What Paylocity Is and Who Uses It

Paylocity is a cloud-based payroll and human resources platform designed for small to mid-sized businesses. Instead of running payroll software on your company's own computers, Paylocity lives online — you log in through a web browser or mobile app to process paychecks, track time, manage benefits, and handle HR tasks.

The platform is built for business owners, HR managers, and payroll administrators who want to handle multiple payroll functions in one place rather than juggling separate tools. Paylocity handles the actual paycheck calculations, tax withholding, direct deposit setup, and filing of payroll taxes with federal and state agencies.

Paylocity is not a bank or a payment processor — it's the software layer that sits between your company and the banking system. Your employees' paychecks still go to their personal bank accounts through direct deposit, but Paylocity orchestrates the timing, amounts, and tax deductions.

Key Takeaways

  • Paylocity is cloud-based payroll software that handles paychecks, tax withholding, and HR administration for businesses with roughly 10 to 5,000 employees.
  • You enter employee hours and salary information into Paylocity, and the software calculates gross pay, deductions, and taxes, then sends funds to employees' bank accounts via direct deposit.
  • The platform also manages benefits enrollment, time tracking, performance reviews, and tax filing with federal and state agencies on your behalf.
  • Paylocity charges a monthly subscription fee that varies based on the number of employees and which features you use.
  • Setup requires providing employee information, bank account details, and tax identification numbers, and typically takes a few days to a few weeks depending on your company's size.

How Paylocity Processes a Paycheck

The paycheck workflow in Paylocity follows a predictable cycle. You log into the platform, enter or confirm each employee's hours worked (or salary if they are salaried), and review any special deductions or bonuses. Paylocity then calculates gross pay, subtracts federal and state income tax withholding, Social Security and Medicare taxes, and any voluntary deductions like health insurance premiums or 401(k) contributions.

Once you approve the payroll run, Paylocity sends the payment instructions to your bank. Your bank then transfers funds from your company account to each employee's personal bank account, usually arriving within one to two business days. Paylocity also generates pay stubs that employees can view in the mobile app or read as PDFs.

The software keeps a running record of each employee's year-to-date earnings and deductions, which is essential for tax filing and for employees to reference when they need proof of income for loans or other purposes.

Tax Withholding and Filing

One of Paylocity's core functions is calculating the correct amount of federal income tax, state income tax, Social Security tax, and Medicare tax to withhold from each paycheck. The software uses current tax tables and the W-4 form information you provide for each employee to determine withholding amounts.

Beyond calculating withholding, Paylocity also handles the filing of payroll taxes with the IRS and your state tax agency. The software generates and submits Form 941 (federal quarterly tax return) and state equivalents on your behalf, and it tracks important date so you know when payments are due. This removes the burden of manually calculating and filing these forms yourself.

Paylocity also prepares W-2 forms at year-end, which you distribute to employees and file with the Social Security Administration. The platform stores all tax records and can generate reports for audits or compliance reviews.

Employee Self-Service and Time Tracking

Paylocity includes a mobile app and employee portal where workers can view their pay stubs, update personal information like address or direct deposit details, and enroll in benefits. This reduces the number of HR questions that land on your desk and gives employees control over their own data.

Many companies use Paylocity's time-tracking feature, where employees clock in and out through the app or a web browser. Managers can review and approve timesheets before payroll is processed, which helps catch errors and prevents overpayment. The time data flows directly into payroll calculations, so there is no manual re-entry of hours.

Some versions of Paylocity also include scheduling tools, so managers can post shifts and employees can request time off through the same platform.

Benefits Administration and HR Features

Beyond payroll, Paylocity includes tools for managing employee benefits. During open enrollment periods, employees can select health insurance plans, dental, vision, and other coverage through the platform. Paylocity calculates the employee and employer portions of premiums and deducts the employee share from paychecks automatically.

The platform also stores employee documents — offer letters, I-9 forms, tax withholding forms, and performance reviews — in a centralized digital file. This keeps HR records organized and makes it easier to retrieve documents if you need them for compliance or reference.

Some Paylocity plans include performance management features where managers can set goals, conduct reviews, and track employee development. The depth of these features varies by subscription tier.

Pricing and Setup

Paylocity's cost depends on the number of employees and which features you use. The company does not publish a single price; instead, you receive a custom quote based on your company's size and needs. Generally, the cost is a monthly subscription per employee, with a minimum monthly fee for small companies.

Setup involves providing employee names, Social Security numbers, addresses, salary or hourly rates, and tax withholding information. You also supply your company's federal Employer Identification Number (EIN), state tax ID, and bank account details so Paylocity can move funds on payroll day. The onboarding process typically takes a few days to a few weeks, depending on how many employees you have and how quickly you can gather the required information.

Paylocity assigns a dedicated onboarding specialist to walk you through the setup and answer questions. After launch, you can contact customer support by phone, email, or through the platform's help center.

Paylocity vs. Other Payroll Platforms

Paylocity competes with other cloud-based payroll services like ADP, Gusto, and Paychex. The main differences come down to company size, price, and feature depth. Paylocity is generally positioned for mid-market companies (roughly 50 to 5,000 employees), while Gusto targets smaller businesses and ADP serves a wider range. Paylocity tends to offer more robust HR and benefits features than some competitors, but this also means higher cost.

If your company is very small (under 10 employees), you might find Gusto or even a basic accounting software package more affordable. If you are very large (over 5,000 employees), you might need a more enterprise-focused platform. Paylocity sits in the middle and works well for growing companies that want payroll, HR, and benefits in one place.

Frequently Asked Questions

Can employees see their paychecks before payday?

Yes. Paylocity's mobile app and employee portal let workers view their pay stub and see the breakdown of gross pay, deductions, and net pay before the money hits their bank account. This typically happens a day or two before payday, depending on your payroll schedule.

What happens if I make a mistake when entering payroll?

If you catch the error before you approve and submit the payroll run, you can edit the hours or deductions and recalculate. If the payroll has already been submitted to the bank, you will need to contact Paylocity support to discuss options, which may include a correction paycheck in the next cycle or a manual adjustment. The sooner you catch the error, the easier it is to fix.

Does Paylocity handle state-specific tax rules?

Yes. Paylocity's tax tables are updated regularly to reflect changes in federal and state tax law. The software knows the tax rules for all 50 states and can handle multi-state payroll if you have employees in different states. However, you still need to provide accurate W-4 information for each employee so the software can withhold the correct amount.

Can I use Paylocity if I have contractors or 1099 workers?

Paylocity is designed for W-2 employees. If you have independent contractors, you would typically track their payments separately and issue them a 1099-NEC form at year-end. Some versions of Paylocity include basic contractor management, but it is not the platform's main strength. You may need a separate tool or manual process for contractor payments.

What if I need to run payroll on a different schedule?

Paylocity supports multiple payroll frequencies: weekly, bi-weekly, semi-monthly, and monthly. You choose your schedule during setup, and the platform reminds you when payroll is due. You can also run off-cycle or bonus paychecks if needed, though these may have different processing times than your regular payroll.