Payroll is a critical function in any business—but it doesn’t have to be handled in-house. In fact, more organisations are choosing payroll outsourcing to save time, reduce risk, and manage compliance. No more spreadsheet headaches or compliance nightmares!
But, of course, it comes with a cost. So, how much does it cost to outsource payroll? We’ll break down average pricing, hidden fees, and what you’re actually paying for.
Fully managed v Part managed payroll
With factors like company size to consider, businesses may require different levels of support. Luckily, there are different types of payroll outsourcing you can choose between:
- Fully managed payroll: Very much self-explanatory, fully managed payroll is where your chosen payroll provider handles every aspect of your payroll processes, from P60s to managing employee deductions.
- Part managed payroll: Unlike full managed payroll, part managed payroll allows businesses to remain control over certain areas of their payroll processes like submitting monthly payroll, only outsourcing time-consuming tasks like HMCR reporting.
As it requires more extensive support, fully managed payroll will be more the more costly option for businesses. But, when you weigh up the costs of keeping your payroll in-house, it can be a worthwhile investment—more on this later.
How much does payroll outsourcing cost?
The simple answer is that there’s no definitive figure you can pin to payroll outsourcing cost. There will be a variety of different costs associated with payroll outsourcing services and, depending on what type of outsourcing you choose, these will vary from provider to provider—including those that might seem ‘hidden’ from the offset!
For now, let’s get into what you need to look out for when choosing the best payroll partner for you; from the most common payroll cost structures and any additional costs you need to be aware of.
Price per payslip or per employee per month (PEPM)
Payroll outsourcing cost will largely depend on the size of your organisation, as most services work on a price per payslip basis. But there are economies of scale involved. So that translates to: the bigger your organisation, the greater your discounted rate per payslip.
Let’s look at an example of how that could work for fully managed, end-to-end payroll.
Say £6 is the average charge per payslip for a company with 1-25 employees (not forgetting a minimum charge is often in play, mostly effecting smaller organisations). This could potentially drop to £4.25 for a 501-1000 strong workforce. Or even as little as £3 if you employ over 1000 people.
There’s an acronym that you might see crop up as you research the cost of payroll services, and that’s PEPM (pronounced pep-M). It stands for ‘Per Employee Per Month’.
Everything revolves around numbers of employees and which actions are required for each of these employees, each month. Simply put, the more employees, the lower the PEPM cost.
If you pay employees weekly, you’ll likely pay considerably more because instead of economies of scale, you’re literally scaling up your payroll needs—from one pay run per month to four or five.
Some small organisations opt for a fixed price per month. Which is great when things stay the same month to month. But if you’re on- and off- boarding, dealing with bonuses, or complex pay structures including commissions, this just won’t work.
Set up costs
Now let’s talk about implementing your new payroll service. That can also carry a cost. You’ll also need to consider parallel processing as you embed your new system, as well as paying for any training you’ll need to get to grips with the ins and outs of your new payroll process.
Some providers charge their set-up costs on a per employee basis. For example, if you have 50 employees at a signing on fee of £10 per head, that’s £500.
When you choose to outsource, ask your provider. It’s a one-off fee, but you want to know what you’re looking at up-front.
Additional payroll outsourcing costs
There are some additional services which will come at an extra charge.
- Self-service: Lots of companies now choose an employee self-service option. This in itself might carry an extra cost depending on your provider, something like 10p per payslip, but it means that employees can see their digital payslips and payroll documents, along with updating their personal information and requesting leave.
- Additional service bolt-ons: Bolt-ons like timesheet management, expenses, and employee payments can all incur extra payroll costs. The good news is that they’ll generally be charged using the same economies of scale.
- Pensions: Auto-enrolment may or may not be included in your PEPM fee, so make sure you have total clarity here.
- Year-end reporting: Some providers charge extra for handling P60s, P11Ds, or year-end reconciliations required for HMRC compliance.
Integration costs
Finally, while you’re in the process of making changes, you might want to think about integrating your payroll and HR solutions—which might also come at an extra cost.
While it adds to your payroll outsourcing costs, it will save time and free you up to focus on the parts of the job you love. There’s an initial outlay, but the long-term results are worth their weight in integration costs.
What are the costs of keeping payroll in-house?
It can be hard to know if outsourcing is the right route for your business, especially if you want to keep some processes in-house. While payroll outsourcing isn’t free, it’s essential to consider in-house payroll costs, too. Let’s take a look at the main two in-house costs:
- Cost of skilled in-house payroll team: Maintaining an internal team requires recruiting, training, and retaining skilled professionals. This can be a costly process, including salaries, benefits, and ongoing training and development expenses.
- Mistakes and errors: In-house processing is susceptible to human errors. These errors can include mistakes in payroll calculations, late or incorrect payments to employees, and errors in reporting to HMRC. Such mistakes can lead to compliance issues, employee dissatisfaction, and penalties.
So, payroll outsourcing costs aren’t as significant as they might seem at first glance. By choosing to outsource, you can actually reduce the costs associated with your payroll:
- Dedicated outsourced team: Outsourcing your payroll means having access to a dedicated team of experts who specialise in payroll processing. They are less likely to make errors and can provide more accurate and timely services.
- Cost-efficiency: Outsourcing can be more cost-efficient as it eliminates the overhead costs of maintaining an in-house team. With outsourcing, you typically pay a fixed fee or cost per payslip, making it easier to budget for payroll expenses.
- Reduced risk: By outsourcing, you reduce the risk associated with in-house payroll processing. When mistakes occur, the responsibility often falls on the outsourcing provider rather than your organisation, which can protect you from costly liabilities.
But these aren’t the only advantages of outsourcing payroll. If you want a full refresher of what’s involved in payroll outsourcing services, check out: The Ultimate Guide to Payroll Outsourcing.
The payroll outsourcing costs are worth it
So, now you know what to expect regarding your payroll outsourcing cost, are you ready for the next stage of your search? We’d love to hear about your payroll needs.
In recent years we’ve invested over 10 million pounds into our services and technology in the last 3 years alone. We’re committed to providing the best service to our clients, so we’re constantly evolving alongside innovations in payroll. That makes us one of the most innovative user-focused systems available today.
We also work hard to make sure that we have an incredible team of payroll experts working with our clients to ensure that every payroll is effective, efficient, and fully compliant.
Why not book a demo to see Cintra Cloud and what it can do for your team?
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