GUIDE 2024

What is the Payroll Outsourcing Cost in 2024?

Payroll outsourcing cost varies greatly from business to business, depending largely on the complexity and size of the operation. 

It’s estimated that for small to medium enterprises, the average cost of payroll outsourcing falls between $50 and $200 per month per employee, depending on the level of service selected. For larger corporations, these costs can scale significantly higher.

However, it’s important to remember that cost is just one factor in the equation. The value of payroll outsourcing isn’t solely defined by the price tag—it also brings efficiency, compliance, and peace of mind, which are invaluable for many businesses. 

Cost aside, the decision to outsource payroll should be viewed as an investment rather than an expense. The actual cost for each organization will vary based on the provider they choose and the specific services they require.

Benefits of Payroll Outsourcing Services

Outsourcing payroll services has its perks such as:

Increased Efficiency: By automating payroll processes, businesses can free up time to focus on other important tasks.

Tax Compliance: Payroll service providers stay updated on the latest tax laws and regulations, ensuring your business remains compliant.

Access to Expertise: You get access to a team of professionals who specialize in payroll, HR, and related fields.

Cost Savings: Outsourcing often costs less than maintaining a full-time, in-house payroll staff.

Reduced Errors: Automated systems and expert oversight can significantly reduce the risk of costly mistakes.

Employee Self-Service: Many providers offer portals where employees can access their pay stubs, W-2s, and other information.

Improved Security: Payroll providers often have secure systems to protect sensitive employee data.

Scalability: As your business grows, your payroll provider can easily adjust to handle more employees.

Streamlined Processes: Integration with HR and accounting systems creates a seamless workflow.

Peace of Mind: Knowing your payroll is in expert hands allows you to focus on running your business.

Factors Affecting the Cost of Payroll Outsourcing

There are several key factors that can influence the cost of payroll outsourcing. Below are the five main elements that play a crucial role in determining these costs:

Number of Employees

The number of employees in your organization is a primary factor in the cost of payroll outsourcing. Most payroll service providers charge per employee per month, meaning the larger your workforce, the higher your payroll service costs will be. However, some providers may offer volume discounts for larger organizations.

Frequency of Payroll

The frequency of payroll runs can also impact the cost. If you pay your employees weekly instead of bi-weekly or monthly, the cost of payroll services may increase due to the additional processing required. Be sure to discuss your payroll frequency with potential providers to understand how it will affect your costs.

Complexity of Payroll

The complexity of your payroll can significantly influence the cost. For example, if you have employees in multiple states or countries, offer complex benefits packages, or have a mix of full-time, part-time, contract, and seasonal workers, your payroll becomes more complex and may require a more expensive service tier.

Additional Services

Payroll providers often offer additional services like tax filing, benefits administration, HR support, and more. While these can add significant value, they can also increase costs. It’s essential to understand what services are included in the base price and which are billed separately.

Software Integration

If your business uses other software for accounting, HR, or time tracking, you’ll likely want your payroll service to integrate with these systems. Not all payroll providers offer this capability, and those that do may charge an additional fee for it. Software integration can make your processes more efficient, but it’s important to consider the associated costs.

Fixed Costs vs Variable Costs in Payroll Outsourcing

When evaluating the cost structure of payroll outsourcing, it’s essential to understand the difference between fixed costs and variable costs. Fixed costs are those that stay the same regardless of changes in your business operations, while variable costs fluctuate depending on factors such as the number of employees or the frequency of payroll runs.

Fixed Costs: Fixed costs in payroll outsourcing typically include the base fee charged by the provider. This is often a monthly or annual fee that gives you access to the payroll platform and basic services. Some providers may include a certain number of payroll runs or employees in their base fee. For instance, a company might charge a flat rate for up to 10 employees and then have an additional cost per employee beyond that. Fixed costs can provide some level of predictability, which is beneficial for budgeting and planning purposes.

Variable Costs: On the other hand, variable costs can change from month to month or year to year, depending on your business’s needs. For example, if you add or remove employees, the cost of your payroll services will adjust accordingly. Similarly, if you choose to run extra payrolls or add on additional services, these will be reflected in your costs. The variable nature of these costs can provide flexibility, allowing you to pay only for the services you need.

How To Choose The Best Payroll Outsourcing Service

When choosing a payroll outsourcing service, consider the following factors:

Cost: Compare the pricing structures of different providers. Remember, the cheapest option isn’t always the best.

Services Offered: Ensure the provider offers all the services your business needs, such as tax filing, benefits administration, and HR support.

Ease of Use: The platform should be user-friendly and intuitive. This is particularly important if your staff will be interacting with the service.

Customer Support: Good customer service is crucial. Look for providers that offer 24/7 support and have a strong reputation for resolving issues.

Integration Capabilities: If you’re using other software for HR or accounting, make sure the payroll service integrates smoothly with them.

Reviews and Reputation: Research the reputation of the provider. Look for reviews and testimonials from other businesses similar to yours.

Frequently Asked Questions (FAQs)

In this section, we will address some of the most common questions people ask about payroll outsourcing services.

Is it safe to use a payroll company for outsourcing payroll?

Yes, outsourcing payroll to a payroll company is generally safe. Reputable providers use secure systems to protect your data. However, it’s essential to review their security measures and policies before signing a contract.

How does an online payroll service work?

When you outsource payroll, you hire a payroll service provider to handle payroll processes. These services include calculating pay, deducting taxes, distributing paychecks, and often offering direct deposit. The provider can also handle tax filings and HR tasks, depending on the level of service.

What is the best payroll company for outsourcing?

The best payroll company for outsourcing will depend on your specific needs. However, in terms of comprehensive services and user-friendliness, Bambee Payroll often tops the list of payroll companies.

What size companies should consider online payroll services?

Companies of all sizes can benefit from online payroll services. Small businesses might find it a cost-effective way to handle payroll without a dedicated staff member, while large corporations may appreciate the efficiency and compliance benefits.

How much do payroll services cost?

The cost of payroll services varies widely based on the size of your business, the number of employees, and the specific services you need. However, it generally ranges from $50 to $200 per month per employee.

Can outsourcing payroll save money and offer employee benefits?

In many cases, yes. Outsourcing payroll can save businesses money by reducing the need for in-house staff, increasing efficiency, preventing costly tax errors, and even managing employee benefits. Thus, considering payroll costs, using a payroll service provider can be an economically wise decision.

Josh Fechter
Josh Fechter is the founder of HR.University. He's a certified HR professional and has managed global teams across 5 different continents including their benefits and payroll. You can connect with him on LinkedIn here.