What are the different types of outsourced payroll?
When researching payroll outsourcing costs, you’ll mainly encounter two common models. One is fully managed payroll, where the service provider handles everything from payment runs to filing taxes. The other is part-managed payroll, offering a hybrid approach that allows you to take charge of simpler tasks while outsourcing the more complex ones.
Let’s compare fully managed and part-managed payroll, giving you a better idea of which option is right for you.
Fully managed payroll
With fully managed payroll, the provider takes full responsibility for all payroll-related tasks, from calculating wages and pension auto‑enrolment to filing with HMRC and responding to staff questions. Naturally, this service offers greater peace of mind, but it also comes with higher payroll bureau costs. The typical payroll cost per employee for a fully managed service ranges from £4–£6 for basic coverage, though integrated HR support can push costs as high as £25 per employee.
Part-managed payroll
Part‑managed payroll allows you to handle day‑to‑day activities like updating employee hours or wage rates, leaving the provider to handle tasks like reporting, pension auto‑enrolment and compliance filing. This setup typically lowers your payroll outsourcing cost, with fees around £2–£3 per employee a month. However, remember that you’ll also have to pay internal admin and staffing expenses.
Which outsourced payroll service is cheaper?
On paper, part‑managed payroll appears to be the cheapest option, especially if you only consider the payroll cost per employee. However, if you factor in internal admin time, software licensing and the potential cost of errors, this option may be more expensive in the long run. While fully managed services tend to cost more upfront, they can reduce risk, improve accuracy, and ultimately lower your payroll cost per employee when everything’s added up.
Pros of outsourced payroll
Naturally, outsourced payroll services cost money, but they offer clear benefits that can justify your investment. Let’s take a look at them in more detail.
Saves time and resources
By delegating payroll to experts, your team saves valuable hours each month, allowing them to focus on more strategic tasks. It also allows you to benefit from the convenience and accuracy of automated payroll without needing to learn the ins and outs of the tools yourself.
Supports payroll compliance
Staying compliant with tax laws and pension legislation is much easier when specialists handle your payroll. This ensures that you don’t miss critical updates or filings, giving you confidence that everything relating to payroll compliance is in order.
Improves payroll accuracy
The cost of payroll errors is a consideration that many overlook when weighing up payroll costs. Expert providers are far less likely to make calculation mistakes and omissions, helping your business to avoid fines, employee dissatisfaction, and wasted remediation time.
Scales easily with your business
As you grow or streamline operations, outsourced payroll solutions can easily adapt alongside your business. Choosing a provider that uses HR software for scalability helps to maintain a consistent payroll cost per employee even as your headcount increases.
Cons of outsourced payroll
While outsourcing can decrease your admin burden, there are some downsides worth considering when assessing overall payroll bureau costs. As well as these cons, it’s worth comparing in-house vs outsourced payroll solutions to see if it’s worth the investment for your business.
Provides less control over payroll processes
When you outsource payroll, you relinquish direct oversight of operations, which can make it harder to monitor performance or tweak procedures. This can provide limitations if you’re looking to improve payroll processes.
Introduces potential delays
Communication times and the specific schedule of your provider’s payroll processes can lead to delays for your business. This can cause issues for time‑sensitive matters, and also makes it harder to make last‑minute adjustments to payroll.
Relies on third-party systems
Outsourcing payroll means relying on your provider’s systems, which may lead to functional limitations or data security risks. Payroll bureaus that use manual processing may also be less efficient than simply using your own payroll software in house, so choose your provider carefully.
Risks hidden costs
Although many providers offer transparent pricing, some advertise low prices and then charge extra for setup, integrations or reporting. As well as the payroll cost per employee, make sure you check what’s included in your chosen package.
How much do payroll bureaus cost?
Your overall payroll outsourcing cost will depend on several key factors like specific functionality you need, and how many people your business employs. Let’s explore the considerations that affect your payroll costs.
Setup and integration costs
Providers often charge for setting up and onboarding your payroll. While some do this as a flat fee, others charge per employee. Integrating the payroll system with your HR or accounting tools may also mean additional fees, so make sure to ask about this when pricing up your options.
Pricing structure
Providers typically use per-employee fees, with fully managed services costing more than part-managed solutions. While this structure gives you a clear, consistent payroll cost per employee, businesses with a lot of employees may be better off choosing a flat monthly service fee.
Company size
Larger organisations tend to benefit from economies of scale, while small companies may feel the higher impact of fixed setup fees. Remember that if your business grows in the future, this will increase your payroll costs, so it’s important to choose a solution that offers value for money as you grow.
Frequency of payroll
Weekly or fortnightly payroll runs cost more than monthly payroll due to their repetitive setup and processing requirements. If your organisation uses these shorter pay periods, your payroll outsourcing cost will be higher, even if you pay for the service on an annual basis.
Complexity of payroll
Some businesses have more complex payroll requirements than others, which will influence how much your payroll services cost. For example, company pensions, flexible benefits, overtime and irregular shift patterns all require more work to calculate. These processes are also more intricate if you employ overseas workers or operate in multiple territories and currencies.
Services included
The specific services you need will directly impact your payroll outsourcing cost. While smaller businesses may be satisfied with basic payroll functions, more complicated requirements such as auto‑enrolment, detailed payslips or HR integration will increase your total payroll costs. Depending on how your provider operates, they may charge a flat rate with the option to pay more for additional functionality.
How to reduce outsourced payroll costs
It’s important to make the most out of any business investment, and outsourcing your payroll is no different. Let’s take a look at some practical steps to lower your payroll bureau costs.
Select the right outsourced payroll plan
Make sure to match service levels to what you actually need. Avoid paying for complex functionality that you won’t use, especially if a part‑managed payroll service provides enough support at a lower cost.
Bundle payroll with other HR or accounting services
Providers often offer package discounts. As with payroll, if you also outsource your HR or accounting functions to the same provider, you might be able to get a great deal. This helps to reduce your payroll outsourcing cost, while also increasing efficiency throughout your business.
Keep employee records up to date
Errors and re-runs cost time. Maintaining clean, accurate data can help to reduce the risk of duplicate payments or incorrect calculations. While you may need to keep employee records for compliance and auditing purposes, make sure everything is clearly organised and up to date to avoid confusion.
Train internal staff to handle basic payroll queries
If your internal team is able to manage routine queries, you can limit more complex (and costly) requests to your outsourced provider. This is a great way to maximise your budget and keep your payroll bureau costs down without compromising on quality or compliance.
Regularly evaluate your payroll costs
As your business evolves and your payroll needs change, this will impact how much it costs to outsource this function. Make sure to regularly evaluate your payroll cost per employee, and consider renegotiating your contract or moving to another provider to avoid paying too much.
Take control of your payroll costs with PeopleHR
By understanding the difference between fully managed and part‑managed payroll, being aware of factors that drive payroll bureau costs, and following strategies to reduce them, you can avoid paying over the odds while maintaining compliant, accurate pay.
PeopleHR’s payroll bureau software streamlines the entire process, automating compliance, integrating HR, and giving full visibility for businesses when they outsource. If you’d like to see how we can save you time, money and payroll headaches, Watch our 4-minute demo to see how PeopleHR can help your business.
