Payroll service prices: how much does outsourcing your payroll cost?

In today’s business landscape, navigating payroll regulations is a daunting task. A reliable payroll service provider offers invaluable support. But the cost of these services varies widely. For a team of five that’s paid monthly, you can expect to pay anywhere from £20 to £50 per month.

The 2025/2026 tax year has begun, and with the recent HR laws taking effect (including a rise in National Insurance contributions), understanding the true cost of paying staff and how you can minimise spending has become even more critical. So, how do you get the most out of your payroll budget?

Below, we’ll cut through the jargon and provide clear insights into the factors influencing payroll service costs, and the nuances of fully managed and part-managed payroll. We’ll also explore cost-effective alternatives like specialist HR and payroll software.

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 that 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.

Factors impacting payroll service costs

Determining small business payroll costs can be complicated, but we can help you demystify them. The simplest way of doing this is by breaking down the key factors that will affect the price you pay, including:

• Business size: most companies charge a per-employee fee for payroll management. In payroll, you might often see this abbreviated to PEPM (per-employee-per-per-month). Naturally, if you have 100 employees compared to 50, you could be paying twice the cost to outsource your payroll regardless of whether the service is fully or part-managed. That said, some providers offer cheaper per-employee rates to businesses with larger numbers of employees.
• Functionality: the features you require from your payroll service will affect the price you pay. For example, some providers charge extra if you want them to manage and auto-enrol employee pension plans.
• Setup: not all providers charge setup fees, but some will charge you to set up the service, or to train your staff members on how to use the system.
• Integrations: you may want to add on and integrate other managed services and functions to your payroll service. These include HR management and accounting, and they will increase the overall managed payroll cost.
• Type of service: service providers tend to offer two levels of service: fully managed and part-managed payroll, which both come with different price ranges. On paper, part-managed payroll may seem like the cheaper option, but it could actually end up costing you more.

Fully-managed vs. part-managed payroll

One of the first decisions you’ll need to make when choosing a payroll service provider is how extensive you want the support to be. Essentially, businesses can choose between either fully-managed or part-managed payroll.

Here’s a quick summary of them both:

Fully-managed payroll

Every single aspect of your payroll is outsourced to your selected provider, encompassing everything 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

The processes are split up, with some of your payroll processes managed in-house while others are 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.

Fully managed payroll prices and benefits

Completely outsourcing your payroll can be the most expensive option for your business, costing an average of £5-£10 per payslip (employee) each month. However, it takes all of the pressure and responsibility of payroll off your shoulders, allowing you to focus on the core elements of the business.

Many providers have a minimum fee of around £15-£20 per month. Some will also charge a setup fee of up to £2 per employee, whilst others won’t charge you anything at all (you can clarify this when receiving personalised quotes from our free, no-obligation payroll price comparison tool).

Pension plan auto-enrolment is included as standard in some providers’ fully managed payroll services, including some featured in our list of the top payroll service providers. Other providers tend to charge around £2 per employee per month.

Part-managed payroll prices and benefits

Giving a clear estimate part-managed payroll costs can be very tricky, as it really depends on the specific payroll processes you’ll manage in-house and which ones you want to outsource to your payroll provider. Whatever you decide, you’ll be charged monthly.

The cost typically ranges from £2-£3 per payslip per month. However, it can cost as little as £1 per payslip for micro businesses with up to five employees.

Part-managed is typically the cheaper option, but remember to factor in the costs of managing elements of payroll in-house. This will involve purchasing payroll software and paying your payroll specialist (around £20,000-£45,000 per year).

Which service is cheaper?

Typically, you’ll find that part-managed payroll is the cheaper option. Payroll providers tend to charge a fraction of the 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 with payroll software, which starts at less than £10 per user, per month.
• Or by hiring a payroll specialist to do it: the average salary of a payroll specialist in the UK ranges from £20,000-£45,000 per year. 

Why should I outsource payroll?

Plainly, you’ll be handing over one of the most complex areas of employee management to a third party. They can take care of the necessary details, and small teams can avoid time spent training an in-house payroll team or maintaining a costly payroll system.

The UK tax system is complex: SMEs are already snowed under by red tape, and legislation can change frequently. 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.

Outsourcing your payroll is an easy way for business owners to get peace of mind – but it’s not the only way. Payroll software, which tends to be cheaper, can also help you stay compliant, 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 typically cheaper than outsourcing to a payroll service. You’ll also have complete control over the process, but keep in mind that this will require more time and manpower from your team.

If you’re keen on the DIY approach, then payroll software is a great option for small businesses with moderately complex payroll needs. Some of the best payroll software brands are IRIS, Moorepay, and PayEscape.

Just bear in mind that payroll is one of the most critical functions for small businesses. While a DIY approach might tempting, it can pay to spend money on a more expensive, but more comprehensive, solution.

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. But, depending on your team size, this can become pretty costly as you may need to hire multiple payroll specialists or advisors. It could be cheaper to either outsource your payroll entirely, or outsource it partly and employ one payroll specialist to manage things in-house.

Of course, a simpler option – which will greatly reduce in-house payroll management costs and negate the need for a large payroll team – is using fully automated payroll software.

With costs starting from less than £10 per user, per month, using payroll software is often the cheapest way to manage your payroll in-house.

What does payroll software do?

Simply put, payroll software assists you in organising, managing and automating employee payments. Businesses with very simple needs could also potentially use a free payroll software.

The role of payroll software is to ensure you remain compliant with tax regulations and the requirements set out by HMRC. It also streamlines and automates payroll processes, so you can save time and reduce the cost of employing a large team of payroll professionals and administrators.

If that sounds like the ideal solution for your business, check out our guide to the top payroll software providers. You could even potentially manage your people and finance departments simultaneously with HR and payroll software.

Try our number one recommended payroll software:

Try Rippling It came top in our latest round of payroll testing.

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 with that in mind, our payroll service costs comparison tool is the best way forward.

We’ve partnered with some of the best payroll service providers to help you get the best service for your business, including the likes of IRIS, Moorepay and Pecunia.

Simply provide us with a few basic details, and providers will be in touch with personalised quotes for you to compare, along with further details about why the service they offer would best suit the needs of your business.