How Much Does Payroll Outsourcing Cost In The UK?

Outsourcing payroll has become a common choice for many small businesses in the UK. It saves time, reduces the risk of mistakes, and helps you stay compliant with HMRC rules. But one question comes up more than any other. How much does payroll outsourcing cost in the UK?

The short answer is that payroll outsourcing in the UK usually costs £3 to £8 per payslip or £4 to £10 per employee per month. Some providers charge a simple monthly fee, while others add setup, processing, or extra service charges depending on your needs.

In this detailed guide, we explain the typical UK payroll outsourcing costs, what is included in the service, and the main factors that affect pricing. This will help you work out what your business should expect to pay and what level of service you will receive.

The Average Cost of Outsourcing Payroll in the UK

The cost of payroll outsourcing in the UK varies by business size, payroll frequency, and the type of support you need. Most small businesses fall within the lower to middle price ranges because they tend to have straightforward payroll needs.

Below are the main pricing models used by UK payroll providers and the typical costs you can expect.

Price per payslip or per employee per month (PEPM)

Most UK payroll firms base their fees on either:

• A cost per payslip
• A cost per employee per month
• A cost per employee per pay run

Here are the typical price ranges:

• £3 to £8 per payslip for basic payroll processing
• £4 to £10 per employee per month for PEPM models
• £25 to £80 per month minimum monthly payroll fee for small teams

For example, a business with 5 employees may pay:

• £5 per payslip x 5 employees = £25 per month
• Or £6 PEPM x 5 employees = £30 per month

Larger teams often benefit from lower per employee rates because the provider can spread the workload across more staff members.

Setup costs

Most payroll outsourcing firms charge a setup fee at the start of the service. This covers:

• Initial data checks
• Employee data entry
• Employer setup on payroll software
• Transfers from old systems or providers
• HMRC linking and verification

Setup costs usually range from:

• £30 to £150 for small businesses
• £150 to £500 for businesses with more complex payroll or legacy systems

If you are moving from in house payroll, you may also need to provide previous P60, P45, or P11D records.

Additional payroll outsourcing costs

Some payroll services in UK offer a basic package with optional extras. Common add ons include:

• Year end filing
• Pension management
• CIS contractor processing
• P11D forms for benefits in kind
• Directors payroll
• Extra reports or customised formats
• HR support

Typical add on costs include:

• Year end processing £50 to £150
• P11D filing £20 to £40 per form
• CIS submissions £10 to £25 per subcontractor
• Auto enrolment management £15 to £40 per month
• Directors only payroll £15 to £30 per run

Businesses with part time staff, casual workers, or changing shift patterns may see slightly higher costs due to additional data checks.

Integration costs

Some businesses need payroll to sync with:

• Accounting software
• Time and attendance systems
• HR platforms
• Rota or scheduling tools

Many providers include basic integrations for free, but more advanced connections or API setups may cost:

• £50 to £250 one off integration fee
• £5 to £20 per month for ongoing data syncing

If you use software like Xero, QuickBooks, or Sage, most payroll firms can link payroll journals automatically at no extra cost.

Payroll service fees explained

Payroll outsourcing fees reflect several behind the scenes tasks that clients do not usually see. These include:

• Running payroll calculations
• Checking tax codes
• Managing HMRC notices
• Filing Real Time Information submissions
• Producing payslips
• Managing pensions
• Keeping up with legislation changes
• Answering payroll related questions or corrections

Even a simple payroll run involves multiple checks, calculations, and HMRC updates. This is why many small businesses find outsourcing more cost effective than doing it themselves.

What’s Included in Payroll Services?

While every provider offers slightly different packages, most UK payroll outsourcing services cover the key tasks listed below. These are the core functions needed to keep your payroll accurate and compliant.

PAYE registration

If your business is new or has not yet registered as an employer, payroll firms can help you with PAYE setup. This includes:

• Registering your business with HMRC
• Obtaining your PAYE reference and Accounts Office number
• Ensuring you are ready for Real Time Information (RTI) reporting

HMRC guidance on PAYE registration is available here:
https://www.gov.uk/register-employer

Payslip generation

Most providers will generate payslips for every employee each time payroll is run. Payslips can be delivered:

• By secure online portal
• By email
• As PDFs
• In printed form if needed

Payslips normally show:

• Gross pay
• Net pay
• Tax and NI deductions
• Pension deductions
• Holiday pay
• Year to date figures

HMRC submissions (RTI)

Every employer must send Real Time Information (RTI) submissions to HMRC each time they run payroll. These include:

• Full Payment Submission (FPS)
• Employer Payment Summary (EPS)

A payroll provider will prepare and send these on your behalf to make sure you stay compliant with HMRC rules.

Tax, National Insurance, and pension calculations

Accurate calculations are the heart of a payroll service. Providers will:

• Calculate Income Tax
• Calculate National Insurance
• Apply tax codes
• Manage student loans, postgraduate loans, and attachment orders
• Work out statutory deductions
• Apply pension contributions and tax relief

This helps avoid underpayments and HMRC penalties.

Auto enrolment pension setup

Every UK employer has a legal duty to provide a workplace pension. Payroll services usually include:

• Setting up your pension scheme
• Checking employee eligibility
• Enrolling eligible staff
• Managing opt in and opt out requests
• Sending data to your pension provider
• Keeping records for compliance

Common schemes include Nest, The Peoples Pension, and other UK providers.

Employee onboarding and leaver processing

When new employees join, payroll firms will:

• Add new starter details
• Process P45 forms
• Apply the correct tax codes
• Set up pay rates and benefits

When employees leave, the provider will:

• Process final pay
• Calculate holiday entitlement
• Produce P45 forms
• Manage final pension deductions

Holiday pay and statutory leave tracking

Most UK payroll outsourcing packages include holiday and leave tracking for:

• Annual leave
• Maternity and paternity leave
• Sick pay
• Adoption and parental leave
• Statutory Bereavement Leave

The provider ensures that statutory payments are calculated correctly and reported to HMRC in line with current rules.

Factors That Influence Payroll Outsourcing Costs

Payroll pricing varies because every business is different. The final cost is shaped by several key factors, which you should consider when comparing quotes or reviewing price lists.

Number of employees

This is the biggest driver of payroll costs. More employees mean:

• More payslips
• More data management
• More RTI submissions
• More potential queries

Small businesses with fewer than 10 employees usually fall in the lowest price bracket. Businesses with 20 to 50 employees may secure lower per employee rates due to economies of scale, but the total cost will still be higher.

Payroll frequency

Payroll can be run:

• Weekly
• Fortnightly
• Monthly
• Four weekly

Most UK businesses choose monthly payroll because it is cheaper. Weekly or fortnightly payroll often costs more because:

• More payslips are produced
• More data is processed
• More RTI submissions are sent

For example:

• Monthly payroll may cost £4 to £8 PEPM
• Weekly payroll may cost £2 to £5 per payslip each week

If you run both weekly and monthly payroll for different staff groups, you may be charged for two separate payrolls.

Compliance and tax filing requirements

More compliance means higher costs. If your payroll includes:

• CIS subcontractors
• Benefits in kind
• Directors with variable pay
• Statutory payments
• Frequent HMRC tax code changes
• Multiple pension schemes
• Attachment of earnings or court orders

You may pay more for the added work involved.

Businesses in regulated industries or those with shift based pay structures often need more payroll support.

Additional services and integrations

If you need more than basic payroll processing, you may pay extra for services such as:

• HR support
• Time and attendance tracking
• HR document management
• Partner integrations
• Custom reporting
• Expense management
• Employee portal access
• Advanced payslip formats

Integrations with accounting software are often free, but bespoke reporting or API setups may attract added charges.

HR support requirements

Some payroll firms offer HR support alongside payroll. This can include:

• Staff handbooks
• Contract templates
• HR advice line
• Absence management
• Disciplinary guidance

HR add ons are usually charged:

• As a fixed monthly fee
• Per employee
• Or as part of a combined HR and payroll package

If you only need occasional HR support, this will cost less than a full HR advisory package.

Business needs and complexity

Your industry, workforce structure, and internal processes can all affect costs. Examples include:

• Seasonal businesses with changing staff levels
• Hospitality firms with shift pay
• Construction firms using CIS
• Companies with bonus schemes
• Charities with different reporting needs
• Startups with rapid growth

More complexity usually means more time is needed to check and process data, which results in higher fees.

Types of Payroll Services

When choosing payroll support, most UK businesses fall into one of four groups. Fully managed payroll, part managed payroll, online payroll software, or running payroll in house. Each option has different costs and levels of support, so it helps to understand what each service includes.

Fully-managed payroll

A fully managed payroll service is the most complete option. Your provider handles every part of payroll from start to finish. This is the most popular choice for small businesses because it removes the stress and risk of managing payroll yourself.

What does the core payroll service include?

A core fully managed package will usually cover:

• Employee setup
• Payslip production
• PAYE calculations
• National Insurance deductions
• Pension contributions
• RTI submissions
• Year to date records
• Statutory payments
• New starter and leaver forms
• Regular payroll reports

Many firms also include basic support for payroll queries.

Typical setup costs

Most small businesses can expect:

• £30 to £150 setup fee for simple payroll
• £150 to £500 for more complex staff structures or transfers from an older system

This includes HMRC linking, data checks, and software setup.

Pension auto-enrolment costs

Auto enrolment support is often priced separately. Typical costs include:

• £15 to £40 per month for pension admin
• £50 to £200 one off setup fee
• £1 to £3 per employee for pension communications

The final cost depends on your pension provider and how many staff need to be assessed.

HR integration add-on costs

Some businesses want payroll to sync with HR systems. Costs vary but usually include:

• £5 to £20 per month for HR portals
• £50 to £250 one off integration or API fees
• Optional add ons such as absence tracking or document storage

Pros

• Saves time and removes admin workload
• Reduces risk of HMRC penalties
• Fully compliant with tax and pension rules
• Ideal for growing teams
• Predictable monthly pricing
• Professional support when needed

Cons

• More expensive than DIY payroll
• Less control over internal processes
• You rely on the provider to deliver work on time

Part-managed payroll

Part managed (sometimes called semi-managed) payroll is a shared approach. Your business handles part of the payroll duties, and the provider does the rest.

For example, you may prepare staff hours and pay rates, while the provider runs calculations and handles HMRC submissions.

Pros

• Cheaper than fully managed services
• Good for businesses that already maintain staff data
• Reduces errors while keeping some control in house
• Flexible level of support
  
  

Cons

• You still have admin tasks to complete each pay run
• More room for mistakes compared to fully managed
• Not ideal for busy or growing businesses
• May not include full compliance checks

Online payroll services

Online payroll software is a lower cost option if you want to run payroll yourself but still want digital tools. These systems often include:

• Online payslip generation
• Basic payroll calculations
• Staff portals
• HMRC submissions
• Pension integrations

Costs are usually:

• £5 to £15 per month for small teams
• Plus £1 to £2 per employee

This option works best for very small businesses with simple payroll and one or two employees.

In-house payroll management

Some businesses choose to handle payroll in house using spreadsheets or payroll software. This may be cheaper, but it comes with extra responsibilities. You must:

• Stay updated with UK payroll law
• Handle tax code changes
• Manage RTI filing
• Ensure correct pension calculations
• Keep records for at least three years

This option is usually best for larger companies with trained payroll staff.

Fully-Managed vs Part-Managed Payroll Cost

When comparing the two main types of payroll outsourcing, the right choice depends on your budget, your confidence with payroll tasks, and the size of your team.

Fully-managed payroll prices and benefits

Typical costs:

• £4 to £10 per employee per month
• £3 to £8 per payslip
• Setup: £30 to £150 for simple teams

Fully managed services offer:

• Full compliance
• No admin workload
• HMRC submissions done for you
• Pension and RTI fully managed
• Professional support whenever needed

This is usually the most time saving option for busy business owners.

Part-managed payroll prices and benefits

Typical costs:

• £2 to £6 per employee per month
• Lower setup fees than fully managed services

Benefits include:

• Lower monthly cost
• You handle only part of the process
• Provider still manages key compliance tasks

This is often a good step between DIY payroll and fully outsourced payroll.

Which service is cheaper?

Part managed payroll is usually the cheaper option. However, fully managed payroll may be more cost effective in the long run if:

• You often make mistakes
• You lose time chasing payroll tasks
• You need support with pensions or compliance
• You do not have admin staff
• You want to avoid HMRC penalties

For many small UK businesses, the extra cost of fully managed payroll is worth the time and stress saved each month.

Hidden Fees to Watch Out For in Payroll Outsourcing

Most providers offer clear pricing, but some charge extra fees that can catch businesses off guard. Common hidden fees include:

• Fees for extra reports or customised formats
• Charges for re running payroll due to late changes
• Extra costs for new starter processing
• Additional pension assessment fees
• Charges for P45, P60, or P11D forms
• Fees for dealing with HMRC letters
• Charges for ad hoc advice or admin time
• Late submission or correction fees
• Costs for holiday tracking or statutory leave support

When choosing a provider, always ask for a written breakdown of all possible add on charges.

Benefits of Outsourcing Payroll

Outsourcing payroll offers many advantages for UK businesses of all sizes. Some of the main benefits include:

Ensure HMRC compliance

Payroll rules change often and can be hard to keep track of. Outsourcing helps you stay compliant with:

• PAYE rules
• RTI submissions
• National Insurance
• Student loan deductions
• Statutory payments
• Pension auto enrolment

This reduces the risk of fines or penalties.

Save time and reduce admin work

Payroll can take hours each month, especially if you have staff with variable hours or changing pay. Outsourcing frees up this time so you can focus on running your business.

Cost-effective for small businesses

Outsourcing is usually cheaper than hiring an internal payroll administrator. You only pay for the service you need, without the cost of:

• Staff training
• Software licences
• Payroll updates
• HR or pension admin

Access to payroll experts and tools

You gain the support of experienced payroll professionals who handle:

• Complex payroll questions
• Tax changes
• HMRC notices
• Compliance updates

You also get access to professional payroll software without having to buy it yourself.

Improved accuracy and employee satisfaction

Accurate and on time payroll helps keep employees happy. Mistakes can cause stress and reduce trust, so outsourcing reduces this risk.

Professional reporting and record-keeping

Your provider will maintain:

• Yearly payroll records
• RTI submissions
• Payslips
• Pension files
• Audit trails

This ensures your business always has the right documents if HMRC asks for them.

Risks of Outsourcing Payroll

While outsourcing payroll has many benefits, there are some risks to consider:

• You rely on the provider to deliver accurate and timely work
• Switching providers can take time if you are unhappy
• Some providers may lock you into long contracts
• Hidden fees can increase costs
• Cheap services may offer limited support
• Delays or errors from the provider can impact staff morale

The best way to reduce these risks is to choose a reputable provider with clear pricing and solid communication.

What Is the Cheapest Way to Manage Payroll?

The cheapest ways to manage payroll in the UK are:

Running payroll yourself with free or low cost software

• Best for very small businesses
• Requires confidence with tax rules

Online payroll software

• Simple and affordable
• Great for sole directors or micro businesses

Part managed payroll

• Reduces costs while still providing support
• Good balance of price and workload

However, the cheapest method is not always the best. For many small businesses, fully managed payroll offers better value in the long run because it reduces errors, admin time, and the chance of penalties.

Can I Manage My Own Payroll?

Yes, you can manage your own payroll if you feel comfortable with the tasks. HMRC allows any employer to run payroll themselves, as long as they:

• Register for PAYE
• Use approved payroll software
• Send RTI submissions
• Calculate tax and NI correctly
• Keep payroll records for at least three years
• Manage pension duties

While this is possible, many small businesses find payroll complex and time consuming. If you are unsure about tax rules or do not have time to stay updated with legislation, outsourcing is usually a safer option.

What does payroll software do?

Payroll software helps you process pay correctly. Most systems can:

• Calculate PAYE tax and National Insurance
• Produce payslips
• Apply tax codes from HMRC
• Manage student loans and other deductions
• Handle holiday pay and statutory payments
• Send RTI submissions to HMRC
• Calculate pension contributions
• Keep digital payroll records

While this makes payroll easier, you still need to enter the correct information and check for errors.

Pros and cons of running payroll in-house

Running payroll yourself can save money, but it also comes with risks. Here is a simple breakdown.

Pros

• Cheaper than outsourcing
• Full control of your payroll data
• No need to send information to a third party
• Good for very small businesses with one or two employees

Cons

• Time consuming, especially if staff hours vary
• Higher risk of errors and HMRC penalties
• You must keep up with tax and pension law changes
• No expert support if something goes wrong
• You must buy and maintain payroll software

How much does in-house payroll management cost?

The cost depends on the software and the time you spend managing payroll.

Typical costs include:

• £5 to £15 per month for basic payroll software
• £1 to £2 per employee for some systems
• Extra charges for year end filing or advanced features

If you value your own time, in house payroll can end up costing more than outsourcing. Many business owners find that the hours spent checking payroll could be better used on sales, client work, or planning.

How to Choose the Right Payroll Service

Choosing the right payroll provider is important for keeping your business compliant and stress free. Here are the steps most UK businesses follow.

Step 1: Assess your business needs

Start by listing what your business requires. Think about:

• Number of employees
• Pay frequency
• Whether staff hours change weekly
• Pension scheme needs
• Whether you employ casual or seasonal workers
• Industry specific requirements

Having a clear picture helps you choose the right level of service.

Step 2: Decide on the features you need

Some businesses only need basic payroll support. Others need more detailed services.

Common features include:

• Payslips
• RTI submissions
• Pension auto enrolment
• CIS management
• P11D filing
• Holiday and leave tracking
• HR tools
• Integration with accounting software
  

Choose only what you need to avoid paying for extras.

Step 3: Consider whether you need HR support with payroll

Many payroll providers also offer HR add ons such as:

• Staff handbooks
• HR document storage
• Absence tracking
• HR advice lines
• Policies and templates

This is useful if you do not have HR staff or need help with employee management.

Step 4: Plan your budget

Set a realistic budget based on:

• Your number of employees
• Payroll frequency
• Whether you need monthly or weekly runs
• Any extra services such as pensions or HR

Most small businesses spend £3 to £8 per payslip or £4 to £10 per employee per month, plus setup fees.

Step 5: Compare quotes

Request written quotes from several providers. Make sure each quote includes:

• Setup fees
• Monthly fees
• Add on fees
• Year end costs
• Pension admin charges
• Any minimum contract period

This helps you compare providers fairly.

Reading reviews and seeking expert advice

Before choosing a provider, check online reviews and ask for recommendations from other business owners. You can also ask your accountant for guidance. A trusted provider with clear pricing will save you time and money.

How to Switch to an Outsourced Payroll Service

Switching to a payroll provider is usually simple and can be done at any time of the year. Most providers handle the transfer for you.

Choose a provider

Start by selecting a payroll service that fits your needs and budget. Make sure they offer support for your industry and payroll size.

Gather documents

You will usually need to provide:

• Employee details
• Pay rates
• Year to date figures
• PAYE reference and Accounts Office number
• Pension scheme details
• Previous payroll reports

Your provider will guide you through this.

Set a start date

Agree on your first payroll date with your new provider. Most businesses switch at the start of a new tax month, but it can be done mid year if needed.

Inform HMRC

Your payroll provider will normally tell HMRC that they are acting on your behalf. They will do this through their software using authorisation codes from HMRC.

Legislation Changes to Watch for in the 2025/2026 Tax Year

Payroll rules change every tax year. Here are some of the expected updates that may affect your payroll costs.

Employer National Insurance Contributions (NICs) changes

The government is reviewing NICs rates and thresholds. Small changes to these rates can affect employer payroll costs, especially for businesses with larger teams.

National Minimum Wage (NMW) and National Living Wage (NLW) increases

Each April, NMW and NLW rates increase. This affects:

• Staff wages
• Employer NICs
• Pension contributions
• Overall payroll spending

Businesses should plan ahead for wage increases.

Income tax changes planned for 2028

The government has confirmed future income tax threshold freezes through to 2028. This means more employees may move into higher tax bands over time, increasing payroll admin and adjustments.

Important Payroll Dates for 2025

Key payroll dates for the 2025 tax year include:

• 6 April 2025 New tax year starts
• 19 April 2025 Deadline for final RTI submissions for 2024/2025
• 31 May 2025 Deadline to give employees their P60 forms
• 6 July 2025 Deadline for P11D and P11D(b) submissions
• 22 July 2025 Deadline for Class 1A NICs payment
• Monthly PAYE and NICs payments due by the 22nd of each month

Keeping track of these dates helps avoid penalties.

Are There Free Payroll Solutions Available?

Yes, free payroll tools are available, but they are limited. HMRC offers free basic payroll software suitable for very small employers. This software can:

• Calculate tax and NI
• Produce simple payslips
• Send RTI submissions

However, it does not include:

• Pension auto enrolment
• Detailed reports
• HR features
• Support for complex payroll

Free software is best for sole directors or very small businesses with simple needs. Most growing businesses choose paid software or outsourced payroll for better accuracy and support.

Frequently Asked Questions

What is the average cost of payroll services for a small business?

Most small UK businesses pay £3 to £8 per payslip or £4 to £10 per employee per month, plus a setup fee of £30 to £150.

Are online payroll services more cost-effective?

Yes, online payroll software is usually cheaper than full outsourcing. However, it requires more time and knowledge, and you must manage compliance yourself.

Is it cheaper to outsource or manage payroll in-house?

In house payroll can be cheaper in terms of direct cost. But when you factor in time spent, risk of errors, and the cost of software, outsourcing is often more cost effective for small businesses.

How can I choose the best payroll service for my business?

Look at:

• Number of employees
• Your budget
• Service features
• Support levels
• Pension needs
• Reviews and recommendations

Always request a clear, written quote.

Can I negotiate pricing with payroll service providers?

Yes, many providers will adjust pricing, especially if:

• You have several employees
• You agree to a longer contract
• You only need basic payroll
• You are switching from another provider

It is always worth asking.