarter per state, so 8 to 16 hours a year for single-state, 16 to 32 hours a year for two-state.
Form 940 annual. Calculate annual FUTA liability, complete Form 940, submit. 1 to 2 hours per year.
Year-end W-2 and W-3. Generate W-2 for each employee, transmit W-3 to SSA. 2 to 4 hours plus 30 minutes per employee.
Audit-trail upkeep, employee questions, withholding-change processing, terminations, new-hire paperwork, year-end reconciliation. Allow 5 to 10 hours per year per employee for all the small things that come up.
The IRS penalty schedule that often kills DIY economics
The Failure-to-Deposit Penalty under IRC Section 6656 applies to late federal payroll tax deposits. The schedule:
- 1 to 5 days late: 2 percent of the unpaid deposit
- 6 to 15 days late: 5 percent
- Over 15 days late: 10 percent
- More than 10 days after IRS notice: 15 percent
For a 3-employee business with $4,000 of quarterly federal payroll taxes, a single late deposit at the 5 percent rate is $200. A late 941 filing is another 5 percent of the unpaid tax per month, up to 25 percent. The Section 6651(a) Failure-to-Pay penalty is 0.5 percent per month, up to 25 percent. Interest accrues at the federal short-term rate plus 3 percent.
Most DIY payroll-tax mistakes are small individually but they compound. One missed deposit plus one late filing plus a late 940 in the same quarter can easily total $400 to $800. That is two years of paid Patriot Basic savings erased.
Paid payroll providers carry tax-penalty guarantees (Roll by ADP and Gusto both do). Patriot Full Service does not guarantee penalties but their accuracy track record is strong. The penalty avoidance is part of the value of paid payroll.
The half-DIY half-paid path that sometimes makes sense
Some solo owners run a hybrid: pay for a payroll-calculation tool (Patriot Basic at $21 per month for one employee) but handle the tax filings themselves. This cuts the withholding-calculation hours per pay run to zero, since the tool does the math, and leaves only the filing time.
Patriot Basic at $21 per month plus self-filed federal 941 (4 hours a year) plus self-filed federal 940 (1 hour a year) plus self-filed state (8 hours a year) is $252 per year plus 13 hours of compliance time. At $50 per hour that is $902 in total annual cost.
Patriot Full Service at $41 per month for one employee is $492 per year, zero compliance hours, no penalty risk. The Patriot Full Service path saves $410 per year versus the hybrid, even before counting the penalty insurance value.
For a solo owner who genuinely enjoys the compliance work and wants to keep the tax knowledge fresh, the hybrid path is defensible. For everyone else, paying for full service is the cheaper rational choice.
The one cohort where pure DIY payroll is cheapest
A solo S-corp owner paying themselves a single monthly paycheck in a single state with no state income tax (Texas, Florida, Nevada, Washington, Wyoming, Tennessee, South Dakota, New Hampshire), with no plans to grow, and an hourly time cost under $25 per hour, can run DIY payroll for under $200 of annualised time cost. Patriot Basic at $252 per year is more expensive in that narrow scenario.
The scenario excludes most actual business owners. The hourly time cost test alone disqualifies anyone whose time is genuinely worth more than $25 per hour, which is essentially every business owner reading this page. For a meaningful number of solo S-corp owners in no-income-tax states with very low time cost, DIY is the rational choice. For everyone else, the cheap paid options are cheaper.
Other reality-check pages
Common questions
How long does DIY payroll actually take?
For a single-state single-employee business: 6 to 10 hours per year of compliance work. For a 5-employee single-state business: 20 to 35 hours per year. For a 10-employee multi-state business: 50 to 80 hours per year. The hours include quarterly federal 941 filing, annual federal 940 filing, state unemployment and withholding, year-end W-2 issuance and SSA filing, plus the per-pay-period withholding calculations.
What is the breakeven for DIY versus Patriot Basic?
Patriot Basic at $17 + $4 per employee is $252 per year for one employee. DIY for one employee is 6 to 10 hours. At $25/hour your time, DIY breaks even at 10 hours; at $50/hour, DIY costs $300 to $500, more than Patriot. For most business owners, paid software is cheaper than DIY even at one employee.
What IRS forms do I need to file for payroll?
Form 941 quarterly (employer's quarterly federal tax return), Form 940 annually (federal unemployment), Form W-2 for each employee by January 31, Form W-3 transmittal of W-2s to SSA by January 31, and Form 944 instead of 941 if your annual federal tax liability is under $1,000 (small employers). Plus state unemployment and state withholding forms per your state's schedule.
What happens if I miss an IRS deposit deadline?
The Failure-to-Deposit Penalty under IRC Section 6656 starts at 2 percent for deposits 1-5 days late, 5 percent for 6-15 days late, 10 percent for over 15 days late, and 15 percent if not paid within 10 days of an IRS notice. A single missed deposit on a $5,000 quarterly federal tax liability is a $100 penalty at minimum, easily wiping out a year of DIY savings.
Can I do payroll for free using Excel?
Technically yes for a one-employee single-state business. You calculate withholding from IRS Publication 15-T tables, calculate FICA, write the cheque or send the ACH, log the deposit, file quarterly. For the typical business owner, the time spent is worth more than Patriot Basic's monthly fee.
What about a CPA doing my payroll instead?
CPAs charge $100 to $400 per month for outsourced payroll for a small business, often more for multi-state or complex setups. That is 3 to 10 times the cost of Patriot Full Service or OnPay. CPA-managed payroll makes sense if you specifically want the same person handling payroll and tax planning. For pure cost efficiency, cheap SaaS payroll wins.