Payroll Outsourcing Costs From Top Companies

Payroll costs in the UK range from £95/year for basic desktop software to £4-£12 per employee per month for fully outsourced services. The right option depends on your headcount, how much control you want, and whether you need HMRC compliance handled for you.

This guide breaks down the real costs of payroll software, outsourced payroll services, and hiring an in-house payroll administrator – with verified pricing from leading UK providers. Whether you run payroll for 5 employees or 500, you will find the cost breakdown you need to make a decision.

How Much Does Payroll Cost in 2026?

UK payroll costs range from £95/year (desktop software) to £4–£12/employee/month (outsourced), plus £23,000–£28,000/year if hiring an in-house payroll administrator.

The cost of payroll depends on which route you take. Here is the full picture:

The cheapest option is desktop software like Moneysoft at £95/year – but you do everything yourself. The most expensive is hiring a dedicated payroll administrator at £23,000–£28,000/year before software costs. Most SMEs fall somewhere in between, spending £20–£60/month on cloud software or £4–£12/employee/month on outsourcing.

Payroll Software Costs

Payroll software costs £95–£285/year for desktop or £20–£60/month for cloud platforms. You run payroll yourself but the software handles calculations, RTI, and payslips.

Payroll software is the most cost-effective option if you are comfortable running payroll in-house. The software handles tax calculations, National Insurance, pension deductions, payslip generation, and HMRC RTI submissions – you just input the data each pay period.

Example cost for 20 employees (monthly payroll):

• Moneysoft: £95/year + VAT = ~£9.50/month total (£0.48/employee)
• Sage Payroll: ~£48/month (Essentials base £12 + 15 extra employees x £2.40)
• Xero Payroll: £30/month payroll add-on + accounting plan from £18/month
• Staffology: ~£45/month (£43 base + £2.15/extra payslip)

Software is cheapest per employee but requires you to understand UK payroll rules, stay current with tax code changes, and handle any HMRC queries yourself. If you are not confident doing this, outsourcing may be worth the extra cost.

For detailed comparisons, see our best payroll software UK guide.

Outsourced Payroll Costs

Fully outsourced payroll costs £4–£12 per employee per month plus £500–£1,000 setup, with a dedicated team handling HMRC submissions, payslips, and compliance.

When you outsource payroll, a specialist company takes over the entire process – calculating pay, processing deductions, submitting RTI to HMRC, generating payslips, and managing auto-enrolment pensions. You provide employee data and approve the payroll each period.

These estimates are based on £4–£12 per employee per month, before any setup fee. Some providers also apply a monthly minimum (Employment Hero’s is £90), so very small teams can pay more per head than the table shows. The wide range reflects differences in service levels – basic payroll processing sits at the lower end, while services including HR support, dedicated account managers, and pension administration sit higher.

What affects outsourced payroll pricing:

• Number of employees – per-employee pricing means costs scale linearly
• Pay frequency – weekly payroll costs more than monthly (more runs per year)
• Service scope – basic processing vs full managed service with HR
• Contract length – longer contracts (24 months) often have lower monthly rates
• Setup complexity – migrating from another provider costs more than starting fresh

Outsourcing makes financial sense when the cost is less than hiring a payroll administrator (£23,000+/year). For businesses with fewer than 100 employees, outsourcing is almost always cheaper than hiring someone in-house. For provider comparisons, see our best outsourced payroll companies UK guide.

In-House Payroll Administrator Costs

A payroll administrator costs £23,000–£28,000/year in salary, plus employer NI (~£2,700–£3,450), pension contributions (~£500–£650), and software and training – total £26,500–£33,100/year.

Hiring a dedicated payroll administrator gives you full control and an in-house expert who understands your business. However, the true cost goes beyond their salary:

• Salary: £23,000–£28,000 (UK average, varies by region)
• Employer’s National Insurance: ~£2,700–£3,450 (15% on earnings above the £5,000/year secondary threshold)
• Employer’s pension: ~£500–£650 (3% minimum on qualifying earnings above £6,240)
• Payroll software: £95–£500/year
• Training and CPD: CIPP membership and courses, ~£200–£500/year
• Total estimated cost: £26,500–£33,100/year

On cost alone, hiring does not beat outsourcing until roughly 185 employees at the top rate of £12 per employee per month (£26,500 divided by £144 a year), and much later at lower rates. For comparison, outsourcing 50 people at £4–£12 costs £2,400–£7,200 a year , against £26,500–£33,100 for a hire. Having an in-house person provides flexibility and institutional knowledge that outsourcing cannot match.

For businesses with fewer than 100 employees, payroll software (£20–£60/month) or outsourcing (up to £1,200/month at 100 employees) is significantly cheaper than hiring.

Enterprise Payroll Costs

Enterprise payroll platforms like Dayforce and SAP are quote-only, with no published per-employee or setup pricing, and are built for large organisations.

Large organisations (100+ employees) typically use enterprise HCM platforms that combine payroll with HR, talent management, and workforce analytics. These platforms offer powerful features but come with significant cost and implementation complexity.

Because enterprise platforms are priced by quotation, budget from a written quote rather than a rule of thumb. Enterprise platforms are only cost-effective at scale – for smaller companies, they are overkill. See our Dayforce review or SAP Payroll review for details.

Using an Accountant for Payroll

Accountants typically charge £4–£12 per employee per month for payroll, with the advantage of combining it with your existing accounting relationship.

Many small businesses have their accountant run payroll alongside their bookkeeping and tax returns. This is often the simplest option if you already have an accountant you trust.

Typical accountant payroll costs:

• £4–£12 per employee per month (varies by practice and region)
• Setup usually included or minimal (£100–£200)
• Often bundled with year-end accounts at a combined rate

The advantage is convenience – one relationship handles accounts and payroll. The disadvantage is that smaller accounting practices may not have the same payroll specialisation as dedicated providers, and you have less control over timing and process.

For accountants looking for software to run payroll for their clients, see our guide to payroll software for accountants.

How to Choose the Right Payroll Option

Choose software if you have under 20 employees and are comfortable with payroll. Choose outsourcing if you want hands-off compliance. Hire in-house only well above 100 employees.

Key decision factors:

• Budget: Software is cheapest, outsourcing is mid-range, in-house is most expensive
• Control: Software gives full control, outsourcing gives less, in-house gives the most
• Compliance confidence: If HMRC compliance worries you, outsource it
• Growth plans: Cloud software and outsourcing scale more easily than desktop
• Existing relationships: If you already have an accountant, ask about payroll rates first

Our Verdict

Most UK SMEs with under 25 employees should use cloud payroll software (£20–£60/month). Our payroll software costs breakdown compares what businesses actually pay at 5, 20, 50, and 100 employees. Above 25 employees, outsourcing becomes worth evaluating; hiring in-house only makes sense well above 100 employees. If you are planning ahead, our payroll projections guide shows how to model these costs in Excel before committing to a provider.

For the majority of UK small businesses, cloud payroll software offers the best balance of cost and capability. Sage Payroll from £12/month or Xero Payroll at £1.50/employee/month handle everything most SMEs need, while Moneysoft at £95/year is the cheapest option if you are comfortable with desktop software and running Windows – Mac users need a different shortlist.

If you would rather not manage payroll yourself, outsourcing at £4–£12/employee/month provides peace of mind and professional HMRC compliance. See our best outsourced payroll companies UK guide for provider comparisons.

Only consider hiring an in-house payroll administrator (£26,500–£33,100/year total cost) if you have 100+ employees and need daily payroll oversight. For most businesses, software or outsourcing delivers the same results at a fraction of the cost.

Clara Wenslow

Finance & Business Services Editor

Clara analyses SME finance and procurement markets, covering business loans, invoice finance, payroll, and related B2B services. She ensures each comparison and guide is transparent and data-driven.

Reviewed by

Sarah Mitchell

B2B Commerce & Finance Reviewer