Outsourced Payroll Services – How Much Do They Cost?

Making the decision to outsource your payroll service is often an easy one to make. Once the time, resource and cost of administering the function becomes unmanageable, it’s often better to reassess what you do in-house and commission a managed payroll provider.

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Business process outsourcing is becoming increasingly fundamental to performance. Technology is driving that trend, but so too is a recognition that an organisation simply must concentrate on those core operations which keep it competitive.

How Much Will It Cost?

The key question which will tip the balance either way, is how much outsourcing payroll services will cost. Managed services are generally customised to individual business requirements and vary from firm to firm, but there are some quick calculations you can make to weigh up the benefits.


As a simple reckoning, get a quote per head from a payroll provider. Then multiply that figure by how often you pay your staff each year and times it by your number of employees to estimate your payroll services cost. If that figure is less than you currently pay for your own payroll staff, then it’s worth proceeding with the outsourcing decision.

The Key Costs To Look Out For

The key factors which determine how much a managed payroll service costs will typically be influenced by the size of your organisation and the number of people in your workforce.


Most providers will charge some sort of set-up cost, and large ones may typically require a greater up-front outlay due to having their own overheads to cover and perhaps shareholders to satisfy. As a broad indication, a set-up cost should usually be under £10 per head.


The cost of actually running your payroll service will also vary considerably depending on the make-up of your organisation and the provider who you obtain a quote from. Again, as a general rule of thumb, you shouldn’t be paying more than around £5 per employee for running costs.


Additional charges to watch out for include those for enrolling new staff members and some providers can charge significant sums for this. As an estimate, this shouldn’t cost more than around £2 per head. Some companies will also add an admin charge for individuals leaving the company.


Finally, you’ll need to consider what reporting requirements you might have and factor these into the cost-benefit equation. Providers will often charge to produce reports and watch out for substantial “year-end” costs. These should not be excessive, given the new streamlined methods by which HMRC require information, though there may also be an outlay required for producing P60s and so forth.


Failing to pay your employees correctly each month is one of the single biggest dangers to workplace relations. Not only does it impact on staff performance and morale, but it takes time and effort to identify the cause of the mistake in the first place and then put it right.


The cost of all this can be difficult to quantify, but for a small firm with 10 employees, a monthly cost may be around £50. For a larger firm with 1,000 employees, it could be £1,500 a month. To put it simply, if payroll is giving you or your staff a headache each and every month, the decision to outsource is usually a no-brainer.

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A Free Guide To Outsourcing Your Payroll