Quick answer: Payroll services for UK small businesses typically cost around £4 to £10 per employee, per month, for basic processing. Where you land in that range depends on your headcount, how complex your pay is, which extras you need, and whether you choose a fully managed or part-managed service.
Definition: Payroll services for small businesses are outsourced or software-based services that handle wage calculations, tax deductions, HMRC reporting, pension contributions, and compliance tasks on your behalf.
If you run a small business, you’ll know there’s more to payroll than making sure your employees get paid. Quite a lot more, actually.
From calculating deductions and reporting to HMRC to managing pensions and employee benefits, there’s a lot to keep on top of. Running payroll goes far beyond transferring money at the end of the month.
You might already be thinking about outsourcing payroll to avoid the complexity and cost of managing it yourself. And if you’re torn between in-house payroll or payroll outsourcing, you’re in the right place.
Let’s look at the average cost of payroll services for small businesses, so you can decide where to go from there.
Start by asking yourself what type of payroll service you’re looking for
You have a couple of options to choose from: fully managed payroll and part managed payroll. And that’s right, you’ve guessed it, the choice between the two will depend on your specific needs, structure and budget.
Now, if you’re a business owner with limited time or expertise in payroll, a full-managed service might be the best option. This means the payroll provider will handle all aspects of your payroll, from calculating employee pay to dealing with HMRC. It’s like having a dedicated payroll professional on your team — without having to hire an in-house specialist.
On the other hand, if you have some experience with payroll and want more control over the process, a part-managed service might be a good fit. This allows you to handle certain tasks, such as data entry or attendance tracking, while the provider takes care of the more complex aspects like tax calculations.
Is it a good idea to keep your small business payroll in-house?
There’s nothing stopping you from keeping your small business payroll in-house, but it can work out more expensive than outsourcing.
In our experience, outsourcing is usually more cost-effective than employing dedicated payroll staff, especially if you have fewer than 200 employees. Once you add up salaries, software, training, and cover for holidays and sickness, the cost of an in-house team grows quickly.
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What’s the average cost of payroll services for small business in the UK?
Payroll services for small businesses typically cost around £4 to £10 per employee, per month, for basic processing. But what you actually spend will depend on a few factors:
- Business size: Larger teams often get lower rates per employee.
- Pay structure: A mix of full-time, part-time, and freelance workers adds complexity.
- Services included: Basic processing costs less than a package with extra reporting and pension support.
- Fully managed vs. part-managed: The more your provider does, the more you’ll pay.
What £4 to £10 per employee looks like each month
| Number of employees | At £4 per employee | At £10 per employee |
|---|---|---|
| 10 | £40 | £100 |
| 50 | £200 | £500 |
| 100 | £400 | £1,000 |
| 200 | £800 | £2,000 |
Illustrative figures based on the typical range of £4 to £10 per employee, per month. Part-managed services tend to sit towards the lower end, and fully managed services towards the higher end. Larger employers can often negotiate lower rates. For Cintra pricing, speak to our team.
The size of your business
Your business size plays a big part in what you’ll spend on payroll. It’s a bit like buying in bulk: the more you buy, the lower the unit price. This is known as economies of scale.
The same goes for payroll. Organisations with more employees usually get a better rate per payslip, so if you have a bigger team, you may be able to negotiate a lower cost per head.
The structure of your business
If you keep things simple with a small team, your payroll costs will probably stay lower and easier to manage. But if you have a mix of full-time, part-time, and freelance workers, each with different payroll requirements, your monthly costs can add up quickly.
Which services are included
If you only need basic payroll processing, your costs will sit at the lower end. Most providers include statutory documents like P45s and P60s as standard, as they’re legal requirements. But extras, such as calculating pensionable earnings, year-end P11Ds, or extra reporting, can push the price up. Some providers also offer HR services or help with recruitment, which can be convenient but will add to the cost.
The type of service
At first glance, part-managed payroll might look like the cheaper choice, because you’re doing some of the work yourself. But it can end up costing more in the long run. You still need to put time and resources into the tasks you keep (like data entry), and mistakes can lead to penalties or extra fees.
Fully managed payroll may cost a little more, but it takes the day-to-day work off your plate. Just be aware that you’re still legally responsible for your PAYE obligations, so it’s worth choosing a provider you trust.
Are there typically any hidden costs?
Sometimes, which is why it’s worth asking your potential provider upfront whether any extra costs could come up. Common examples include:
- Set-up fees: Some providers charge for initial configuration and onboarding, often around £0 to £2 per employee.
- Training: Some providers charge for training your team on their payroll software.
- Customer support: Support is usually included, but premium support may cost extra.
- Integrations: If you need to connect payroll with other systems, such as your accounting software or HR system, there may be integration fees.
Are you looking for fully managed or co-managed payroll?
Our payroll solutions are flexible and customisable, so we can build a service that works for your small business.
You can learn more about our payroll and HR services for small businesses, or if you already know what you want, book a demo with one of our payroll experts today.
Find out more about Cintra's award-winning outsourced payroll services.
Frequently asked questions
Q. How much does payroll cost per employee in the UK?
A. Payroll services typically cost around £4 to £10 per employee, per month, for basic processing. The cost can go up depending on how complex your pay structure is and which extras you need, such as pension support or additional reporting.
Q. Is outsourcing payroll cheaper than doing it in-house for small businesses?
A. For most small businesses with fewer than 200 employees, outsourcing is usually more cost-effective than employing dedicated in-house payroll staff. It removes salary, software, and training costs, and gives you access to payroll expertise. You’ll still be legally responsible for your PAYE obligations, though, so choose a provider you trust.
Q. What’s the difference between fully managed and part-managed payroll?
A. With fully managed payroll, your provider handles every payroll task, from calculations to HMRC submissions. With part-managed payroll, you handle some tasks yourself (like data entry), while your provider takes care of the more complex work, like tax calculations.
Q. Are there hidden costs with payroll services?
A. There can be. Set-up fees, training, premium support, and integrations with other systems are sometimes charged separately, so it’s worth asking any provider for a full breakdown of costs before you sign.
