Payroll services cost explained – how much does payroll outsourcing cost? Average prices guide

Payroll outsourcing is an attractive solution for many UK businesses looking to streamline their operations, ensure compliance with tax laws, and reduce the administrative burden associated with payroll management. However, one of the primary considerations before making the shift is understanding the cost implications. This guide aims to provide an overview of the cost associated with payroll services in the UK, helping businesses make informed decisions.

What is payroll outsourcing?

Payroll outsourcing involves hiring an external company to handle all payroll-related tasks, including calculating pay and deductions, complying with taxation laws, and issuing payments to employees. Outsourcing can also cover additional services like pension administration, benefits management, and HR tasks.

Factors affecting payroll outsourcing costs

The cost of outsourcing payroll can vary widely depending on several factors:

1. Company size: Generally, the larger the company, the more complex the payroll process, leading to higher costs. However, economies of scale may mean the cost per employee can decrease as employee numbers increase.
2. Frequency of payroll: Businesses that run weekly payrolls may incur higher costs compared to those processing monthly payrolls due to the increased frequency of calculations and transactions.
3. Complexity of payroll: Companies with complex payroll requirements, such as those with various employee types, benefit schemes, or commission structures, will face higher costs. Complexity also increases with employees in different tax brackets or with varying contractual arrangements.
4. Additional services: Some payroll providers offer comprehensive packages that include HR support, auto-enrolment for pensions, and custom reports, which can affect the pricing.

Average cost of payroll services outsourcing

Understanding the average costs involved in payroll outsourcing is crucial for budget planning. Here are some typical pricing structures:

1. Per employee, per month (PEPM): This is the most common pricing model where businesses are charged a base fee plus a fee per employee. This rate can vary from £2 to £10 per employee, depending on the level of service required.
2. Fixed monthly fee: Some providers charge a fixed monthly fee regardless of the number of employees. This model is less common and typically used by businesses with a stable employee count.
3. Additional fees: Set-up fees, year-end processing fees, and charges for additional services (like custom reports or integrated HR systems) can apply.

Payroll services price examples

• Small business: A small business with up to 10 employees might pay around £50 per month for basic payroll services, including tax calculations and payslip generation.
• Medium-sized enterprise: A company with 100 employees could be looking at £200 to £500 per month, depending on the complexity of their payroll and additional services included.
• Large corporations: For large corporations with over 500 employees, the costs could range from £1,000 to several thousand pounds per month, heavily influenced by specific needs and contract terms.

Benefits of payroll outsourcing

While cost is a significant factor, it is important to consider the benefits of outsourcing payroll:

1. Compliance: Payroll providers are experts in staying up-to-date with changing tax laws and employment legislation, significantly reducing the risk of non-compliance and associated penalties.
2. Efficiency: Outsourcing payroll can free up internal resources, allowing staff to focus on core business activities.
3. Accuracy: Professional payroll services help to ensure payments are accurate and on time, enhancing employee satisfaction.
4. Scalability: Outsourced payroll services can easily scale with your business, accommodating fluctuations in employee numbers without the need for internal infrastructure adjustments.

Choosing the right provider

Selecting the right payroll provider is crucial. Businesses should consider factors such as provider experience, technology used, security measures, customer service quality, and flexibility. It’s advisable to request detailed proposals from several providers and compare them to ensure the best fit for the company’s needs.

Conclusion

The cost of outsourcing payroll in the UK can vary significantly based on various factors, including the size of the company, payroll complexity, and additional services required, but as a general rule you should expect to pay between £2 to £10 per month per employee.

By understanding these costs and weighing them against the potential benefits, businesses can make an informed decision that aligns with their operational needs and budget constraints. Outsourcing payroll can not only ensure compliance and accuracy but also allow businesses to focus on strategic growth areas.

As an alternative to payroll outsourcing, see our guide to best payroll software.

FAQ – Payroll services outsourcing costs