How Much Does It Cost to Outsource Payroll in 2024?

The cost of outsourcing payroll will typically range from £2 to £25 per employee, per month. You’ll also pay a bit more if you opt for additional payroll services like integrated HR and pension plan auto-enrolment.

As most major players in the payroll industry work with bespoke pricing, it’s wise to compare quotes. This is the best way for you to get an accurate price and make sure you choose the best deal. Our free comparison tool can match you with trusted providers, who’ll assess your needs and provide quotes that have been tailored to your business, which makes comparing payroll costs easy.

In the midst of a cost of living crisis, it’s important to understand your potential outgoings and protect your reputation by paying your team on time. Read on to learn more about what you’ll pay for outsourcing payroll services.

All prices correct as of January 2024. 

What do payroll costs include?

Payroll costs include all of the costs involved with paying your employees. This is made up of employee salaries, payroll taxes, and administration fees.

When outsourcing to a payroll provider, you’re paying them to pay your employees on time, file the relevant taxes, and keep your business compliant. This will set you back around £2 – £8 per employee, per month.

How much does payroll software cost?

This article primarily discusses the costs of payroll outsourcing, also known as payroll services. However, using payroll software is also an option, enabling you to manage your payroll in-house using an intuitive tool that can automate processes such as payroll runs, tax deductions, and HMRC reporting. Often, paying for payroll software ends up cheaper than paying to outsource your payroll, so it’s worth considering.

Some payroll software providers charge bespoke prices, which are offered on a case-by-case basis – Moorepay, which we recommend for the payroll expertise it offers, is one such provider.

However, other software providers do have set plans. Rippling, for example, is an affordable option starting at £7 per user, per month. It comes with highly customisable features and reports, and automated compliance assistance.

What are the types of outsourced payroll?

To understand how much outsourcing payroll will cost your business, you need to first figure out what type of outsourcing is best for you. To find the correct service for your business, check out our guide to the best payroll companies in the UK to find one that’s suited to your payroll needs.

There are two major types of outsourced payroll service: fully managed and part managed.

• As the name suggests, a fully managed payroll 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. 

Part-managed payroll solutions are usually cheaper because you’re not paying for the full service. With this option, 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 year-end reports.

Not every payroll company provides both, so by all means double-check the services available when choosing your provider. To help you, we’ll look at the costs of each.

How much does a fully managed payroll service cost?

Outsourcing to a fully managed payroll service is split into four areas, each of which come with a cost. These are:

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

1. Payroll service

A fully managed payroll service will cost around £4 – £6 per employee, per month if you employ between one and 10 people. The larger your workforce, the lower this individual cost becomes, and organisations with over 250 employees can pay as little as £3.50 per employee, per month.

2. Setup costs

Setup costs may also apply, although these are typically nominal – about £2 per employee.

3. Pension plan auto-enrolment

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 as this is an area where some payroll providers tend to overcharge.

4. HR integration

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. 

The pros and cons of fully managed payroll services

How much does a part-managed payroll service cost?

Part-managed payroll service costs are even harder to pin down. This is 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. 

The pros and cons of part-managed payroll services

Are there any hidden fees in outsourced payroll?

Payroll services can look daunting. Luckily, there are no hidden fees when it comes to using them. The main reason for this is that most companies in this field work with bespoke pricing, so they effectively list all of their charges to you.

All of this will be documented, so if any charge differ from the agreed further down the line, you can always query them.

Why should I outsource payroll?

Outsourcing your business’ payroll will save you time and effort, but it will also afford you greater flexibility than if you keep it totally in-house. This is because you can either select a fully managed payroll service, or just the parts of the service that suit you.

It also greatly reduces payroll fraud, and removes the risk of fines for failing to report your key figures.

Could I manage payroll in-house?

Yes, you could. 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 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. If your payroll head calls in sick, or goes on leave, then your payroll services stop with them.

An alternative but similar option is to use a cloud-based payroll software solution. This way you won’t need in-house expertise but instead can rely on online tools and software to process your payroll and ensure you stay compliant.

If you’re interested in giving payroll software a go, we recommend Rippling. Its customisable features and reports, and its compliance measures, impressed our software researchers during our latest round of testing. Starting at £7 per user, per month, it’s affordable, too.

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 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. Or, if you’re a very small business or startup and don’t have a big budget right now, you could try your hand at free payroll software. 

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 be free, or they’re available on a paid subscription plan. In-house payroll services costs will vary and this is dependent 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 between £100 – £200 per month.

Is in-house payroll management worth it?

The short answer is no, it’s not. Managing payroll in-house is not only a less efficient, 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.

That said, using payroll software instead of outsourcing your payroll is very much a viable option, and could be a better solution for businesses on a budget.

Important payroll dates recap

Key deadlines occur throughout the year and it pays to keep on top of them to avoid HMRC’s hefty fines – especially if you opt for a part-managed payroll system, which means you’ll still be responsible for some payroll duties.

To help you out, here’s a brief recap of the most important upcoming 2023/24 payroll dates:

• 6 April

– New 2023/24 tax year begins.

• 6 April 

– Your employee payroll must be up to date for the new tax year.

•  6 July

– Deadline for expenses and benefits report to the HRMC.

– Deadline for P11D and P11D(b) forms submission.

• 19 July

– Deadline for Class 1A National Insurance contributions on benefits in kind payment (if you’re not using digital systems to do so).

• 22 July

– Deadline for Class 1A National Insurance contributions on benefits in kind payment (if you’re using digital systems to do so).

Next steps

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, how often you pay your staff, and 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!