What is Payroll Outsourcing? Everything You Should Know

In-house payroll may seem cost-effective, but it often drains time, increases risk, and leaves little room for error. With UK payroll legislation evolving rapidly in 2025, businesses face mounting pressure to stay compliant, avoid fines, and deliver accurate, on-time pay.

Payroll outsourcing solves this by handing over complex tasks, like tax submissions, payslips, and auto-enrolment, to trusted providers. It’s a simple way to reduce admin, improve accuracy, and give your team more time to focus on growth.

• Payroll outsourcing improves efficiency by reducing admin and ensuring compliance with HMRC regulations.
• Outsourced providers handle payroll processing, tax submissions, payslips, pensions, and statutory payments.
• Typical pricing ranges from £4–£6 per employee, per month, with additional costs for set-up and printed documents.
• Accurate, on-time pay enhances employee satisfaction and reduces turnover.
• Cloud-based systems offer GDPR-compliant, secure data handling with remote access.
• Outsourcing reduces payroll errors and the risk of HMRC fines.
• Integrated HR and payroll platforms offer even greater operational control.
• Global payroll services help businesses manage overseas employees and comply with local laws.
• You can switch providers at any time—not just at the start of the financial year.
• Choose a provider with ISO certifications, proven experience, and strong onboarding support.

Payroll outsourcing is when a business delegates payroll tasks to a third-party provider who ensures staff are paid accurately, on time, and in compliance with HMRC regulations.

Wage delivery is complex. It demands time, resources, and expertise, particularly when paired with evolving tax legislation and the risk of fines for misreporting. Outsourcing simplifies this process, reduces risk, and improves efficiency.

A trusted payroll partner will handle everything from processing payslips and calculating tax to submitting Real Time Information (RTI), managing auto-enrolment, and providing ePayslips. Many providers also offer integrated HR support for even greater operational efficiency.

Outsourcing payroll typically follows this structured step-by-step process:

1. Initial Planning – The business assesses its current payroll system, identifies inefficiencies, and defines goals for outsourcing.
2. Provider Selection – Providers are researched and shortlisted based on experience, services, costs, and compatibility.
3. Data Transfer – Key payroll data is collected, cleansed, and securely transferred to the new provider, including employee records, tax details, and historical payroll data.
4. System Set-Up and Integration – The provider sets up the company’s payroll profile and integrates with any internal HR or finance systems as needed.
5. Parallel Run Phase – A test run is conducted where payroll is processed alongside the internal system to ensure accuracy and address issues.
6. Go Live and Ongoing Support – Once tested and approved, the outsourced provider fully takes over payroll processing with regular reporting and support.

Outsourcing your payroll delivers clear operational, financial, and compliance advantages that directly support business growth.

• You save time and reduce internal admin. By shifting routine tasks such as payslip generation, RTI submissions, and holiday tracking to a dedicated provider, your team can focus on strategic priorities.
• Payroll becomes more accurate and reliable. A reputable provider reduces the risk of mistakes, missed deadlines, or underpayments—ensuring employees are paid correctly and on time.
• Compliance becomes automatic. Staying up to date with evolving tax law and HMRC requirements becomes effortless, as your provider applies legislative changes as part of their service.
• Costs become more predictable. Fixed monthly or per-employee pricing helps you budget more accurately, and larger businesses may benefit from discounted rates.
• Data security is improved. ISO-accredited providers offer GDPR-compliant systems with secure backups and encrypted data handling.
• Employee satisfaction increases. On-time, accurate pay improves trust and retention, especially when combined with self-service access to payslips, holiday requests, and personal data.
• Scalability becomes easier. Whether you’re hiring seasonally or expanding long term, outsourced payroll solutions flex with your workforce without needing extra internal resources.

While outsourcing offers many benefits, risks include:

• Security breaches if data is not handled by a reputable provider
• Hidden or unexpected costs
• Potential communication delays
• Loss of internal payroll knowledge over time

Mitigating these risks starts with selecting a trustworthy, experienced payroll partner with UK-based support and ISO-certified systems.

It’s also worth bearing in mind that in recent years HMRC have recovered more than £737 million from investigations into payroll errors, with SMEs accounting for more than half that figure with almost £364 million.

This is a particularly worrying figure when you consider that SMEs account for just over a tenth of the UK’s total payroll. It indicates that businesses of all sizes struggle to deal with complicated tax affairs due to lack of resources, finance or expertise which leads to costly mistakes and heavy fines from the tax office. 

The two main types of payroll outsourcing services used by businesses are:

Using a fully managed payroll service model means everything is outsourced to the payroll provider, including data entry and the running of reports. The provider will take care of everything, which means you only need to collect payroll data manually and pass it onto the provider to process.

This can be an ideal option for businesses that want to manage employee costs and do not want the added expense of employing specialist payroll and taxation staff. Many companies choose this option because of the long-term efficiency and cost saving benefits it can offer. 

This involves processing part of the payroll function, with data entry and reporting remaining in-house. When employees update the payroll provider’s software with new data, they can then run reports as and when they need. From here, the provider processes the data and produces the payslips.

This is a suitable option for organisations that prefer to keep data entry in-house, while having the benefit of working with specialist software and processing facilities that a provider can offer. It is generally a cheaper option compared to a fully managed solution, although it means data entry costs are maintained.

When you are using outsourced payroll services there are costs involved that you need to consider. Providers will charge something called a ‘payroll fee’ that is invoiced each month based on the number of employees that are on the payroll. For businesses that payroll weekly, you will be charged per-employee-per-week. 

You can usually expect to pay between £4-£6 per employee per month, although this rate can be lower for larger companies with a higher number of employees. Smaller companies may have to pay a little more per employee, although cost packages will always be discussed in full before proceeding with the set-up process. 

There are also other factors to consider in the final cost. For example, there are set-up costs to include, which can be waived at the providers discretion as part of a wider package. Set-up costs are sometimes a necessity to cover the time and resources it takes to outsource the payroll and set everything up on the provider’s system. 

If you require payslip printing this will also incur a cost, which is why we generally advice businesses to offer digital payslips through an online portal. Not only will this reduce expenditure, but it is also an eco-friendlier option and helps to reduce your carbon footprint. 

Additional options you could also consider include integrating your HR and payroll systems and including expenses and timesheet information which can help to speed up payments. These are chargeable extras that can help to streamline processes to improve efficiency long-term.

You can find out more about payroll outsourcing costs in this blog.

What about global payroll outsourcing?

For international businesses with staff in multiple countries, global payroll outsourcing helps ensure compliance with local employment laws, tax requirements and currency management.

It’s particularly useful when hiring remote employees or operating across multiple jurisdictions. Providers that offer multi-country payroll solutions can streamline operations and centralise reporting while staying compliant in each region.

1. Review Your Current Processes: Identify inefficiencies and estimate time and costs spent managing payroll internally. Use this to benchmark potential improvements.
2. Compare Service Levels and Tech Features: Check if the provider offers cloud-based systems, employee self-service, and real-time reporting. Prioritise user-friendly tools that integrate with existing HR or finance platforms.
3. Check Certifications and Security Protocols: Ensure providers are ISO 9001 certified and adhere to GDPR regulations. Confirm data is hosted securely and backed up regularly.
4. Ensure Long-Term Flexibility and Scalability: A good provider can grow with you. Ask if they offer add-ons such as HR integration, pensions, and custom reporting.
5. Look for Strong Onboarding and Support: Ask about account management and training. A structured onboarding plan ensures a smooth handover.

As your business grows, so too might your payroll requirements, and integrating with HR systems or setting up employee self-service options could be something that you need in the future. If a payroll provider can also tick this box and not force you to work within a very limited set of parameters, then it is worth giving them serious consideration, costs permitted, of course. 

The technology used by a payroll outsourcing company should be in line with current regulations. It should also be able to benefit your business by being easy to use, automating and streamlining current processes, offering helpful analytics and reports and be straightforward to integrate into other software. Cloud-based software is a must, as it ensures remote staff can access the system from any location.

Always ask the provider where data is being held by its cloud-based software, as you need to ensure that crucial payroll and HR information is secure and fully backed-up. Ideally, the provider should also hold industry recognised accreditations such as ISO 9001 and be part of bodies like the CIPP (Chartered Institute of Payroll Professionals).

Make enquiries about the payroll outsourcing services they provide to other companies and what kind of sectors they tend to work in. This will give you confidence that they have a good understanding of the challenges you could face and their ability to adapt and support your payroll requirements in an ongoing capacity.

Outsourced payroll providers can offer a wide range of services, depending on your business needs. These often include:

• Payroll calculation and processing (weekly, fortnightly, monthly)
• Real Time Information (RTI) submissions to HMRC
• Payslip production (digital or printed)
• P60 and P11D generation
• Auto-enrolment compliance and pension submissions
• Holiday and absence tracking
• Statutory payment calculations (SSP, SMP, SPP)
• New starter and leaver processing
• Payroll reports and analytics
• Employee self-service portals
• Integration with HR or finance systems

Outsourcing isn’t just about reducing admin—it directly impacts staff morale and retention.

• Employees get accurate, on-time pay
• Payslips and records are easily accessible via online portals
• Errors are reduced, leading to fewer disputes and stress
• Self-service tools give staff more control over personal data
• Greater consistency builds trust and engagement

Contrary to popular belief, you don’t need to wait until the start of a new financial year.

✅ The best time to switch is when it benefits your business most, especially if:

• Your current system is error-prone
• You’re growing and need more support
• You’re not receiving timely service from your current provider

A reliable provider can onboard you at any time of year.

Outsourcing isn’t suitable for every business. You may want to reconsider if:

• ❌ You have a very small team and minimal payroll complexity
• ❌ You need full daily control over payroll processing
• ❌ Your budget cannot accommodate monthly provider fees
• ❌ You prefer not to share sensitive data externally
• ❌ You already have in-house payroll experts and infrastructure

Switching to a new payroll provider is simpler than many businesses expect. Most offer a phased transition supported by an onboarding team.

You can expect:

• A migration plan tailored to your business timeline
• Secure data transfer from your existing system
• Training for your team and ongoing technical support

How much does outsourced HR cost?

The cost of outsourced HR services varies depending on the services you need and the size of your company, as well as the provider you choose. Typically, HR outsourcing fees are charged either as a flat monthly rate or on a per-employee basis. 

For small to medium-sized businesses, costs can range from £50 to £150 per employee per month. Larger organisations might benefit from negotiated rates, resulting in lower per-employee costs.

When is the best time to change to a new payroll provider?

It is commonly believed that the best time to change to a new payroll provider is at the start of a new year, but in reality, the actual time of year doesn’t make much of a difference.

Reputable and experienced payroll providers will be able to support your transition at any time, without slowing the process down.  

The best time to change to a new payroll provider is when it benefits your business and when you are in a position to go ahead with the move.

If you are not receiving the support you need from your current provider, waiting for the start of a new year could prove to be more costly and damaging to your business in the long run.

Can you integrate payroll with other software processes?

By utilising outsourced payroll services, you can easily sync multiple software and business processes to improve efficiency by saving time and reducing common errors. Payroll software can usually be integrated with processes such as: 

• Health and insurance premiums and retirement plan contributions.
• Use of time and attendance data that can lead to more reliable wage calculations. 
• The introduction of new policies that affect payroll ensuring you remain compliant.
• Worker’s compensation payments can be more accurate rather than estimations. 
• Payroll costs can be compared against the sale of goods or services via point-of-sale devices. 
• Assess the most profitable jobs for the business relative to payroll.

Can small businesses outsource payroll?

Yes, many small businesses outsource payroll to save time and reduce errors without needing to hire in-house experts.