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How Much Do Payroll Services Cost For Small Business?

Updated: Sep 27, 2023

What Are Payroll Services?

Payroll services are specialized services that handle the payroll process for businesses. This includes calculating employee wages, deducting taxes, and ensuring that employees are paid on time. In essence, payroll services take the burden of payroll management off your shoulders, allowing you to focus on other aspects of your business.

How Much Do Payroll Services Cost

Payroll services outsourcing involves outsourcing payroll accounting to a payroll accountant. This fully automated payroll approach will save you time and effort and help you comply with labor laws. Your payroll provider will contact HMRC on your behalf. This includes handling the calculation of tax deductions on your employees' gross salary, as well as deductions for sick pay and student loans. That way, you reduce the likelihood of fines.


Why Outsource Payroll?

  1. Time-Saving: Payroll processing is time-consuming. Outsourcing frees up time that can be better spent on strategic business activities.

  2. Expertise: Payroll companies have the expertise to handle complex tax codes, ensuring compliance and accuracy.

  3. Cost-Effective: While there's a cost to outsourcing, the time and resources saved often outweigh the expenses.

  4. Scalability: As your business grows, your payroll needs will too. Payroll services can easily adapt to your changing needs.

The Growing Trend of Outsourcing Payroll in the UK

In the UK, the trend of outsourcing payroll has been on the rise, especially among small businesses. According to a survey, about 45% of small businesses in the UK outsource their payroll. The reasons are clear: it's about efficiency, expertise, and peace of mind.


The Importance in the Context of the UK

The UK has a complex tax system with frequent changes in legislation. Non-compliance can result in hefty fines. Moreover, the introduction of Real Time Information (RTI) and Automatic Enrolment for pensions has made payroll even more complicated. Therefore, for a UK-based business, outsourcing payroll is not just a convenience but a necessity.


Initial Costs

According to information from according to a report, payroll services in the UK start from as low as £20 per month for basic services to any number depending upon the number of employees. However, the cost can go up depending on the complexity and the size of your business. Expert Market suggests that additional fees may apply for services like tax filing and year-end reports.



Types of Fees Charged by Tax Accountants


Fee Type

Description

Average Cost in the UK

Setup Fee

One-time fee for setting up the payroll system

£50 - £100

Monthly Fee

Recurring fee for payroll processing

£20 - £50 per employee

Additional Services

Fees for extra services like tax filing, benefits administration, etc.

Varies

Year-End Tax Filing

Fee for preparing year-end tax documents

£100 - £250

Compliance Fee

Fee for ensuring compliance with UK tax laws

£50 - £150

Accountant Fees Per Employee for Payroll Services


Fee Type

Description

​Average Cost in the UK per Employee

Initial Setup

One-time fee for setting up each employee in the payroll system

£2 - £5

Monthly Processing

Monthly fee for processing each employee's payroll

£2 - £25 per month

Fully Managed Service

Complete outsourcing of your payroll to a third-party provider

£4 - £25 per month

Payslip Generation

Fee for generating and distributing payslips

£1 - £2

Part Managed Service

Outsourcing certain parts of your payroll while keeping other bits in-house

£2 - £4 per month

Pension Plan Auto-Enrolment

Fee for auto-enrolling staff into pension plans

£1.50 - £2 per month

HR Integration

If you want integrated HR and payroll management

£10 - £25 per month

Compliance Checks

Fee for preparing year-end tax documents like P60s for each employee

£5 - £10



In addition, payroll service providers answer all questions from their employees and prepare and distribute P45 and P60 paychecks. This relieves you of other work and allows you to focus on what's important in your business.


Online Payroll Services: What Does It Mean?

In today's digital age, it's probably no surprise to learn that there are many payroll services online. This means that all your payroll needs in the UK are taken care of in-house. You don't have to rely on finding a provider near you to meet your payroll needs.

There are many different benefits associated with using online payroll solutions and staffing solutions. It's much more convenient since everything can be managed remotely. However, it also means you have a much wider choice of payroll providers, making it easier to find the right payroll provider for your business.


However, you should be careful when using any type of online service. You need to make sure the company is legitimate and has the proper registrations and licenses. Some companies claim to offer service in the UK without having a UK-based team, which could hurt customer service.


You want someone who understands UK payroll and HR regulations, and data protection and has a good track record with UK businesses, so you need to do your due diligence. We also encourage you to take the time to read the reviews of others so you can be sure that the company has an excellent reputation in the industry.


Small Business Payroll: What Are The Options?

Today, there are several different payroll options for small businesses. It's important to think carefully about what you expect from a payroll service provider before researching the right company for you, as this will help you narrow your search more effectively.

One option that many people use frequently is the ability to outsource all of their payroll obligations to an experienced payroll clerk. This is named a fully managed service. This means you don't have to worry about internal payroll accounting processing.


However, if you already have experience in your business, you may wish to manage some aspects of payroll in-house and there is an option to do this with a partially managed service. You can choose which payroll service your company will handle, and then you can outsource the other items to a trusted payroll provider.


You also have the option of simply outsourcing your payroll software. This means that you manage payroll in-house, but use a payroll software provider to ensure that you have the best technology to automate your payroll. It also means you have a support team to turn to if you have a problem with the software you're using.



How to Use Payroll Services - A Step-by-Step Guide Using an Accountant


Introduction to Using an Accountant for Payroll

When it comes to payroll services, you have two main options: Full-service payroll and DIY payroll. Full-service payroll is generally simpler but costs more. It requires the use of employee management software as the provider needs to access workers' timesheets and employment terms. On the other hand, DIY payroll is cheaper but involves splitting tasks with the provider. For instance, you might keep employee records, but the provider takes care of sending payments and calculating taxes.


Step 1: Choose the Right Payroll Service

The first step is to choose the right payroll service that fits your business needs. Payroll outsourcing is best for small companies with fewer than 25 employees. Make sure to vet and demo the chosen company before proceeding.


Step 2: Plan the Switch

Most managers look to outsource their payroll about three months before the financial year starts. So, if your financial year ends on March 31st, start the process no later than December.


Step 3: Consult Your Accountant

Your accountant can provide valuable insights into which payroll service to choose and how to make the transition smooth.


Step 4: Set Up Employee Information

Provide the payroll service with all the necessary employee information. This includes tax codes, salaries, and any other deductions.


Step 5: Run a Test Payroll

Before fully committing, run a test payroll to ensure everything is working as it should.


Step 6: Go Live

Once you're satisfied with the test, you can go live. Your accountant will usually handle this part, ensuring that all payments are made on time and all necessary tax deductions are correctly calculated.


Step 7: Regular Check-ins

Regularly check in with your accountant to review the payroll summaries and any tax updates.


Step 8: Year-End Procedures

At the end of the financial year, your accountant will prepare all the necessary tax documents, including P60s for your employees.


Benefits of Using an Accountant for Payroll

  1. Expertise: Accountants are well-versed in the UK's complex tax system.

  2. Time-saving: Your accountant will handle all the payroll tasks, freeing you to focus on your business.

  3. Cost-effective: While there's a cost involved, the benefits often outweigh the expenses.

  4. Compliance: Accountants ensure that you're compliant with all UK tax laws, providing peace of mind.


What Changes The Price Of Payroll Services?

The price of hiring a payroll company depends on several factors, including:

• Number of employees

• Pay Frequency

• Determine the costs

• Additional lines


How Much Do Payroll Companies Charge?

Payroll costs start at around £4 per employee per month, but prices can range from £4 to £12 per month for an employee depending on the size of your company.


The biggest factor influencing how much you'll pay is the number of employees currently working for your business. This is because most payroll providers tend to charge per employee per month. Of course, don't assume that's the case. Please check the terms and conditions of each provider to ensure this is the case.


How Much Do Payroll Services Cost For Small Business


Can I Manage Payroll Internally?

Yes, you can. However, you need dedicated staff with payroll experience, or at least have the experience yourself. If you don't have either and have less than three employees, you'll probably soon find that internal payroll is a daunting task.


Also, hiring someone to handle your payroll in-house is a less reliable solution than outsourcing. If your payroll manager gets sick or just decides to take up the baton and go on an all-inclusive trip to the Caribbean, then your payroll services stop with them.


Is It Cheaper To Outsource Your Payroll Or Hire Payroll Expert?

The short answer to that question is: It depends. The cost of outsourcing payroll can often be less than hiring your own payroll expert, but this depends on the size of your business. Using internal payroll may mean hiring new employees, training existing employees, or implementing new software. So you have to do the math to see which option is cheaper.



Factors Affecting the Cost of Payroll Services and Fee Structure


Introduction to Cost Factors

Understanding the cost of payroll services is crucial for small businesses, especially those operating on a tight budget. The cost isn't just about the service fee; several factors can influence the overall expense. Let's delve into these variables and also look at the types of fees you might encounter.


Number of Employees

The more employees you have, the more complex the payroll process becomes. Many payroll services charge per employee, so this is a significant factor in the overall cost.


Frequency of Payroll

Whether you pay your employees weekly, bi-weekly, or monthly can also affect the cost. More frequent payments could mean higher fees.


Additional Services

Some businesses require additional services like retirement plan administration, time tracking, or benefits management. These services come at an extra cost.


Geographical Location

Operating in multiple locations, especially across different tax jurisdictions, can complicate payroll and thus increase costs.


Type of Employment

Full-time employees, part-time workers, and freelancers have different tax requirements, affecting the complexity and cost of payroll services.


Compliance and Tax Filing

Ensuring compliance with UK tax laws is crucial. Some payroll services offer tax filing as part of their package, while others charge extra for this service.


Software Integration

If you require the payroll service to integrate with other software like HR or accounting systems, there may be additional fees.



The Advantages of Outsourcing Payroll Services to a Payroll Accountant


The Advantages of Outsourcing Payroll Services to a Payroll Accountant

Managing payroll is a critical yet time-consuming task for any business. It's not just about cutting checks or making direct deposits to employees; it involves a lot more. From calculating taxes and deductions to complying with various laws and regulations, payroll management can be a complex process. This is where outsourcing to a payroll accountant can be a game-changer for your business. Let's delve into how this decision can benefit you.


Expertise at Your Disposal

Payroll accountants are experts in their field. They are well-versed in all the laws, regulations, and deadlines you need to meet. They can efficiently handle tasks such as tax calculations, deductions, employee benefits, and more. Their expertise ensures that you are compliant with all legal requirements, reducing the risk of costly mistakes or penalties.


Time-Saving

Time is money, especially in business. Handling payroll in-house can be time-consuming, taking away valuable hours that could be better spent on core business activities. When you outsource to a payroll accountant, you free up time for you and your staff to focus on growth, customer service, and other critical areas of your business.


Cost-Effective

While it may seem like an added expense, outsourcing can actually save you money in the long run. Consider the costs of hiring an in-house payroll team, including salaries, benefits, and overheads. Then add the cost of software, training, and other resources. When you outsource, you only pay for the service you need, and you can scale it according to your business size.


Enhanced Security

Payroll processing involves handling sensitive data, including employee information and financial records. A professional payroll accountant uses secure systems to protect this data, ensuring that it's safe from fraud or any unauthorized access. This level of security is often hard to achieve with in-house resources unless you invest heavily in secure software and training.


Streamlined Processes

A payroll accountant can help streamline your payroll processes, making them more efficient and less prone to error. They can automate many of the tasks involved, from calculating pay and deductions to generating reports and payslips. This not only speeds up the process but also makes it more accurate.


Flexibility and Scalability

As your business grows, your payroll needs will change. An outsourced payroll service can easily adapt to these changes, whether you're hiring new employees or expanding into new markets. This flexibility means you don't have to worry about outgrowing your current system or having to invest in a new one.


Stress Reduction

Let's face it, payroll can be stressful. There's a lot at stake, from employee satisfaction to legal compliance. Outsourcing this function removes a significant burden from your shoulders. Knowing that experts are handling your payroll allows you to focus on running your business without the constant worry about making mistakes or missing deadlines.



In conclusion, outsourcing your payroll to a qualified accountant offers a range of benefits that go beyond mere convenience. It's a strategic decision that can save you time, money, and stress while allowing you to focus on what you do best—growing your business.


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1 Comment


cheylesmore89
Nov 19, 2022

I really impressed by your blog, your blog is informative.

I read your blog and great text wrapping present tips and ideas.

you simply informative to understanding about payroll and its services.

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