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How Much Does Outsourcing Payroll Cost A Small Business?

If you’re a small business with less than 50 employees and struggling to make sure your payroll processing is accurate and completed on time, especially in regards to getting all your payroll taxes and deductions correct, you may benefit from outsourcing your payroll. Small businesses that use payroll processing services save time and resources.

Outsourcing payroll can help you refocus your attention on your core business functions. Not to mention, it can help ensure your business is compliant with all the tax laws and regulations, which reduces the risk of errors and financial penalties. Let’s take a look at what affects payroll costs and how much outsourcing payroll typically costs small businesses.

How Much Does Outsourcing Payroll Cost A Small Business?

Factors that Affect Cost

Several factors will affect the cost of your payroll services. They include:

  • Number of employees or total payroll - The number of employees you have or the total you spend on your payroll will affect the cost of your payroll services.
  • Frequency of payroll processing – How often you have payroll ran will affect the cost of your payroll processing.
  • Payroll complexity - The level of complexity of your payroll, such as the number of deductions and payroll taxes, can affect the cost of your payroll processing service.
  • Additional payroll services that you may need - The cost of outsourcing payroll can increase if you need additional services, such as HR support and employee benefits administration.
  • Provider experience and reputation - More established and well-regarded providers tend to charge more for their services, but they are more experienced and likely to provide better services, especially when you need payroll tax services for your small business.

Average Cost

According to, payroll service costs can vary widely, but on average, businesses can expect to pay $2 to $12 per employee per pay period plus a base fee that may range from $29 to $150 per month. For example, if you chose the cheapest option of $29 per month, have 35 employees with $2 charged per employee, and pay employees twice a month, you could expect to pay $169 a month for payroll processing services. It’s important to understand that this is just an estimate and example. Your payroll processing fees may be higher or lower, depending on the services you choose and the number of employees you employ at your small business.

Payroll Company Pricing Models

Payroll processors may offer a variety of pricing models, including:

  • Flat-fee pricing – Some payroll processors offer a flat-rate fee, which is a fixed monthly or annual fee that doesn’t change due to your number of employees or payroll processing frequency.
  • Per-employee pricing – This pricing model charges a fee for each employee, usually on a monthly or annual basis.
  • Pay-as-you-go pricing – You are charged according to the actual number of payroll transactions processed.
  • Bundled pricing – This pricing model is a combination of different pricing models, such as a flat fee for basic payroll processing and additional per-employee or per-transaction fees for additional services.
  • Custom pricing – Some payroll processors offer pricing that is tailored to the specific needs and requirements of a business, which takes into account factors such as employee count, payroll frequency, and the services required.

Hidden Costs

As a small business owner, it’s important to remain aware of any hidden fees when outsourcing payroll.

  • Compliance penalties – Always choose a reputable payroll provider that stays up-to-date on all the regulations, policies and laws on payroll, especially payroll taxes and wage compliance. Failure to do this could result in steep fines and penalties to your business.
  • Payroll errors – Another reason to choose an experienced payroll provider with a good reputation and track record is to avoid payroll errors, like over and underpaying employees, as this could cost your company more money than you anticipated.
  • Service fees – Be on the lookout for additional service fees that were not discussed with you prior to signing up with the payroll processing service. When in doubt, always ask about any additional fees before agreeing to the service.
  • Termination fees – Ask about any termination fees if you have to cancel your payroll processing service before the end of the contract period.
  • Integration fees – You may incur costs associated with switching from your current payroll software to the payroll processor's software. Always ask about the ease of integration or the average difficulty clients have in making the switch.

Cost-saving Tips

To ensure that your payroll costs are affordable, don’t be afraid to negotiate with the payroll company. You may be able to bundle payroll services or get the total cost of the service reduced. It’s also important to take steps to streamline your payroll processes. You can do this by reducing the number of payroll transactions and minimizing your need for customizations. Your payroll processor may also be able to provide you with tips to streamline your payroll.

Benefits of Outsourcing Payroll

If you’re on the fence about outsourcing your payroll due to the costs, you may be surprised to find out that the benefits outweigh any additional costs. After all, outsourcing your payroll with a payroll processor like Exact Payroll, can reduce your workload so that you can focus on maximizing the productivity of your business and increasing revenue. You’ll also have peace of mind knowing that your payroll is accurate and complies with all applicable labor and tax laws. Your employees may also have improved morale, knowing that they can manage their benefits through a self-service portal and always get paid on time.

Consider partnering with Exact Payroll for all your payroll processing and employee benefits needs. Choosing us means that your payroll is in good hands. To learn more about our payroll processing services, call us at 866-987-9898.

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