How Much Does it Cost to Outsource Payroll?

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Learn more about the costs of outsourcing payroll, and choose the option that’s right for your business

There are lots of enjoyable things in this world – beach volleyball, large glasses of Argentine malbec, hot bubble baths. Doing your own payroll, though, isn’t one of them. 

Not only is it not much fun, but it’s also a time-consuming, expensive, and inefficient way of paying your staff.

That’s why almost two thirds (61%) of UK businesses already outsource their payroll. And we don’t blame them – outsourcing payroll is cost-effective, secure, and accurate to the letter (or in this case, the number). It also eliminates payroll fraud, and removes the risk of fines for failing to report your key figures – giving you not only more time, but more peace of mind, too.

But how much can you expect to pay to outsource your payroll? Let’s take a look.

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How much does payroll outsourcing cost?

The cost of outsourcing payroll typically ranges from £2 to £6 per employee, per month. You'll pay a bit more if you opt for additional payroll services like integrated HR and pension plan auto-enrolment.

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Don’t struggle with software, spreadsheets, or stuffed ring binders – save time and energy by outsourcing your payroll

Outsourcing your business’ payroll not only saves you time and effort, but also affords you greater flexibility than if you keep it totally in-house. That’s because you can either select a fully managed payroll service, or just the parts of the service that suit you.

As the name suggests, a fully managed service involves the complete outsourcing of your payroll to a third party payroll provider. The provider liaises with HMRC on your behalf, while responding directly to any payroll queries from your staff. 

A part managed payroll service lets you outsource certain parts of your payroll, while keeping other bits in-house. It’s a pick-and-mix approach that offers more versatility than a fully managed service. 

With a part managed service, you’ll remain in control of the straightforward day-to-day processes, such as maintaining employee records and updating wage information. However, your payroll services provider will take care of the trickier stuff, such as keeping you HMRC compliant and filing your end-of-year reports.

Did You Know?

If you employ 250 or more employees, you’re legally required to provide HMRC with your ‘gender pay gap’ data. Outsourcing your payroll ensures your reports stay up to date, and that you steer clear of hefty fines.

Part managed payroll solutions are usually a bit cheaper as well, as you’re not paying for the full service. So just what are the costs of outsourcing payroll? Let’s take a look.

How much does a fully managed payroll service cost?

Payroll service£4 – £6 per employee, per month
Setup£2 per employee, per month
Pension plan auto-enrolment£1.50 – £2 per employee, per month
HR integration£10 – £25 per employee, per month

Outsourced managed payroll services are typically priced on a monthly basis, with pricing based on the number of staff that you employ. Payroll service costs also depend on the frequency with which you pay your staff

A fully managed payroll service will cost around £4 – £6 per employee, per month if you employ between one and ten people. The larger your workforce, the lower that individual cost becomes, and organisations with over 250 employees can pay as little as £3.50 per employee, per month.

Setup costs may also apply, although these are typically nominal – about £2 per employee. Auto-enrolment of your staff into pension plans will also incur a fee, although it shouldn’t exceed £1.50 – £2 per employee. If it does, you should be asking some questions – auto-enrolment is an area where some payroll providers tend to overcharge.

If you want integrated HR and payroll management rolled into one service, you can expect to pay more – anywhere between £10 and £25 per employee, per month

Remember – the cost of outsourcing your payroll services will always be tailored to the size of your business, and how often you pay your staff. It’ll cost more, for instance, to manage payroll when you pay your staff weekly, rather than monthly. The prices here are close estimates, but to get a more specific idea of costs, you’ll need to enquire directly with a provider.

Here’s where we can help. Simply complete our quick quote-finding form – it takes less than a minute, and you’ll receive tailored quotes from top managed payroll service suppliers in the UK.


  • Completely hands-off approach to payroll
  • Minimises the risk of fines for failing to report information to HMRC


  • Outsourcing leaves you vulnerable to doing business with a less reputable firm

How much does a part managed payroll service cost?

Part managed payroll service costs are even harder to pin down. That’s because the fees here are also dependent on which services you want to outsource, and which ones you’re happy to handle in-house.

As a general rule, though, you should pay around £2 – £3 per employee, per month for the managed service. However, you’ll still need to consider the costs of keeping other services in-house. These include wages, and payroll software to help keep you (or your accountant) on top of all the admin. 


  • Flexibility
  • Can be less expensive than a fully managed service
  • Customer support available from experienced payroll professionals


  • You’ll still need some degree of expertise to handle the in-house parts of the job
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Could I manage payroll in-house?

Yes, you could… theoretically. However, you’ll want dedicated staff with experience in payroll, or you'll at least need to have some expertise yourself. If you don’t have either, and employ more than about five people, it’s likely you’ll quickly find in-house payroll management to be an overwhelming task

Plus, hiring someone to do your payroll in-house is a less reliable solution than outsourcing is. If your payroll head calls in sick, or just decides to up sticks and take off on an all-inclusive trip to the Caribbean, then your payroll services stop with them.


  • Complete control over your own payroll


  • More expensive
  • More time-consuming
  • Requires payroll expertise
  • Less reliable

Who is in-house payroll management for?

In-house payroll management is usually favoured by very small businesses, such as those with fewer than four or five employees. 

That said, in-house payroll management is also well-suited to businesses at the other end of the scale. Big businesses – well, the ones that can afford to maintain a fully functioning accountancy department – may choose to keep payroll in-house, too.

If your business is at neither end of the spectrum, you’re better off outsourcing your payroll

How much does in-house payroll management cost?

In-house payroll usually comes in the form of a software package from a provider like Moneysoft or Iris. These can either be free, or available on a paid subscription plan. In-house payroll services costs vary depending on the number of staff you employ, and the level of features you require.

In-house payroll software costs start at around £25 – £50 per month for businesses with between one and 15 employees. Businesses with over 50 employees can expect a monthly cost of around £80, while software for an unlimited amount of employees will set you back a figure of £100 – £200 per month.

Is in-house payroll management worth it?

Well, if we’re honest, the short answer is… no, it’s not. 

Managing payroll in-house is not only a less efficient, more time-consuming way of doing things, but it leaves you at greater risk of penalties and fines. It’s a less secure, less legally compliant way of paying your staff – and it’s more financially costly, too.

Next steps

So, what now? Well, it’s important to remember that the costs of outsourcing payroll can vary wildly. What you’ll pay depends on the type of service you need, the size of your business, and how often you pay your staff – not to mention the payroll service provider you choose

To get the best idea of the exact costs you can expect to pay to outsource your payroll, take advantage of our free quote-finding form. Take a minute, enter a few details about your business, and you’ll receive tailored quotes from top payroll service providers that can cater to your unique needs. It’s that easy!

Rob Binns Expert Market
Rob Binns Senior Writer

Rob writes mainly about the payments industry, but also brings to the table industry-specific knowledge of CRM software, business loans, fulfilment, and invoice finance. When not exasperating his editor with bad puns, he can be found relaxing in a sunny (socially-distanced) corner, with a beer and a battered copy of Dostoevsky.