Small biz looks for solutions to accounting hassles: online payroll process promises ease, efficiency. (Special Report: Fast-Growing Companies).

Until now, managing payroll has been a major hassle for small businesses. The commitment of time and fees, plus the fear of making mistakes, have all caused many headaches.

A recent Crain's article reported that one out of every four small-business owners is not happy with the way in which their company's payroll is managed. Fortunately, online payroll services are emerging as the easiest and lowest cost solution for businesses with fewer than 20 employees.

Eighty percent of the businesses that pay workers prepare their payroll in-house, either by hand or by using accounting or payroll software. However, payroll regulations are complex and constantly changing, and the government imposes severe penalties for late or incorrect tax payments.

The IRS claims that one-third of small businesses incur penalties of more than $1,300 annually, totaling $1.5 billion of tax penalties a year.

The IRS also estimates that the quarterly 941 tax form takes an average of fourteen hours to complete by hand. Yet, hiring an outside firm to manage payroll tasks can cost thousands of dollars, which many small businesses simply cannot afford.

To reduce the complexity and cost of managing payroll, many small businesses like are choosing online payroll solutions.

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According to the 2001 U.S. Small Business Internet Survey, 11 percent of small businesses that use the Internet already have sought information on online payroll services.

The best online services dramatically increase the ease and efficiency of managing payroll. Online payroll solutions automatically manage the most complex aspects of payroll, such as gross pay calculation, tax withholding, deductions and employer liabilities. At the same time, small businesses have real-time access to their data, putting them in full control of the process.

Most services calculate paychecks in real-time, allowing small businesses to preview their paychecks before paying their employees electronically via direct deposit. The result is a payroll process that has fewer errors and takes less time to process than by hand or with software.

Online payroll services offer these services at a fraction of the cost of traditional large payroll providers. Many online services allow small businesses to sign up for the service directly from their Web site, with very little paperwork.

Most online services help small businesses prepare the payroll tax payment coupons and quarterly and annual tax filing forms. Some services electronically submit payments and forms to the appropriate government agencies, while others provide pre-filled forms that are ready to print, sign and mail.

By being in control of when payroll tax payments are made, small businesses can improve their cash flow.

Payroll data reports are also typically accessible in real time for small business owners to view at their discretion. This allows small-business owners and their accountants to maintain full visibility and control of the process.

Also, companies can run their payroll from anywhere they can find an Internet connection, in the office or on the road.

The best online services guide you step-by-step through each payroll task, and include e-mail reminders for when it is time to pay employees, deposit taxes or file returns. Some services also offer direct deposit and electronic tax payments and filings without any additional charge.

Services that allow small businesses to export their payroll data to popular accounting packages, such as Intuit's QuickBooks and Quicken or Microsoft Money, can save small businesses hours of data re-entry.

As a small business, it is important to carefully review the online solutions available in the market and understand how each offering works. Services that charge an all-inclusive monthly fee can be appealing, as they cover unlimited payroll runs each month and include the cost of quarterly and year-end tax forms such as 940s, 941s, and W-2s.

Over time, many more small businesses will begin managing their payroll online. By allowing an online payroll service to handle the details, companies can finally focus on their core business while enjoying the cost savings and ease of use that online payroll services provide.

Lacerte is the CEO of PayCycle, an online payroll service.