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

Is paying a third-party to manage your company payroll worth the money? Learn about payroll outsourcing costs and hidden fees.

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Written and reviewed by:
Helena Young

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The cost of payroll services can vary wildly but, on average, a company can expect to pay £10-£25 per month depending on the level of service they need.

Finding a payroll service provider with transparent pricing is important in today’s economy, amid rising overheads, a cost of living crisis, and record wage increases. It’s especially timely now, with the next financial year, starting in April, due to bring lots of changes to payroll and wage packets.

Compare Costs on Payroll Software & Services

For a handy price comparison that could save you time and money, we recommend taking a moment to get personalised payroll service pricing quotes for your business by using our bespoke price comparison tool. This service is free, takes just minutes, and involves zero obligations on your part.

In this payroll service pricing guide, we’ll consider all these factors and delve deeper into the costs of fully managed and part-managed payroll. We’ll also explain more cost-effective payroll management options, such as 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 will be:

  • Fully managed payroll – £4-£6 per payslip or £20-£25 per month
  • Part-managed payroll – £2-£3 per payslip or £10-£15 per month

Factors impacting payroll service costs

Determining small business payroll costs can be complicated. There are several factors that will affect the price you pay, including:

  • Business size: most companies charge a per-employee fee for payroll management. 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: some providers will charge you a fee 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.
Key payroll service changes for FY 2024/25

  • National Insurance (NI): from January 6, 2024, the primary Class 1 NIC rate has been reduced from 12% to 10%, impacting payroll calculations
  • Student loan changes: the threshold for paying back student loans on the Student Loan 4 plan for April 2024 has been increased to £34,000
  • National Living Wage (NLW) and National Minimum Wage (NMW): rates for the NLW and NMW will increase for all age groups
  • Spring Budget 2024: the Spring budget is scheduled for March 6, 2024. It may introduce further changes to payroll taxes and allowances

Fully-managed and part-managed payroll – what’s the difference?

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. Businesses can choose 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: 50% of your payroll processes are outsourced, and 50% are managed in-house. 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

Payroll Service£4-£6 per employee, per month
Setup£0-£2 per employee
Pension plan auto-enrolment£0-£2 per employee, per month
Integrations (HR & Accounting)£10-£25 per employee, per month

Completely outsourcing your payroll can be the most expensive option for your business, costing an average of £4-£6 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.

Some providers will 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.

The benefits of fully managed payroll include:
  • Regular support from dedicated payroll specialists, ensuring that any questions you or your staff have regarding salaries are answered quickly and efficiently.
  • Advice from professionals with a clear understanding of the ever-changing tax landscape in the UK, ensuring full compliance when your year-end payroll is filed with HMRC by your payroll provider.
  • Complete transparency on all matters pertaining to payroll, so you can see exactly where every penny is being spent.
  • A full and comprehensive breakdown of any deductions from an employee's gross salary, and any calculation amendments that may be necessary, all detailed on their payslip.
  • Additional documentation that an employee may need to present to a government body, including their annual P60.
  • The processing of payments directly to employees via BACS payments.

Part-managed payroll prices and benefits

Payroll service £2-£3 per payslip, per month
Pension plan auto-enrolmentVaries
Integrations (HR and accounting)Varies

Estimating part-managed payroll costs is difficult as it depends on which payroll processes you will manage in-house and which ones you want to outsource to your payroll provider. Whatever you decide, you will 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 usually the cheaper of the two service options, but remember you’ll need to factor in the costs of managing elements of payroll in-house, which will involve purchasing payroll software and paying your payroll specialist (around £20,000-£45,000 per year).

The benefits of part-managed payroll include:
  • Flexibility to pick and choose the processes you want your payroll provider to manage. Whether you’d prefer to manage the smaller, simpler admin tasks in-house, or even the bigger tasks, it is entirely up to you and your preferences.
  • Versatility to prioritise other payroll tasks and projects whilst your payroll provider deals with time-consuming admin processes, freeing up your payroll team’s time and cutting down on payroll processing costs.
  • Streamlined communication with your payroll provider so you can get help if your payroll team requires assistance or additional support.

Which service is the cheaper option?

Typically, you’ll find that part-managed payroll is the cheaper option. For this, payroll providers tend to charge a fraction of the price of their fully managed service, simply because they’re doing less of the work for you.

However, if you’re using a part-managed payroll service, you’ll need to factor in the costs of handling the processes you’re managing in-house – whether you want to 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, so be sure to keep this in mind.

But what about the specific costs and benefits associated with both fully managed and part-managed services? Let’s delve into these next.

Payroll services: what else can I get?

Some payroll service providers also take care of Human Resources (HR) functions. For an estimated cost of £25 per employee, per month, providers like IRIS can oversee:

Why should I outsource payroll?

Outsourcing your payroll to a specialist is more efficient than managing in-house. Plainly, you’ll be handing over one of the most complicated 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.

Payroll service providers are advantageous to UK businesses, given the complexity of our tax system. SMEs are already snowed under by red tape, and legislation can change often. 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.

Can I manage my own payroll?

Yes, it is absolutely possible to manage payroll yourself. But, depending on your team size, this can prove costly as you may need to hire multiple payroll specialists or advisors. It may prove 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 – as an example, Rippling starts at £7 – using payroll software is often the cheapest way to manage your payroll in-house.

What does payroll software do?

Payroll software is an application that assists you in organising, managing and automating employee payments. It can either be an on-premises or cloud-based solution, but is typically cloud-based. Free payroll software is also available.

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.

Rippling logo
Rippling is one of our top recommended payroll software solutions
Try Rippling From £7 per user, per month

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. But there is an incentive to start soon, with the new financial year due to start on April 1.

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.

Frequently Asked Questions
  • What's the cheapest way to manage payroll?
    Running payroll yourself using software is typically cheaper than outsourcing to a payroll service, although it does require more time and effort than outsourcing. Software is a great option for small businesses with moderately complex payroll needs, offering affordable monthly fees, as well as automated calculations and tax filing. The best examples include QuickBooks and Gusto.
  • How do payroll service contracts work?
    Payroll service contracts can take two forms: fully-managed or part-managed. Fully-managed payroll is more expensive as every single aspect of your payroll is outsourced to your selected provider. In part-managed payroll, the more complex and time-consuming tasks are outsourced, while simpler day-to-day tasks like submitting pay-runs are actioned in-house.
  • Does payroll outsourcing come with hidden fees?
    As well as upfront outsourcing costs and consultancy fees, watch out for hidden fees from payroll providers. These include setup fees, for initial onboarding and data migration; per-employee fees, for each employee you have; and integration costs; if you want your payroll system to integrate with other software, or take care of other HR functions, you should expect to pay more. is reader-supported. If you make a purchase through the links on our site, we may earn a commission from the retailers of the products we have reviewed. This helps to provide free reviews for our readers. It has no additional cost to you, and never affects the editorial independence of our reviews.

Written by:
Helena Young
Helena is Lead Writer at Startups. As resident people and premises expert, she's an authority on topics such as business energy, office and coworking spaces, and project management software. With a background in PR and marketing, Helena also manages the Startups 100 Index and is passionate about giving early-stage startups a platform to boost their brands. From interviewing Wetherspoon's boss Tim Martin to spotting data-led working from home trends, her insight has been featured by major trade publications including the ICAEW, and news outlets like the BBC, ITV News, Daily Express, and HuffPost UK.
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