How Much Does It Cost To Outsource Your Payroll?

18 Jun 2024

Recruitment Industry

Managing payroll in-house takes time, energy, and can lead to costly errors if not done correctly. For this reason, more and more organisations are turning to outsourced payroll. This raises the question of how expensive this type of service is, and whether it’s better value to hire professionals.


Our guide will explain how much you can expect to pay for outsourced payroll. We’ll also discuss the hidden costs associated with running your payroll in-house, to help you work out the most cost-effective option for your business.


How much does payroll outsourcing cost?


There’s no simple price tag for payroll outsourcing costs, as it will depend on your company’s specific needs. Factors like the number of employees you have, how often you pay them, and the complexity of your payroll (bonuses, deductions, etc.) will all play a role. Typically, you’ll pay between £2 and £25 per employee, per month, but additional services like tax filing or benefits administration can add to the cost.


To ensure transparency, it’s a good idea to ask potential providers about their base cost, any additional fees for desired features, and any hidden costs like setup or termination fees. Remember, the cheapest option isn’t always the best – you’ll want to consider things like the provider’s reputation and service level when making your final decision.


We’ll now cover the most common payroll cost structures and any additional costs you need to be aware of to help you make an informed decision.


How do payroll outsourcing costs work?


You might have encountered the term ‘PEPM’ which stands for Per Employee, Per Month and is the cost structure used by most payroll outsourcing providers. What this means is that the number of employees you have and the actions needed for each of them directly affect the cost. Simply put, the more employees you manage, the lower the PEPM cost tends to be. Therefore, the more employees you have, the greater your discounted rate.


The details of what you require will also impact the cost. Weekly payrolls typically cost more than monthly ones because you’re essentially increasing the workload for the provider by processing payments more frequently.


While some small businesses opt for a fixed monthly fee, this can be limiting.  A fixed fee might work well if your payroll needs remain constant, but it’s not ideal for businesses with frequent employee onboarding, commissions, or complex pay arrangements.


Additional costs


Whilst PEPM will form the foundation of your outsourced payroll costs, several additional services can influence the overall price.


  • Employee self-service: Many providers offer employee self-service portals, allowing staff to access digital payslips, tax documents, and request leave. This can be a valuable tool, but it might come with an additional fee.

  • Setup costs: Getting started with a new payroll system usually involves setup fees which may be a fixed cost or charged per employee. Additionally, consider the cost of any training required to ensure a smooth transition.

  • Add-ons: You can expand your payroll system’s functionality with add-ons like timesheet management, expense management, and employee payments which often come at an additional cost.

  • Pensions: Your chosen provider may include auto-enrolment for pension contributions in their PEPM fee, or may charge extra for this service.


Transparency is key; discuss these additional services with your potential payroll provider to ensure you understand the total cost involved before making a decision.


Hidden costs when keeping payroll in-house


While managing payroll in-house may seem like a cost-effective option at first glance, there are several hidden expenses that can add up quickly.


  • Cost of building and maintaining a skilled team: Recruiting and training qualified payroll professionals is a significant investment. Salaries, benefits, and ongoing training can create a substantial ongoing cost burden.

  • Software and hardware costs: While payroll providers offer their own systems, managing payroll in-house often requires investment in dedicated payroll software and hardware; with the necessary upgrades, these costs can accumulate over time.

  • Price of errors: Choosing to process your payroll manually, and without the help of skilled professionals, can result in miscalculations and missed HMRC deadlines. Whilst outsourcing your payroll is an investment, it will mitigate these risks.

  • Security risks: Managing sensitive employee data in-house exposes it to potential security breaches. But, ensuring robust cybersecurity measures are in place requires continuous investment in good data protection. This technology can come at a hefty cost, which would be included in the overall service package of an outsourced service.


How New Millennia can help


At New Millennia, our recruitment back office service takes the burden of payroll off your shoulders. You simply submit your instructions through our user-friendly online portal and our team of experts handles the rest, ensuring your employees are paid on time, every week.


With over 20 years of experience optimising back-office services, we’re your trusted partner for a bespoke payroll solution. We understand that a one-size-fits-all approach doesn’t work – that’s why we take the time to tailor our services to your specific needs. Whether you’re a growing recruitment startup or a well-established SME, New Millennia has a proven track record of delivering comprehensive and efficient payroll solutions.


Let us handle the complexities, so you can focus on what matters most – running your business. Contact us today to tell us your unique needs and discover how New Millennia can provide a cost-effective solution.


Try New Millennia today!

Call us on 0161 337 9882 to get started

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