How Much Will It Cost to Outsource Payroll in 2025?

The cost of outsourcing payroll via a top payroll company will typically range from £2 to £25 per employee, per month. You’ll also pay a bit more if you opt for additional payroll services, like integrated HR and pension plan auto-enrolment.

Outsourcing payroll is a great way to save your business time and money spent on hiring in-house payroll experts, but it can be frustrating to find the right provider since almost all of them work with bespoke pricing. Our guide should help you understand how much you can expect to pay for outsourcing payroll in the UK, as well as the benefits and downsides of different payroll services.

If you’d like help finding a provider that’s within your budget, our free quote-matching tool can pair you with trusted providers, who’ll assess your needs and provide quotes tailored to your business’s requirements, which makes comparing payroll costs a lot easier.

What Do Payroll Costs Include?

Payroll costs include employee salaries, payroll taxes, and administration fees.

When outsourcing to a payroll provider, you’re paying them to pay your employees on time, file the relevant taxes, and keep your business compliant. This will set you back around £2 – £25 per employee, per month, depending on the type of contract you sign and the responsibilities you’re outsourcing.

How much does payroll software cost?

Often, paying for payroll software ends up cheaper than paying to outsource your payroll, so it’s worth considering.

This article primarily discusses the costs of payroll outsourcing, also known as payroll services. However, using payroll software is also an option, enabling you to manage your payroll in-house using an intuitive tool that can automate processes such as payroll runs, tax deductions, and HMRC reporting.

Some payroll software providers charge bespoke prices, which are offered on a case-by-case basis – Moorepay, which we recommend for the payroll expertise it offers, is one such provider.

However, other software providers do have set plans. Rippling, for example, is an affordable option starting at £7 per user, per month, while 12 Cloud Payroll starts its pricing from £5 per month. It comes with highly customisable features and reports, and automated compliance assistance.

What Are the Types of Outsourced Payroll?

To understand how much outsourcing payroll will cost your business, you need to first figure out what type of outsourcing is best for you.

There are two major types of outsourced payroll services: fully managed and part-managed.

• Fully managed: as the name suggests, a fully managed payroll service involves the complete outsourcing of your payroll to a third-party payroll provider. The provider liaises with HMRC on your behalf, while responding directly to any payroll queries from your staff. 
• Part-managed: this type of service lets you outsource certain parts of your payroll while keeping other bits in-house. It’s a pick-and-mix approach that offers more versatility than a fully managed service. 

Part-managed payroll solutions are usually cheaper because you’re not paying for the full service. With this option, you’ll remain in control of the straightforward day-to-day processes, such as maintaining employee records and updating wage information.

However, your payroll services provider will take care of the trickier stuff, such as keeping you HMRC compliant and filing your year-end reports.

Not every payroll company provides both, so, by all means, double-check the services available when choosing your provider. To help you, we’ll look at the costs of each.

What Factors Influence Payroll Outsourcing Costs?

Whether fully managed or part-managed, three over-arching factors will influence the total cost of outsourcing your payroll:

• Company size: the number of employees impacts the cost of outsourcing payroll to a payroll service. Larger companies typically incur higher costs due to the increased complexity of payroll.
• Frequency of payroll: the frequency of payroll runs (e.g., weekly, bi-weekly, monthly) can also affect pricing. It’ll usually cost more with a greater frequency of payment. For instance, it’ll cost more to manage your payroll when you pay your staff weekly rather than monthly.
• Services included: different payroll service providers will offer different levels of service, from basic payroll processing to tax filing, employee pension plans, HR integration, compliance with industry regulations and more. We’ll detail what those costs could look like shortly.

The prices we list on this page are close estimates, so you’ll need to enquire with a provider to get a specific idea of costs.

Simply complete our quick quote-finding form for exact prices – it takes less than a minute, and you’ll receive tailored quotes from the UK’s top-ranked managed payroll service suppliers.

How Much Does a Fully Managed Payroll Service Cost?

Outsourcing to a fully managed payroll service is split into four areas, each of which comes with a cost. These are:

Outsourced managed payroll services are typically priced every month, with pricing based on the number of staff you employ. Payroll service costs also depend on the frequency with which you pay your staff.

1. Payroll service

A fully managed payroll service will cost around £4 – £6 per employee, per month if you employ between one and 10 people. The larger your workforce, the lower this individual cost becomes, and organisations with over 250 employees can pay as little as £3.50 per employee, per month.

2. Setup costs

Setup costs may also apply, although these are typically nominal – about £2 per employee.

3. Pension plan auto-enrolment

Auto-enrolment of your staff into pension plans will also incur a fee, although it shouldn’t exceed £1.50 – £2 per employee. If it does, you should be asking some questions as this is an area where some payroll providers tend to overcharge.

4. HR integration

If you want integrated HR and payroll management rolled into one service, you can expect to pay more – anywhere between £10 and £25 per employee, per month. 

The pros and cons of fully managed payroll services

How Much Does a Part-Managed Payroll Service Cost?

Part-managed payroll service costs are even harder to pin down than fully managed ones. This is because the fees here are also dependent on which services you want to outsource, and which ones you’re happy to handle in-house.

As a general rule, though, you should pay around £2 – £3 per employee, per month for the managed service. However, you’ll still need to consider the costs of keeping other services in-house. These include wages, and payroll software to help keep you (or your accountant) on top of all the admin.

Providers that offer part-managed payroll packages include Iris and ADP Payroll. However, both providers operate on quote-based pricing, so you’ll have to contact them for an estimate.

The pros and cons of part-managed payroll services

Are There Any Hidden Fees in Outsourced Payroll?

Payroll services can look daunting. Luckily, there are no hidden fees when it comes to using them. The main reason for this is that most companies in this field work with bespoke pricing, so they effectively list all of their charges to you.

All of this will be documented, so if any charges differ from the agreed further down the line, you can always query them.

Why Should I Outsource Payroll?

Outsourcing your business’ payroll will save you time and effort, but it will also afford you greater flexibility than if you keep it totally in-house. This is because you can either select a fully managed payroll service or just the parts of the service that suit you.

It also greatly reduces payroll fraud and removes the risk of fines for failing to report your key figures.

Could I Manage Payroll In-House?

Yes, you can manage payroll yourself in-house. However, you’ll want dedicated staff with experience in payroll, or you’ll at least need to have some expertise yourself. If you don’t have either, and employ more than 10 people, you’ll probably soon find (or may already be finding) in-house payroll management to be an overwhelming task. 

Plus, hiring someone to do your payroll in-house is a less reliable solution than outsourcing. If your payroll head calls in sick or goes on leave, then your payroll services stop with them.

An alternative but similar option is to use a cloud-based payroll software solution. This way you won’t need in-house expertise but instead can rely on online tools and software to process your payroll and ensure you stay compliant.

If you’re interested in giving payroll software a go, we recommend Rippling. Its customisable features and reports, and its compliance measures, impressed our software researchers during our latest round of testing. Starting at £7 per user, per month, it’s affordable, too.

Who is in-house payroll management for?

In-house payroll management is usually favoured by very small businesses, such as those with fewer than 10 employees. 

That said, in-house payroll management is also well-suited to enterprise-level businesses at the other end of the scale. Big businesses that can afford to maintain a fully functioning accountancy department may choose to keep payroll in-house, too.

If your business is at neither end of the spectrum, you’re better off outsourcing your payroll. Or, if you’re a very small business or startup and don’t have a big budget right now, you could try your hand at a free payroll software solution like IRIS Payroll Basics, which has a user limit of 10.

How much does in-house payroll management cost?

In-house payroll software costs start at around £25 – £50 per month for businesses with between one and 15 employees. Businesses with over 50 employees can expect a monthly cost of around £80, while software for an unlimited amount of employees will set you back between £100 – £200 per month.

In-house payroll usually comes in the form of a software package from a provider like Moneysoft or Iris. These can be free, or they’re available on a paid subscription plan. In-house payroll services costs will vary and this is dependent on the number of staff you employ and the level of features you require.

Is in-house payroll management worth it?

It is for very small companies, especially if they’re using payroll software since this can help avoid mistakes which lead to penalties.

This is mainly because outsourcing payroll is more expensive, and its main benefit for companies with over 10 employees is that it saves businesses time.

That said, even with payroll software, managing payroll in-house still leaves you at greater risk of penalties and fines, since you won’t have a team of payroll experts behind you that are up to date on the latest payroll legislation.

How Did the Autumn 2024 Budget Affect Payroll?

Here are the most important changes from the Labour Party’s 2024 Autumn Budget that affect payroll for businesses:

Employer National Insurance Contributions (NICs) increase

There are three major changes to NICs for businesses. From April 2025, the NIC rate for employers will rise from 13.8% to 15%, meaning employers will pay more.

There will also be a change to ranges, with the secondary threshold dropping from £9,100 to £5,000. This means employers will start having to pay NCIs on earnings starting at £5,000.

However, there’s also some positive news, thanks to an upcoming change in Employment Allowance. Businesses with an NIC bill of £100,000 or less are currently able to take £5,000 off their employer NIC bill thanks to the Employment Allowance. However, from April 2025, that will increase from £5,000 to £10,500, and be available to more businesses, since the government plans to remove the £100,000 limit.

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

From April 2025, the NMW for employees aged between 18 and 20 years will increase from £8.60 an hour to £10 an hour. For employees aged between 16 and 17 years, the NMW will increase from £6.40 an hour to £7.55 an hour.

The separate rate that exists for eligible apprentices under 19 years old will also increase, from £6.40 up to £7.55 an hour.

The NLW (applicable to employees 21 and over) will increase from £11.44 an hour to £12.21 an hour.

If you currently have employees on the NMW or NLW, you must make sure you increase their salaries to reflect the changes as of April 2025. Not doing so breaks employer law, and can result in fines of up to £20,000 for each affected employee.

Income tax changes for 2028

From 2028, the government intends to raise income tax thresholds in line with inflation. This means adjusted pension tax relief for employees who are high-earners.

Important Payroll Dates Recap

Key deadlines for the 2024/25 tax year have passed, but they occur on the same dates throughout the year and it pays to keep on top of them to avoid HMRC’s hefty fines – especially if you opt for a part-managed payroll system, which means you’ll still be responsible for some payroll duties.

To help you out, here’s a brief recap of the most important upcoming 2025/26 payroll dates:

• 6 April 2025

– The new 2025/26 tax year began.
– Your employee payroll must be up to date for the new tax year.

• 31 May 2025

– Deadline for giving employees a P60 form which shows how much taxable salary they were paid in the previous tax year (2024/25).

•  6 July 2025

– Deadline for expenses and benefits report to the HRMC.
– Deadline for P11D and P11D(b) forms submission.

• 19 July 2025

– Deadline for Class 1A National Insurance contributions on benefits in kind payment (if you’re not using digital systems to do so – i.e. via cheque).

• 22 July 2025

– Deadline for Class 1A National Insurance contributions on benefits in kind payment (if you’re using digital systems to do so).

• 19 October 2025

– Deadline for businesses with a PAYE Settlement Agreement to pay all tax and Class 1B National Insurance owed (if you’re not using digital systems to do so – i.e. via cheque).

• 22 October 2025

– Deadline for businesses with a PAYE Settlement Agreement to pay all tax and Class 1B National Insurance owed (if you’re using digital systems to do so).

• 6 April 2026

– Start of the new tax year 2026/27