Quick answer: In the in-house or outsourcing payroll decision, the fair way to compare is the fully loaded cost per payslip. In-house payroll includes software, salaries, employer National Insurance and pension, holiday cover, and training. Outsourcing includes the provider’s fee (typically around £4 to £10 per employee per month), any extras, and the internal time you still need to gather data. For many smaller and mid-sized employers, outsourcing works out cheaper per payslip, while in-house becomes stronger at larger headcounts, with weekly pay, or where you want full control. Either way, you stay legally responsible to HMRC for your PAYE obligations.
Last updated: October 2026.
Looking after your people is the priority for every HR and payroll team, and showing them they’re valued starts with paying them accurately and on time. But that’s easier said than done. Pay runs come round fast, while contracts, legislation, and your organisation itself never stop changing. So how do you keep up?
The answer usually isn’t a more elaborate spreadsheet. It’s one of two routes: running payroll in-house, or outsourcing it to a provider. Both aim to give you efficiency, compliance, and control, but in the decision between in-house or outsourced payroll, the arithmetic is often closer than it looks, and most of the numbers people compare aren’t comparing the same thing.
This guide sets out what each route actually costs once employer on-costs, cover, and internal effort are included, how to compare them like for like, and where the liability sits when things go wrong.
Cintra offers both, which is worth saying up front. We license payroll software to employers who want to run payroll themselves, and we run payroll as a managed service for employers who’d rather not. Several sections below conclude that keeping it in-house is the right answer, and that costs us nothing to say.
In-house payroll
What is in-house payroll software?
In-house payroll means your own team runs the pay cycle using software you license. You collect the data, calculate, approve, submit the Full Payment Submission (FPS), pay HMRC, handle queries, and own the year end.
Good payroll software makes even complex payrolls easier to run in-house. It automates calculations and employee payments, manages the deductions you pay to HMRC, handles bonuses, benefits, expenses, and statutory payments, and produces the reports you need for your HMRC submissions. (For a closer look, see our guide to payroll software.)
But it’s worth being clear about where the software’s role ends. The vendor supports the software. It doesn’t run your payroll or check your numbers, and that distinction matters more than most buyers expect. A vendor helpline will tell you why the system produced a figure, but it won’t tell you the figure is wrong for your employee, because it doesn’t know your employee. When a director asks why their net pay dropped by £600 in March, that’s your question to answer.
To run payroll in-house, you need:
- HMRC-recognised software that reports PAYE information online.
- At least one competent payroll person.
- A second person who can run the cycle when the first is away.
- A way to pay employees.
- Enough time each period to do it properly.
Without all five, you’re carrying a compliance risk with a fixed deadline every pay period.
What are the benefits of in-house payroll?
- Your data, your choice: You keep full control of your data and payroll procedures, with complete oversight of the system. Your team still checks the automated processes, so efficiency doesn’t come at the expense of accuracy.
- Simple efficiency: Automation takes care of calculations, deductions, and legislative updates. Good software flags exceptions and copes with multiple roles, pay spine points, and pension schemes. And if it integrates with your HR software, onboarding data flows straight into payroll, so there’s no re-keying and less room for error.
- Total reassurance: The right software helps you keep pace with legislative change, with statutory rates built in and HMRC reporting ready to go. Cloud-based platforms can also keep your data secure, so look for recognised certifications such as ISO/IEC 27001:2022.
Is in-house payroll for you?
In-house payroll could be a good fit if:
- Your payroll experts spend too much of their time on spreadsheets, re-keying, and repeated checks.
- You’d like your team to focus on people rather than processes.
- You want to keep admin and reporting in-house, while making your processes simpler and staying compliant.
- You have at least two people who can run a full pay cycle.
Payroll outsourcing
What is payroll outsourcing?
A fully managed service goes a step further than in-house software. Instead of running payroll yourself, you hand the processing to a team of dedicated payroll professionals. You send the period’s changes, often through a cloud-based portal, and your provider calculates pay, produces payslips, files the FPS and Employer Payment Summary (EPS), produces reports, and usually makes the BACS payment to employees as a BACS Approved Bureau.
Year end, P60s, and P11Ds are typically included. Employee queries may or may not be, so that’s one of the first things to check on a quote. (Our guide to outsourcing payroll goes into more detail.)
What outsourcing doesn’t remove is the data. Someone in your business still needs to know who joined, who left, who changed hours, who went on maternity leave, who started salary sacrificing into the pension, and who’s getting a bonus this month. That person is a real cost, and they appear in almost no comparison of this question, so make sure you include their time when you compare the two routes.
What are the benefits of payroll outsourcing?
- Your dedicated team: Experienced payroll experts focus on getting your payroll right, so one person’s absence won’t hold up your pay run.
- Compliance support: Your provider keeps you up to date with legislative changes and takes care of HMRC reporting for you. (You’re still legally responsible for your PAYE obligations, which we cover below.)
- Fully flexible, fully scalable: The service adapts as your organisation grows or changes, and your provider has usually dealt with the unexpected many times before.
- Time saving: Once your data is in, calculations, deductions, payslips, and the rest of the pay run are largely handled for you. And when you have questions, you get answers from people who work on payroll every day.
Is payroll outsourcing right for you?
Outsourcing could be a good fit if:
- You feel on your own every time you press “run payroll”.
- Payroll expertise is hard to recruit, or you don’t have the know-how in-house.
- Your team is already stretched.
- Limited time or experience is increasing the risk of errors and non-compliance.
- Your employees are the ones spotting mistakes on payday.
The number that decides this, and why it’s usually understated
It’s common to see a payroll salary quoted as the in-house cost and left there. But that’s the gross salary, not what the person actually costs you.
In 2026/27, the cost of employing someone is their salary, plus employer National Insurance at 15% on everything above the £5,000 secondary threshold, plus a minimum employer pension contribution of 3% of qualifying earnings between £6,240 and £50,270.
| Gross salary | Employer NI at 15% above £5,000 | Employer pension, 3% minimum | Total employer cost | Uplift on salary |
|---|---|---|---|---|
| £28,000 | £3,450 | £653 | £32,103 | 14.7% |
| £42,000 | £5,550 | £1,073 | £48,623 | 15.8% |
| £55,000 | £7,500 | £1,321 | £63,821 | 16.0% |
The pension figure stops rising at £50,270 because qualifying earnings are capped there, which is why the uplift levels off at the top. If your scheme pays more than the statutory minimum, as most mid-market schemes do, the real number is higher again.
One caveat on the Employment Allowance. It’s £10,500 for 2026/27, and it reduces your employer NI bill, but it’s a single allowance for the whole business, not something you can attribute to the payroll team. If you already use it all up on your wider payroll (and at 200 employees, you will), it doesn’t reduce the extra cost of employing a payroll manager at all. So it’s best left out of this decision.
Leaving out that 15–16% uplift is one reason the break-even points you’ll see quoted for this decision tend to be low. Priced properly, the break-even sits considerably higher.
The true cost of in-house payroll, itemised
Here’s a worked example for a mid-market employer: a 320-employee monthly payroll on one PAYE scheme, with a payroll manager on £42,000 and a half-time assistant. The salary, licence rate, and cover days are example figures, so swap in your own.
| Cost line | Annual cost (example) |
|---|---|
| Software licence | £10,752 (example rate of £2.80 per employee per month) |
| Payroll salaries, 1.5 FTE | £63,000 |
| Employer National Insurance | £7,950 |
| Employer pension | £1,516 |
| Cover for holiday and sickness | £6,462 (20 days of interim cover at twice the day rate) |
| CIPP full membership | £239 |
| Year end and P11D contingency | £485 (three days of effort) |
| Total | £90,404 |
On top of this, add any costs from your own quotes, such as:
- BACS submission: The cost of a sponsored Service User Number and Bacstel-IP software, if you pay employees directly.
- Legislation training: Courses or webinars to keep your team up to date with changes each April.
- Implementation: The one-off cost of setting up new software, spread over the years you expect to use it.
What does outsourced payroll cost?
Managed payroll is priced per payslip or per employee per month, and the rate usually falls as volume rises. Published UK guides put typical fees at around £4 to £10 per employee per month, depending on headcount, complexity, and how much the provider takes on. (For smaller businesses, see our guide to the average cost of payroll services, or read more about outsourced payroll costs.)
Mid-market payroll software isn’t list-priced by anyone, ours included, because the licence depends on module scope, scheme count, and integration. That’s why the licence rate in our worked example is just an example, and it’s worth replacing it with whatever you’ve actually been quoted, which is the only figure that matters.
Three costs sit on top of the headline fee, and it’s worth getting them in writing before you sign:
- Additional PAYE schemes: These often carry their own minimum fee.
- Extras: Pension uploads, P60s, P11Ds, and ad hoc runs are sometimes charged separately.
- Your internal time: The person who gathers and approves the data doesn’t disappear. They just do less.
Cost per payslip is the only fair comparison
Outsourcing is quoted per payslip, so its unit cost is right there on the invoice. In-house is a licence plus salaries, so its unit cost is hidden, and almost nobody calculates it. Convert both, and the picture changes.
Take the 320-employee example above, at £90,404 a year in-house across 3,840 payslips. That’s £23.54 a payslip, before BACS, training, or implementation costs. Compare that with typical outsourced fees of around £4 to £10 a payslip for a monthly payroll, then add any extras and the internal time you’d keep. For most employers of this size, the gap is wide.
Now move to 2,000 employees. The salary bill barely moves, because a small payroll team can run 2,000 people almost as easily as 320. The licence rises with headcount, but the rate per employee usually falls, while the managed fee rises in a straight line with volume. Somewhere between those two, the answer flips.
So it’s always worth running your own numbers rather than relying on anyone’s break-even figure, that even includes ours!
Pay frequency changes the answer on one route only
This is the point most likely to change your conclusion, and it’s easy to miss. Payroll software is usually licensed per employee per month, but managed payroll is often priced per payslip. And a weekly paid workforce produces 52 payslips per employee a year instead of 12.
For the same 320-employee payroll, using example rates:
| Pay frequency | Payslips a year | Managed fee at £5 a payslip (example) | Software licence at £2.80 per employee per month (example) |
|---|---|---|---|
| Monthly | 3,840 | £19,200 | £10,752 |
| Four-weekly | 4,160 | £20,800 | £10,752 |
| Fortnightly | 8,320 | £41,600 | £10,752 |
| Weekly | 16,640 | £83,200 | £10,752 |
The licence column doesn’t move, but the managed fee more than quadruples.
If you pay a large weekly workforce, the in-house case is far stronger than headcount alone suggests, so push for better per-payslip pricing or ask for a fixed fee. If you pay monthly, the effect disappears entirely. Either way, check which basis you’re being quoted on before you compare two proposals, because a per-payslip quote and a per-employee-per-month quote aren’t directly comparable.
Who is liable to HMRC when you outsource
The answer is you, and there’s no grey area here. GOV.UK is clear that as an employer, you’re legally responsible for completing all PAYE tasks, even if you pay someone else to do them.
If your provider files the FPS late, the late filing penalty lands on your PAYE account, not theirs: £100 for 1 to 9 employees, £200 for 10 to 49, £300 for 50 to 249, and £400 for 250 or more. You may well have a contractual claim against the provider, and a good provider will cover it, but that’s a commercial recovery after the event, not a transfer of liability.
| Obligation | Who does the work | Who is liable | What you must still hold |
|---|---|---|---|
| Registering and maintaining the PAYE scheme | Employer, usually | Employer | PAYE and Accounts Office references, and scheme correspondence |
| FPS on or before payday | Provider | Employer | Proof of submission and the receipt each period |
| EPS by the 19th of the following tax month | Provider | Employer | Confirmation it was filed where reclaims apply |
| Paying HMRC by the 22nd | Employer, usually | Employer | The funds, and the reconciliation to FPS totals |
| Accuracy of the data supplied | Employer | Employer | Starters, leavers, hours, absence, changes, and approvals |
| Auto-enrolment assessment each period | Provider | Employer | Assessment output, opt-out records, and postponement notices |
| Declaration of compliance and re-declaration | Employer | Employer | The Pensions Regulator account and the declaration |
| National Minimum Wage compliance | Shared | Employer | Contracted hours, deductions, and working time records |
| Statutory payments and their evidence | Provider calculates | Employer | MATB1s, fit notes, and notice of leave dates |
| P60 to employees by 31 May | Provider | Employer | Confirmation of issue |
| P11D and P11D(b) by 6 July | Provider, if in scope | Employer | The benefit data, and the payrolling decision |
| Record retention for three years after year end | Shared | Employer | Your own copy, readable without the provider’s system |
| UK GDPR duties over payroll data | Provider is the processor | Employer is the controller | The processor contract, and your ICO position |
| Correcting an error and telling the employee | Provider corrects | Employer | The relationship with the employee (it’s your name on the payslip) |
Every row in the liability column says the same thing, and that’s the key point. Outsourcing removes the processing work and gives you the provider’s expertise, which is worth real money. But it doesn’t remove your name from HMRC’s records. If a provider suggests that compliance becomes their responsibility, ask them to confirm that in writing.
The reverse is just as true. Keeping payroll in-house doesn’t increase your legal liability, because you were already fully liable. What changes is who has the expertise to meet that responsibility. That’s a question of capability rather than liability, and the two are often confused.
For more on how responsibility splits between models, see our guide to payroll bureau vs. outsourced payroll.
The control trade-off between in-house and outsourcing
Control is where in-house payroll always comes out ahead, and it’s the hardest factor to put a price on. Here’s a balanced view, including the parts that don’t favour in-house.
| Question | In-house software | Fully managed |
|---|---|---|
| Can you run an off-cycle payment today? | Yes, within the hour | Usually yes, but often chargeable and subject to a cut-off |
| Can you correct a mistake before payday? | Yes, if you spot it | Yes, if you spot it and the deadline hasn’t passed |
| Who spots the mistake? | You, and only you | Both of you, and a good provider spots patterns across many payrolls |
| Live access to payroll data for reporting | Direct report writer access | Reports on the provider’s schedule and in its format |
| What happens when your payroll lead resigns? | The knowledge leaves with them | The process carries on |
| What happens when the provider’s account manager changes? | Not applicable | A handover you don’t control |
| Confidentiality of director and executive pay | Stays inside your business | Visible to named people at the provider |
| Speed of a legislative change | You wait for a software release, then apply it | Applied by the provider across every client |
In-house or outsourced?
Compare the fully loaded cost per payslip for both routes, not a licence against a fee. Then ask the questions the numbers can’t answer: do you have two people who can run a full pay cycle, and do you actually want to own payroll? If cost and fit point different ways, decide which matters more to your organisation.
Whichever route you choose, Cintra can help. Our payroll software gives in-house teams accurate, well-controlled processes, while our managed payroll service works as an extension of your own team. If you’d like to talk through which suits you, we’d be happy to show you around.
Payroll Software Buyers Guide
Download your payroll software buyers guide—covering everything you need to know in your buyers journey, including a handy checklist.
Frequently asked questions
Q. In-house or outsourced payroll: which is better?
A. Neither is better in every case. Outsourcing usually wins on cost per payslip for smaller and mid-sized employers paid monthly, and gives you resilience when your payroll person is away. In-house tends to win at larger headcounts, with weekly pay, or where you want direct control over off-cycle payments, reporting, and executive pay confidentiality. The fairest test is to compare the fully loaded cost per payslip for both, then weigh up control and resilience.
Q. Is outsourcing cheaper than in-house payroll?
A. Often, but not always. For smaller employers, outsourcing is almost always cheaper. Even at £10 per employee per month, a 200-employee payroll costs £24,000 a year, around half the £48,623 employer cost of a single payroll manager on £42,000. In-house becomes more competitive as headcount grows (because a small team can run a large payroll), with multiple PAYE schemes or genuine complexity, and especially with weekly pay, which produces 52 payslips per employee a year rather than 12.
Q. Should I outsource payroll?
A. It depends on your costs, your appetite for risk, and how much control you want. Outsourcing makes most sense if you have one payroll person and no reliable cover, if your fully loaded in-house cost per payslip is higher than a managed fee, or if you’d rather not keep up with legislation changes yourself. Keeping it in-house makes most sense if you have a resilient team, a large or weekly paid workforce, or a strong need for control.
Q. Does outsourcing payroll transfer the compliance risk?
A. No. As the employer, you’re legally responsible for all PAYE tasks, even when someone else does them, and late filing penalties land on your PAYE account. You may have a contractual claim against your provider, but that’s a recovery after the event.
Q. What does in-house payroll really cost?
A. More than the licence and the salary. Add employer National Insurance at 15% above £5,000, employer pension at a minimum 3% of qualifying earnings, cover for holiday and sickness, professional membership and training, BACS submission, year-end effort, and implementation. In our 320-employee monthly example, the core costs alone come to around £90,404 a year, or £23.54 a payslip.
Q. Can I switch back from outsourcing to in-house?
A. Yes, but it’s a migration project rather than a simple change of supplier. You’ll need a full data extract, including payroll IDs and year-to-date figures, and it’s far easier at the start of a tax year.
Q. Do I still need a payroll person if I outsource?
A. Yes, though not a full-time payroll specialist. Someone still needs to collect and approve each period’s changes, answer employee questions, and hold the statutory records. Any comparison that assumes this cost drops to zero is overstating the saving.
