Most small business owners who run payroll themselves have never actually calculated what it costs them. They know the price of their software subscription. They might know what they pay their accountant for a year end tidy up. But they almost certainly haven’t added up the hours they spend each month processing pay runs, chasing HMRC queries, updating tax codes, and keeping up with legislative changes. When they do, the numbers usually surprise them.
This guide breaks down the real cost of running payroll in house versus outsourcing it, specifically for micro businesses (1 to 9 employees) and small businesses (10 to 49 employees) in the UK.
The time and cost figures below are illustrative examples, not a quote. Your actual return will depend on headcount, pay frequency, complexity and the value of the time released.
The true cost of in house payroll
Start with time. A business owner or office manager running payroll for a small team of five to ten employees typically spends between three and five hours per month on payroll processing alone. That covers entering hours, running calculations, generating payslips, submitting the FPS to HMRC, making BACS payments, and filing pension contributions. Add on time for handling starters and leavers, actioning tax code changes, processing statutory payments, and dealing with employee queries, and it can easily stretch to six or seven hours in a busy month.
For a business owner whose time is worth £50 per hour (conservative for most SME owners), that’s £250 to £350 per month in opportunity cost. That’s time not spent winning new clients, managing operations, or doing the work that actually generates revenue.
Then there’s software. Cloud based payroll software in the UK costs between £5 and £25 per month for basic packages. More capable systems that handle auto enrolment, CIS, and benefits in kind typically cost more. On top of that, most software requires annual updates for new tax year thresholds and rates, which may or may not be included in the subscription. Errors add another cost that is harder to predict. When an error results in an employee being underpaid, overpaid, or a late RTI submission, the cost isn’t just the correction time. It’s potential HMRC penalties (starting at £100 per late FPS), employee trust damage, and in some cases employment tribunal exposure. The benefits of outsourcing payroll extend well beyond the monthly fee.
What outsourced payroll actually costs
Payroll outsourcing prices vary by provider, service level, pay frequency and complexity; compare a written quote with the full in-house cost rather than software cost alone. A micro business with five employees paid monthly might pay between £20 and £50 per month for a fully managed bureau service. A small business with 20 employees could expect £100 to £200 per month.
A fully managed service means the bureau handles everything: processing the pay run, submitting the FPS and EPS to HMRC, generating compliant payslips, calculating statutory payments, managing auto enrolment, issuing P45s and P60s, and handling year end filing. The employer’s role reduces to providing the input data each month (hours worked, new starters, leavers, pay changes) and reviewing the output before it’s finalised.
Purely Payroll’s pricing is structured per employee, per pay run, scaling by headcount and pay frequency. For most micro businesses, the monthly cost is a fraction of what the equivalent time and software would cost in house. You can see the full breakdown on our transparent payroll pricing page.
The ROI calculation
Let’s run a realistic example for a micro business with eight employees.
In house costs per month: Owner’s time (5 hours at £50/hour) = £250. Software subscription = £15. Pension platform fees = £30. Total: approximately £295 per month, or £3,540 per year. This excludes the cost of errors, which can add hundreds or thousands more if penalties are triggered.
Outsourced costs per month: Fully managed bureau at £6 per employee = £48 per month, or £576 per year.
Annual saving: approximately £2,964 per year. That’s before accounting for reduced error risk, no software to maintain, no year end filing to manage, and no need to track legislative changes yourself.
The ROI improves further as employee numbers grow, because the owner’s time per pay run increases with each additional employee while the per employee outsourcing cost stays the same or decreases.
What the numbers don’t show
The financial calculation is only part of the picture. There are costs that don’t appear on any spreadsheet but matter enormously to small business owners.
Single point of failure. If you’re the only person who knows how to run payroll, what happens when you’re ill, on holiday, or unavailable on payday? In house payroll in most small businesses runs through one person. When that person isn’t available, payroll either doesn’t happen or gets done badly by someone unfamiliar with the process. A payroll bureau operates regardless of your availability.
Legislative burden. Employer NIC thresholds, NMW rates, student loan plan types, statutory payment rates, auto enrolment thresholds, and benefits in kind rules all change regularly. In 2026/27 alone, employers need to handle new SSP rules, Student Loan Plan 5, and prepare for mandatory payrolling of benefits in kind from April 2027. Keeping up with all of this is a job in itself.
Mental load. Payroll sits in the back of every business owner’s mind throughout the month. Deadlines, accuracy, HMRC compliance. Outsourcing removes that entirely. It’s one fewer thing to worry about, which has real value even if it doesn’t show up in a cost comparison.
The decision to outsource payroll is rarely about a single number. It’s about whether the time, risk, and mental energy are worth the relatively modest cost of having a specialist handle it. For most micro and small businesses, the answer is clearly yes. Read what our clients say about the difference outsourcing has made, or get in touch to discuss how we can help your business.
Recent Comments