How Much Does it Cost to Outsource Payroll?

Trying to figure out your company’s own payroll can be a mammoth task and there are a whole host of costly pitfalls you could fall into if you make the smallest mistake. 

We’d recommend outsourcing your payroll for peace of mind. You’ll be able to focus on the day-to-day running of your business and your company’s future goals and strategy rather than calculating your employee’s payroll. 

In this article, we’ll explore how much it costs to outsource payroll and what the best HR payroll solutions for your business could be, and the role of payroll software and other tools in streamlining the process.

A payroll fee is the fee that payroll service providers charge your business per employee on a monthly basis for payroll outsourcing.

A payroll fee is the fee that payroll providers charge your business per employee on a monthly basis for payroll outsourcing. 

The outsourcing fee is typically between £4-£6 per employee per month. However, if you employ a large number of people, you can expect the fee to be cheaper per employee.

If your organisation is smaller, you can expect to pay slightly more for outsourcing your payroll for your employee records.

If you pay your employees weekly, you can still benefit from outsourcing your payroll. Instead of being charged per-employee-per-month, you’ll be charged per-employee-per-week. 

However, you will incur additional costs because the outsourced payroll provider will be doing up to five times the work than a monthly payroll calculation.

For insights into reducing errors and improving efficiency, see our article on top ways to reduce payroll errors.

When calculating your payroll cost, it’s not just the payroll processing fee you’ll have to consider. The following total costs are a guideline. For detailed pricing, please contact us today.

The first additional cost you’ll have to consider is set up costs. Payroll  service providers payroll typically charge £2 per employee – so the number of employees will help inform how much you’ll pay in set-up fees. 

Sometimes, payroll providers might waiver setup costs as part of a promotion, but this is in no way guaranteed.  

Setup costs are a necessary part of outsourced payroll costs because it will take your chosen payroll provider time, resources and money to set your company up on their payroll systems.

Unfortunately, yes. Most companies nowadays opt for digital payslip options, including payroll software which include an online Employee Self-Service tool, where employees can log in and access their digital payslips. 

However, if your company wants to continue to use hard copies of their payslips, it will incur a cost.

A digital payslip option will not only save your business money, but it’ll also save trees too!

For more details on HR and payroll software, visit our HR and payroll software page.

You may spend a little more on auto-enrolment costs, at a few pounds per employee. 

It may be beneficial to consider a payroll provider that offers “fully managed” auto-enrolment service, which will cost you a bit more, so it’s important to consider whether you need this kind of service.

With an outsourced payroll service, many payroll service providers charge on a per-employee-per-month basic. This is refered to as PEPM in the payroll industry, and pronounced “peppem”.

For example, if a payroll outsourcing cost per employee is £5, then a team of 50 people would result in a monthly payroll cost £250.

Generally payroll providers offer variable costs depending on the size of the business, so the more employees you have the lower the PEPM is. Smaller businesses therefore tend to have a slightly higher PEPM.

Explore more on what HR and payroll services can do in our article on HR and payroll.

If your employees are paid weekly, the payroll provider will charge you per-employee-per-week. Weekly payroll services cost more than paying on a monthly basis as the payroll provider will have more work to do.

Using a trusted payroll service provider reduces the risk of errors and fines. Learn more about managing payroll efficiently on our managed payroll services page.

In some cases, a payroll provider may charged a fixed monthly rate. This generally isn’t a very flexible method to run your payroll unless you’re a small business with a mostly fixed headcount.

If your team is regularly growing with new starters, or if you want to process other payments like commissions or bonuses, this may not be possible on a fixed contract. A pricing structure such as PEPM provides a much more flexible payroll outsourcing cost.

Additionally, there is an extra payroll services cost when outsourcing your payroll.  Many companies integrate their HR and their payroll systems together. Integrating these two services in one place saves both time and money. 

If you want to integrate your HR and payroll systems together, this will incur an additional fee.

If you want to bolt on timesheets and expenses or opt for faster payments, these are services that will cost you a little bit more. 

Some additional costs include costs associated with the point of implementation, including things like parallel payroll runs and system training. 

Sometimes there are additional fees associated with other aspects of payroll such as web archiving and P11Ds.

If you’re considering undertaking payroll costing yourself or in-house, it’s important to know that payroll costing is a massive undertaking. If you have no experience in payroll management, it’s harder to catch all the problems that might cause upset in your team and on your books. 

If your payroll is full of mistakes, and if employees are not being correctly paid – this might be a reason why they would start to consider leaving your company. In fact, 1 in 5 workers have left jobs directly due to bad payroll practices and management. 

Calculating your own business’ payroll could mean mistakes in calculating sick pay, maternity leave and holiday leave, dealing with difficult legislation and incurring the wrath of HMRC – which could land you a large fine. 

You want to avoid the smallest mistakes, and that’s why it’s wise to outsource your payroll management.

If you choose to go down the in-house payment management route, know that it is usually an option only for very small businesses, or businesses that are big enough to have their own accountancy team so they can carry out all payroll management in-house. 

If your business is neither that small or that big, we would recommend that you opt to have your payroll management outsourced.

In-house payroll management often comes as a software package. Software packages can be free or are available on a prepaid subscription plan.

The costs will vary depending on the number of employees in your business and the level of features you require.

The short answer is no. Unless you have an in-house accountant or your team is small, in-house payroll management really isn’t worth the hassle. 

In-house payroll management is often less efficient than outsourcing your payroll, and to top it off, it can be a less legally compliant and safe way to pay your employees. 

You’re at greater risk of fines and penalties and in the end, in-house payroll management is more financially costly too.

When you outsource your payroll needs, it’s easy to enjoy the reduced stress of doing it yourself and leave any issues to the payroll company. But there are aspects to consider if you want to keep the payroll outsourcing costs low.

If you have staff paid on a weekly basic, consider changing the payroll period to biweekly or monthly. This reduces the amount of work required by the outsourced payroll service, therefore reducing the cost.

However, if you decide to make this change then you should give your team plenty of warning. A change in payment frequencies can disrupt a person’s personal finances so they should have time to prepare.

Consider using a fully managed payroll service for compliance and cost savings.

The most obvious, but perhaps most important, method of saving money is by avoiding unneeded penalties.

Making incorrect filings or other mistakes in the payroll process can lead to monetary penalties which quickly add up to considerable amounts.

Using a trust payroll provider such as CPS is the easiest way to ensure that mistakes aren’t made.

Sometimes it’s better not to look at your payroll needs in isolation. Significant ways to cut costs can come from combining various aspects of your business processes.

For examples, look at payroll service providers who offer not only payroll software solutions but also HR software and pension auto-enrolment software too.

If you’ve never outsourced your payroll, it might seem daunting. However, it’s one of the most cost-effective ways to manage your employees’ wages.

We provide both payroll software for in-house payroll solutions and managed payroll services , so we can help you find the best payroll solutions for your business. We’ll help you keep your employees happy and ensure that everyone is paid on time! 

For more information on our payroll services pricing, contact us today!