Payroll Services Costs Breakdown for SMBs

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Timely and accurate payment of employees and contractors is a crucial task for small and medium businesses (SMBs). However, managing employee and contractor payments can be time-consuming and a detail-oriented endeavour. Errors can be costly to the tune of tax penalties. 

While your business may not have a sizable and efficient payroll management team, it doesn't mean that you're on your own. SMBs are turning to payroll service firms to assist them in handling payroll tasks. 

Despite their convenience and efficiency, outsourced payroll services are not free. Payroll service costs vary depending on an array of factors, such as the type of system you use, the type of payroll services you require, etc. Read further to discover the payroll costs for small and medium businesses. 

What is the Average Cost of Payroll?

Outsourced payroll services are usually priced on a monthly basis, often based on the number of employees. Payroll costs may also vary depending on the frequency with which an employer pays their staff.

A fully-managed payroll service may cost about £4 – £6 per employee per month if your workforce comprises 1-10 employees. The larger your workforce, the lower the individual costs. Organisations with over 250 employees can pay payroll service costs as low as £3.50 per employee per month. 

The average payroll cost in the UK can be between £10-£25 per month, depending on the required service level. Again, payroll costs are flexible depending on multiple factors. 

One of the main factors affecting payroll costs is honesty. Finding a payroll service provider with open and transparent pricing plans is vital to avoid paying excess fees. This is particularly important for SMBs looking to save and scale their ventures amid rising overheads in the cost of living crisis and the UK recession. 

Factors Affecting Payroll Costs

Several factors will affect your payroll costs, whether you use a part-managed or fully-managed payroll service. These factors include:

  • Set Up Costs

Payroll service providers may charge you a fee to set up the service. These fees are usually nominal–about £2 per employee.

  • Size of Your Business

The larger your business, the more employees you have who need accurate and timely payments. Each worker's payslip incurs a cost. As such, if you have 80 employees compared to 40, you'll pay twice the cost to outsource your payroll–whether part-time or fully managed. Not surprisingly, large enterprises can benefit from having many employees since some payroll service providers offer discounts to clients with over 250 workers. 

  • Functionality

Each payroll service provider offers different features to satisfy various needs. The features you require from a payroll provider will impact the overall service cost. For instance, some payroll service providers may charge you extra in case you want them to manage and auto-enroll employee pension plans. 

  • HR Integrations

You can always expect to pay more if you want integrated HR and payroll management rolled into a single service. This can be anywhere between £10 and £25 per employee monthly. 

  • Payroll Service Type

Payroll services can be either fully-managed or part-managed. Part-managed and fully-managed payroll services have cost differences since the service level offered is different between both. 

On the one hand, part-managed payroll may appear to be the cheaper option, but it could actually cost more than fully-managed. It involves a mixed, somewhat 50/50 approach to payroll management. Businesses outsource more complex, time-consuming processes such as HMRC reporting, end-of-year filing, etc., payroll service companies. However, the same businesses action smaller, simple day-to-day tasks, such as submitting pay runs and updating employee records, in-house. 

On the other hand, fully-managed payroll may be costly initially but can save you a lot in the end. This service involves a business outsourcing every aspect to the payroll service firm. The service provider manages everything from employee BACS payments to P60s. 

Which Payroll Service Type is Cheaper?

Part-managed payroll is cheaper than full-managed payroll since the service provider only charges a fraction of the entire cost. The downside is that you may need to factor in the costs of hiring an in-house payroll expert. The average salary of a payroll specialist in the UK is £34,119 per year

Conversely, fully-managed payroll can be the costliest option. It can also be the most time-efficient and effective option since it takes away from you the responsibility and pressure of managing payroll. This way, you can focus on other business aspects and save time and money. 

  • Payroll Frequency

Select payroll service providers may charge based on each payroll run. Others may include an unlimited number of payroll runs monthly, including off-cycle runs. 

In case a service provider charges per payroll run, you should note that while employees prefer weekly cheques, the more frequently you pay your staff, the more it may cost you. Your payroll frequency may have less-apparent cost effects for your company and employees. For instance, if a payroll service provider charges per run, monthly payments may be the most affordable option for your business. 

How Do Payroll Companies Structure their Pricing?

Each payroll service provider structures its pricing plans differently to fit the needs of its diverse client base. Find out more below. 

  • Base Fee

Most payroll service providers charge a base fee which can be a per payroll fee or monthly charge. With a per-payroll fee, you will pay the base fee every time you run payroll. Therefore, if your business pays workers bi-monthly, you pay the base fee every two weeks. Base fees can run anywhere from £20 to £125 or more, depending on the service provider.  

  • Per Employee

Besides the base fee, payroll service providers typically have a per-employee fee each pay period or month. These may range from £4 – £6 per employee per month, depending on the service. 

  • Monthly

Some payroll service providers use a monthly subscription plan. They charge a set price for an unlimited number of workers. The monthly option can have multiple feature restrictions. However, it can be a good option for small businesses since small teams don't need many payroll features. 

  • Set Fee

Select payroll service providers have a set fee structure they publish online. Such is especially common among DIY services intended for smaller businesses where workers have more responsibility to monitor and input data for payroll processing. 

  • Custom Quote

Payroll service providers may provide a custom quote for your company based on the specific payroll features and functions you require. The number of workers and how often you run payroll tend to factor into custom quotes. Your mode of employee payment can also factor into this quote. 

  • License Fee

You may have to pay a license fee for DIY payroll software you access online or install on your computer. The license fee may be charged as a perpetual license fee (one-time payment) or a monthly subscription. 

What Costs Can be Included in Payroll?

Besides the base fee, other costs that a payroll service provider can charge you include:

  • Employee benefits. Select payroll service providers may offer extra employee benefits. For instance, the provider may automatically calculate, deduct, and pay for workers' compensation insurance. 
  • Onboarding or dropping employees. Some payroll service providers charge a fee when you remove or add employees from your payroll since there is a cost of adding your worker and business tax info to the system. 
  • Employee self-service. This feature allows workers to make changes to direct deposit accounts, elective deductions, tax withholdings, and access copies of earning statements without help from HR. Some payroll service providers may charge extra for this feature.
  • User-based security. Safety and privacy are fundamental when handling employee and business data. Configurable security models allow you to grant specific users access to selected functions and data based on their role in your business. For instance, a recruiting manager can review pay rates for all workers. Some payroll service providers may charge extra for this feature. 
  • Printing and mailing cheques. In most cases, direct deposit is the preferred mode for most payroll services. However, some employees and their employers still prefer paper cheques. Payroll services typically allow businesses to print their own cheques on standard templates. However, delivery charges may apply if you want the payroll service provider to print and mail the cheques to you.  

Do Payroll Service Providers Have Hidden Fees?

When it comes to a payroll pricing structure, there is no one-size-fits-all approach for all SMBs. Still, you must understand precisely what you're paying for and its coverage. Below are some fees to watch out for when choosing a payroll service provider:

  • If you use payroll software, check for customer support fees or maintenance fees.
  • The service provider may charge an implementation fee, which, in most cases, is a set-up fee typically covering aspects such as onboarding your employees to the system. 

Ensure you request the payroll service provider for an in-cepth analysis of their pricing structure to avoid or question any hidden fees. 

Do Payroll Service Providers Offer Discounts?

Payroll services can be costly for SMBs. As a small business owner, you can save a lot of money by inquiring about the onboarding process. Prior to paying the payroll fees/ costs, ask the provider if they offer any discounts for signing up with a particular number of employees. 

You can also ask if they can price-match an alternative payroll service provider's fees. You can also save money by signing a yearly contract instead of a monthly one. 

Save Money with a Payroll Service Provider

Outsourcing payroll services can be time effective and convenient for most small and medium businesses. Despite the associated costs of outsourcing, you can save plenty of time and focus on other business aspects that save you money and boost your efficiency. Contact us to get accurate pricing estimates for our efficient payroll services.