Payroll pricing: can I save on fees by outsourcing to a payroll service?

Payroll service fees typically cost £20 to £50 per month for a team of five that’s paid monthly.

However, this ultimately depends on the business itself, and navigating the costs of different payroll service providers can be difficult when comparing like-for-like services and finding the best value for money.

With 26 years of experience supporting small businesses, this guide breaks down the key factors that affect payroll service costs. We’ll also explain the differences between fully managed and partially managed payroll solutions, and look into affordable alternatives like dedicated HR and payroll software.

The average cost of outsourcing payroll

The total cost of your outsourced payroll will depend on whether you need fully managed payroll or part-managed payroll.

The price of each service will differ, but on average, the costs for a company with five employees who are paid monthly* would be:

• Fully managed payroll – £5-£10 per payslip or £25-£50 per month
• Part-managed payroll – £3-£5 per payslip or £15-£25 per month

Most providers charge per payslip. If your employees are paid weekly, you will pay roughly 4x the cost of a business that runs payroll on a monthly payment schedule

UK payroll provider cost comparison

What factors impact payroll service costs?

The key factors that affect the cost of a payroll service include:

• Business size: most companies charge per-employee per-month (PEPM), but some providers offer cheaper rates to businesses with larger numbers of employees.
• Functionality: some providers charge extra for extra features, such as managing and auto-enrolling employee pension plans.
• Setup: some providers charge you to set up the service or to train your staff members on how to use the system.
• Integrations: any add-ons or managed services and functions, such as HR management and accounting, and they will increase the overall managed payroll cost.
• Type of service: fully managed or part-managed payroll, which both come with different price ranges.

What is the difference between fully managed and part-managed payroll?

One of the first key decisions is whether to choose fully managed or partially managed payroll, depending on how extensive you want the support to be.

Here’s a quick summary of both:

Fully-managed payroll

Fully-managed payroll is when every single aspect of your payroll is outsourced to your selected provider, from employee BACS payments to P60s. Some providers let you assign an employee to double-check pay runs before they are submitted, but clients have little involvement.

Part-managed payroll

A partially managed payroll means the processes are split, with some managed in-house and others outsourced. Usually, the more complex, time-consuming processes like end-of-year filing or HMRC reporting get outsourced. Simpler day-to-day tasks like submitting pay-runs are actioned in-house.

How much does a fully managed payroll service cost?

Completely outsourcing your payroll costs an average of £4-£15 per payslip (per employee), which equates to around £75 per month.

Many providers have a minimum fee of around £15-£20 per month, though this is usually just for payroll software or micro-bureau services (such as PAYE processing and basic payslip generation), whereas a professionally-managed payroll service would cost around £25-£40 per month.

Pension plan auto-enrolment is included as standard in some providers’ fully managed payroll services. Other providers tend to charge around £2 per employee per month. Some will also charge a setup fee of up to £2 per employee, whilst others won’t charge you anything at all.

What are the costs and benefits of part-managed payroll?

Part-managed payroll costs typically range from £2 to £3 per payslip per month, but can fall as low as £1 per payslip for micro businesses with up to five employees.

Part-managed is usually the cheaper option, but remember to factor in the costs of managing elements of payroll in-house.

In-house management can cost an average of about £35,000 to over £50,000 per year, depending on experience levels. This typically involves purchasing payroll software and paying your payroll specialist. Data indicates that payroll specialists with AI-augmentation competencies command premium salary tiers in 2026.

Which service is cheaper?

Part-managed payroll is the cheaper option, as providers tend to charge a lower price compared to their fully managed service, simply because they’re doing less of the work for you.

Just remember, you’ll need to factor in the costs of handling the processes you’re managing in-house. You can do this through:

• Payroll software, which starts at less than £10 per user, per month.
• Hiring a payroll specialist to do it: the average base salary of a payroll specialist in the UK is around £35,000 per year.

Why should I outsource payroll?

Outsourcing payroll to a provider can help you save time, reduce compliance risks, and improve accuracy.

Factors like Real Time Information (RTI) and pensions auto-enrolment can take years of training to properly understand – and lead to big fines if not properly followed.

Therefore, a good payroll provider will take care of the necessary details so that small teams can avoid time spent training an in-house payroll team or maintaining a costly payroll system.

However, for a cheaper alternative, payroll software can also help you stay compliant, such as sending alerts and notifications if an important filing hasn’t been made or key employee information is missing.

What is the cheapest way to manage payroll?

Running payroll yourself is cheaper than outsourcing to a payroll service, but it will require more time and manpower from your team.

However, if you still want to manage it yourself, payroll software is a great option for small businesses with moderately complex payroll needs.

There are some alternative strategies to minimise your payroll costs. For example, hiring part-time workers or independent contractors, or reviewing your payroll processes and employee benefits packages.

Can I manage my own payroll?

Yes, it is absolutely possible to manage payroll yourself. However, depending on your team size, this can become costly as you may need to hire multiple payroll specialists or advisors.

Therefore, you should either:

• Outsource your payroll entirely.
• Outsource your payroll partly and hire a specialist to manage things in-house.
• Use fully automated payroll software.

UK payroll provider feature comparison

How to choose the right payroll service

With a lot of options out there, finding the payroll service provider that best suits your specific needs can be tricky. Follow our simple payroll provider checklist to make sure you’re on the right path:

Step 1: assess your business needs

Confirm the size of your business, and the number of employees you have that a payroll service will be looking after. Are they all in-house staff, or do you also use contractors you’re responsible for paying?

Step 2: decide on the features you need

The features you need depend on factors like your pay structure and pay frequency, whether that’s weekly or monthly. Certain features, like HMRC compliance, are non-negotiable.

Step 3: consider whether you need HR support as well as payroll

You may also want support with HR, as well as payroll services. It will cost more, but having both your payroll and HR duties taken care of by the same provider will make the day-to-day running of your business far smoother.

Step 4: plan your budget

For a lot of small businesses, a part-managed payroll service will likely fit your budget better. While it’s possible to manage payroll for yourself in-house, you’ll still have to pay for specialist advisors to ensure you’re doing it correctly.

Step 5: compare quotes

Start gathering quotes from the top payroll service providers. Once you have a range of quotes, compare and contrast the fees and features of each provider to ensure you’re getting the best deal.

Are there free payroll solutions available?

Yes, there are free payroll software solutions you can use in-house, but they have significant limitations that make them inadvisable. Outsourcing your payroll, on the other hand, is very rarely free.

Free payroll software is only viable for a micro business with fewer than 10 employees.

For example, you can use HMRC’s free Basic PAYE Tools software, which performs basic payroll functionality. This lets you submit tax and National Insurance for your employees directly to HMRC. However, it may not handle mandatory real-time Benefits in Kind (BiK) reporting through payroll, which will be enforced from April 2027.

Similarly, some third-party payroll software providers offer a “free” tier with basic functionality but impose restrictive employee limits and feature limitations. For example, free software won’t integrate with your accounting software.

Managing payroll correctly is a serious responsibility for employers. Therefore, we’d advise that the peace of mind gained from a paid payroll service is well worth the cash investment.

Next steps: compare payroll service costs

Identifying the best value-for-money payroll service isn’t easy. Most, if not all, UK providers keep their payroll service costs hidden. So it’s crucial to gather a range of quotes to compare value and features between service providers.

If you’re looking to switch over payroll companies, but you’re unsure where to begin, you can use our payroll company switching checklist.