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How Much Does It Cost to Outsource Payroll?

If you’re considering outsourcing your payroll services, chances are you’ve asked yourself “how much does a payroll company cost?” Despite the additional cost for your business, many companies find that outsourcing payroll saves them both time and money. So, how much does it cost to outsource payroll? We’ve crunched the numbers, so read on to find out whether this admin-busting innovation is the right choice for your business.

What costs are associated with payroll?

When it comes to outsourcing payroll, there are a couple of key areas that eat into your budget:

  • Payroll service – The main cost is the actual payroll service itself, in other words, distributing paychecks, keeping financial records, and recording an employee’s total earnings within the fiscal year.

  • Setup – There are also setup costs to consider, which accounts for the cost required to set up your company’s payroll system.

  • Pension plan auto-enrolment – Sometimes, auto-enrolment for pension plans is rolled into the cost of outsourcing payroll, which can lead to higher fees.

  • HR integration – On top of all the other costs, there may also be a fee for HR integration.

What’s the average cost of outsourcing payroll?

There are a couple of different ways to outsource payroll, but one of the most common is a ‘fully managed service,’ which means that your entire payroll function is outsourced to a third-party. This provider will deal with HMRC on your behalf and handle payroll-related queries from your staff. So, how much do payroll companies charge per employee? Well, the cost of outsourcing payroll services will depend on a couple of different factors, but on average, you can expect to pay the following amounts for a fully managed payroll service:

  • Payroll service per month – £4-£6 per employee

  • Setup per month – £2 per new employee

  • Pension plan auto-enrolment per month – £1.50-£2 per employee

  • HR integration per month – £10-£25 per employee

As you can see, the average cost of outsourcing payroll is highly dependent on the number of employees you have working for you. Larger workforces can expect lower costs, so while small businesses may be spending £4-£6 on payroll services for each employee per month, a much larger company could be spending as little as £3.50 per employee.

What is the cost of outsourcing part managed payroll service?

In contrast to fully managed payroll services, a part managed payroll service essentially means that certain parts of your payroll are outsourced, while other parts will remain in-house. This means that it can be difficult to determine the exact cost of outsourcing payroll services, as it depends on which parts of the service have been outsourced and which parts remain in-house. However, most businesses can expect to pay around £2-£3 per employee, per month for part managed payroll services.

How much would it cost to manage payroll internally?

If outsourcing payroll doesn’t appeal, you could handle it in-house. However, there are a couple of reasons why this may not be the most practical choice for your business. Number one, you’ll need dedicated staff with payroll experience, and even if you do have staff with the right expertise, handling payroll for businesses with 10+ employees can be a very time-consuming task.

Secondly, the costs associated with managing payroll internally can often outweigh any potential savings on outsourcing this function. In-house payroll software can run to £200 per month (for those who need to handle an unlimited number of employees), and even at the lower end, you may need to pay as much as £50 per month just to handle payroll for 1-15 employees.

Overall, running payroll in-house is time and cost-intensive, making outsourcing a better, more efficient option. According to Sage, UK workers already spend around 120 working-days per year on administrative tasks. By outsourcing payroll, you can ensure that your employees are spending time ‘on’ your business, rather than ‘in’ your business.

And it’s not just the comparatively lower cost of outsourcing payroll in the UK that you need to consider, it’s also the added sense of security and certainty. By outsourcing, you’re making certain that payroll will always be handled, and there’s no need to worry about what happens if your dedicated payroll employee gets sick or lands a new job.

We can help

If you’re considering outsourcing your payroll service, it may also be a good idea to consider taking your payments system to the next level. Find out more about how GoCardless helps to take recurring payments and invoice payments.

Interested in automating the way you get paid? GoCardless can help

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