How much do payroll services cost?
How much do payroll services cost?
$175 – $300 average cost per month (small business - 25 employees)
$550 – $1,100 average cost per month (medium business - 100 employees)
Payroll services cost
Payroll service rates range from $175 to $300 per month for a small business of 25 employees, and up to $2,500 to $3,000+ per month for a large organization employing 500 people. Besides business size, payroll service pricing depends on the location, provider, fee structure, and specific services and support included.
| Business size | Average cost per month* |
|---|---|
| Small (25 employees) | $175 – $300 |
| Medium (100 employees) | $550 – $1,100 |
| Large (500 employees) | $2,500 – $3,000+ |
*Based on a $50 to $60 base fee, plus $5 to $10 per employee, with a reduced rate for large businesses.
What are payroll services?
Payroll services handle the process of paying employees and managing related tax obligations. These services typically include calculating wages, withholding taxes, generating pay stubs, and filing payroll taxes. Many providers also offer additional features such as time tracking, benefits administration, and HR support.
Why use a payroll service?
Using a payroll service ensures your employees are paid correctly, taxes are filed accurately, and you're in compliance with all applicable regulations.
Businesses choose to use payroll services for several reasons:
Time savings: Outsourcing payroll frees up valuable time for business owners and managers.
Accuracy: Professional services reduce the risk of costly errors in tax calculations and filings.
Compliance: Payroll service providers stay up to date with changing tax laws and regulations, and many provide tax guarantees.
Employee satisfaction: Consistent, accurate paychecks contribute to employee trust and satisfaction.
Fraud prevention: Outsourcing can protect your business from payroll fraud.
Factors that impact payroll service rates
Several key factors influence the cost of payroll services:
Number of employees: The size of your workforce is often the most significant factor in determining payroll costs. Most providers charge a base fee plus a per-employee rate.
Payroll frequency: How often you run payroll (weekly, bi-weekly, or monthly) can affect the overall cost. More frequent payroll runs typically result in higher costs.
Industry / complexity: Some industries have more complex payroll needs, such as managing shift differentials in the healthcare industry and handling the special tax implications of gratuity for restaurant employees. These complexities often require more costly, higher-tier service plans.
Locations: Operating in multiple states or countries increases payroll complexity and cost due to the varying tax laws and regulations.
Required features: The higher the service level, the higher the cost. Basic payroll processing is typically less expensive than comprehensive services that include HR support, benefits administration, and time tracking.
Check vs. direct deposit: While many providers include direct deposit in their base fee, some may charge extra for this service. However, issuing paper checks may be more expensive due to the check signing and envelope stuffing.
Bundles / packages: Some providers offer bundled services that can provide cost savings compared to à la carte options.
Automated software: Fully automated payroll software can be more cost-effective for some businesses compared to full-service options.
Reputation: Well-established, top-rated payroll services may charge higher rates for their services.
Pricing structure
Payroll service companies use varying fee structures. The most common method includes a base fee plus a fixed fee per employee. Some providers charge these fees monthly, while others charge them per pay period. The fee amounts vary depending on the services included.
The best option for you depends on your business size and complexity. Here's a breakdown of several common payroll service pricing models:
| Fee structure | Description |
|---|---|
| Per pay frequency |
|
| Per employee per month (PEPM) |
|
| Fixed rate |
|
| Percentage |
|
Monthly base fees range from less than $20 to $200 or more, while the per-employee fees range from $2 to $20, depending on the level of service and support provided.
Many providers offer tiered pricing with basic, advanced, and premium service packages.
Some providers offer a "contractor only" pricing model for businesses with no W-2 employees, charging only a flat fee per contractor, with no base fee.
The PEPM fee structure can be a cost-effective choice for businesses with more complex payroll needs, such as those with employee commissions and periodic bonuses, as the monthly fee remains the same regardless of how many times the employees are paid.
Additional fees and hidden costs
Many payroll providers offer a range of services beyond payroll processing. These add-ons can increase costs by $1 to $10 per employee per month or more. Depending on what is included in the provider's base rate, extra fees may apply for:
Employee onboarding tools
Benefits administration
Time and attendance tracking
Workers' compensation insurance
HR support and consulting
Performance management systems
Printing and check delivery
Multi-state payroll
State and federal tax filing
Tax form processing (W-2, 1099, etc.)
Year-end reporting
Customer support
Always clarify what is included in the base fee and what is considered an add-on to avoid unexpected costs. Many providers charge a one-time setup fee for initial setup and configuration.
In-house vs. outsourcing
When deciding whether to handle payroll in-house or outsource, consider the benefits and drawbacks of each:
| Payroll type | Pros | Cons |
|---|---|---|
| In-house |
|
|
| Outsourced |
|
|
Payroll software
Businesses looking for low-cost payroll services often opt for DIY online payroll software because it offers an affordable balance between cost, control, and convenience.
Payroll software solutions often provide:
User-friendly interfaces for payroll processing
Automated tax calculations and filings
Employee self-service portals
Integration with time tracking and accounting software
Customer support for troubleshooting
While there are low-cost payroll software options, pricing varies significantly depending on the features and support included, with some options costing less than $10 per month and others costing $100 per month or more.
Accountant vs. bookkeeper for payroll services
Some businesses choose to work with an accountant or bookkeeper for payroll services. In most cases, hiring a bookkeeper costs less than hiring an accountant. However, accountants can handle more complex financial needs, and they can also handle the payroll taxes, whereas most bookkeepers only do payroll processing.
| Professional | Average hourly rate | Details |
|---|---|---|
| Bookkeeper | $40 – $100 per hour |
|
| Accountant | $150 – $400 per hour |
|
FAQs about payroll services
How do payroll services work?
Payroll services typically follow these steps:
Collect employee time and wage information.
Calculate gross pay, taxes, and deductions.
Process payments via direct deposit or check.
Generate pay stubs and reports.
File and pay payroll taxes to appropriate agencies.
How much do accountants charge for payroll services?
Accountants charge $150 to $400 per hour for payroll services, or they may offer fixed rates ranging from $70 to $500+ per pay cycle depending on the complexity of your payroll and the services provided.
Can I do payroll myself?
Yes, it's possible to do payroll yourself, especially for very small businesses. However, it requires a significant time investment and a thorough understanding of payroll taxes and regulations. Many small business owners find that the time saved and reduced risk of errors make professional payroll services worth the cost.
Tips for choosing a payroll service
While it represents an additional expense, the benefits and peace of mind often make professional payroll services a worthwhile investment. Follow these guidelines to help you choose a payroll service that best suits your business:
Assess your needs: Determine the features and level of service required for your business.
Compare costs: Get quotes from at least three providers and compare their pricing structures.
Evaluate features: Ensure the service offers all the functionality you need.
Check integrations: Look for compatibility with your existing accounting or HR software.
Read reviews: Research customer ratings and feedback for each provider.
Try before you buy: Take advantage of free trials or demos when available.
Questions to ask
When considering a payroll service, ask the following questions:
What is included in the base price, and what features cost extra?
How do you handle tax filings and payments?
What level of customer support do you offer?
How do you ensure data security and privacy?
Can your system scale as my business grows?
What is your process for correcting payroll errors?
Do you offer employee self-service options?
How do you stay current with changing payroll regulations?
Using our proprietary cost database, in-depth research, and collaboration with industry experts, we deliver accurate, up-to-date pricing and insights you can trust, every time.