Over the last few years, a new type of R&D credit solution has become increasingly common:
payroll-driven R&D studies, often integrated directly into payroll platforms.

For many companies, especially growing tech teams, these tools are appealing. They promise speed, lower cost, and minimal disruption.

But they’re not the same as a specialist-led R&D study — and understanding the difference matters, especially as IRS scrutiny and documentation expectations increase.

This isn’t about which approach is “better.”
It’s about which approach fits which situation — and what tradeoffs you’re actually making.

What Payroll-Driven R&D Studies Do Well

Payroll-based approaches start from a simple and often accurate premise:

For most software companies, wages are the largest R&D cost.

Because payroll systems already have:

• employee data,

• wage amounts,

• and payment timing,

they can quickly estimate credits by allocating percentages of payroll to R&D.

This works well when:

• R&D is centralized,

• roles are clearly technical,

• projects are straightforward,

• and risk tolerance is relatively high.

For early-stage companies or teams with very simple structures, this can be an efficient starting point.

Where Payroll-Driven Studies Start to Break Down

The limitations usually show up in areas payroll systems aren’t designed to handle.

Judgment and nuance

Payroll data can tell you who was paid, but not:

• what technical uncertainty existed,

• which alternatives were evaluated,

• or how experimentation actually occurred.

Those elements are central to §41 — and they’re judgment-based, not formulaic.

Contractors and IP considerations

Payroll systems typically struggle with:

• contractor eligibility,

• supervision requirements,

• and IP ownership nuances.

These issues don’t show up in payroll reports, but they matter a lot in audits.

Business-component segmentation

With the IRS moving toward business-component-level substantiation (as signaled by Section G), allocating wages “in bulk” becomes riskier.

Payroll tools weren’t built to:

• map people to specific business components,

• track experimentation by project,

• or tie technical narratives to wage allocations.

Audit and defense posture

Most payroll-driven studies are optimized for calculation, not defense.

If questions arise later, companies often discover that:

• documentation is thin,

• narratives are generic,

• and assumptions aren’t clearly supported.

At that point, the cost savings from the original approach can evaporate quickly.

What Specialist-Led R&D Studies Do Better

Specialist-led studies typically start from a different place.

Instead of asking, “How much payroll do you have?”
They ask, “What technical uncertainty existed, and how was it resolved?”

That shift leads to strengths in areas that matter long-term:

• Clear identification of qualifying business components

• Strong alignment with the four-part test

• More defensible time and wage allocations

• Better handling of contractors, hybrid roles, and edge cases

• Documentation that can withstand scrutiny, not just generate a number

This approach is especially valuable when:

• R&D spans multiple teams or states,

• roles don’t map cleanly to titles,

• credits are material,

• or the company expects future diligence (investors, acquirers, audits).

Where Specialist-Led Studies Can Overreach

That said, specialist studies aren’t perfect either.

They can:

• be more time-intensive,

• cost more upfront,

• and feel heavier than necessary for very simple cases.

In low-complexity situations, a fully bespoke study may provide diminishing returns.

That’s where judgment matters — not just methodology.

How to Choose the Right Approach

The right question isn’t:
“Which option is cheaper?”

It’s:
“Where does complexity actually live in our business?”

Payroll-driven approaches tend to work best when:

• R&D is narrow and well-defined,

• payroll dominates costs,

• and documentation expectations are modest.

Specialist-led studies make more sense when:

• projects are complex or evolving,

• roles are blended,

• contractors are involved,

• credits are meaningful,

• or audit and diligence risk matter.

The Bigger Takeaway

Both approaches exist for a reason.

But as documentation expectations rise and the IRS signals a preference for clearer substantiation, the gap between calculation and defensibility is becoming more important than ever.

Understanding that gap — before choosing a method — is what leads to better outcomes.