How much do payroll services cost? A guide for all budgets

Effective payroll management is a business essential—and a business expense. Payroll services costs add up quickly, so business owners need to know what influences these costs before they can make the best possible decisions for their companies.

In this guide, we’ll explain the main factors influencing payroll costs to help you choose a payroll services provider that meets your needs without breaking the bank.

What is a payroll service?  

A payroll service is a third-party provider that manages payroll for businesses. These providers handle essential, time-consuming payroll tasks, saving time for company owners and their teams. Many payroll services offer packages with human resources (HR) services and other features, making them comprehensive business solutions.

Here are some functions typically provided by payroll providers: 

• Payroll calculation
• Direct deposits
• Tax compliance
• Employee attendance tracking
• Benefits administration
• Reporting  

How much do payroll services cost?  

The cost of a payroll service varies according to the size of your business and how much support you need. Prices typically start at approximately $39 monthly but can cost significantly more. We recommend shopping around for the best quotes.

Here are five standard payroll expenses:

• Base subscription fees: This is the regular monthly or annual fee for access to the payroll service. 
• Setup and support fees: Most payroll systems require initial setup costs and ongoing support fees. 
• Compliance fees: You’ll pay an additional fee for managing payroll and compliance.
• Per-employee or per-transaction fees: Payroll processing fees vary depending on the number of employees and transactions your business needs processed. 
• Add-on fees for additional features: For an added fee, some payroll services offer extra services (e.g., advanced payroll reports, HR support, HR software, direct deposit, tax forms, and tax filing). 

How is payroll pricing structured? 

Understanding how payroll processing is priced will help you choose the best provider for your company. Here are a few common pricing structures:  

Per frequency

Some service providers charge fees per frequency, with the total cost depending on the number of transactions required. Expenses scale with the size of your team and how many pay periods you have each year.

For example, if you pay employees biweekly, you would pay a base fee plus a set payroll cost per employee every other week. This pricing structure is the most common, and it’s ideal for companies with predictable payroll schedules.

Per employee per month (PEPM)

The PEPM pricing structure charges a flat monthly fee for the software and services plus a fixed rate per worker. Instead of paying every pay period, this structure permits unlimited payroll runs, so you can pay team members more often without added expense.

This structure is excellent for companies that regularly pay out commissions and bonuses. It can become quite expensive if you have a large company with many staff members.  

Fixed pricing 

Some payroll providers offer a fixed monthly rate with no per-employee fee. This simple option can simplify budgeting for your business.

Also called annual fee pricing, this structure is typically reserved for small companies with limited employees, but it can be a cost-effective option for such businesses. Some payroll service providers even offer discounts if you pay the entire annual fee up front.  

Software fees 

If you prefer a do-it-yourself approach, you can purchase payroll software to pay your employees. Typically, payroll software requires a monthly or annual fee plus additional costs per employee—often lower than the other pricing structures available. If you want to save money and are OK with hands-on payroll management, this could be a good option.

What influences the cost of payroll services? 

Several factors can drive up the cost of payroll services, including the following:  

Number of employees

Because payroll providers often charge a per-employee fee, your payroll costs grow alongside your team. Each additional employee will cost you, so look for a scalable payroll solution that suits your business’s size and needs.

Payroll frequency 

How often you run payroll can directly impact your costs. More frequent paydays typically lead to higher fees, so consider whether you want to pay staff weekly, biweekly, or monthly. Align your pay schedule with your business’s cash flow to help manage these costs. 

Required features 

Payroll costs vary according to the features your business needs. Some small businesses only need a basic package that covers simple payroll processing, whereas larger companies may require advanced features, such as automated tax filing, benefits administration, or HR support.

These features are pricier. Avoid overspending by choosing the features you need and opting out of the rest.  

Direct deposit costs

Many employees prefer direct deposit, but payroll providers often charge more to set up and maintain this convenient option. This feature can increase costs, but it’s usually worthwhile— providing secure, timely payments to team members boosts morale and overall employee satisfaction. Some payroll providers charge more for issuing paper checks to pay employees.

How to reduce payroll costs

You can minimize payroll costs and maximize productivity using these simple tactics:

Automate tasks

Reduce payroll costs by automating as many tasks as possible. Payroll automation uses technology to manage payroll tasks you’d typically perform manually, such as time tracking, tax calculation, and wage dispensing. Automating administrative and HR functions with specialized software yields many benefits. It saves time and minimizes errors, ultimately increasing your profits.

Give team members access to their information

You can also reduce payroll costs by letting team members manage their own information. Administration is more straightforward when staff can update their details independently, allowing your HR team to spend more time on other tasks and boosting productivity.

Carefully select your payroll provider

Compare providers and choose one that suits your needs and offers additional services, such as employee benefits management and HR services. Choosing a single provider for a range of services saves money and simplifies workflows.

Evaluate your payroll services regularly to avoid paying for unused features. If you identify something you don’t need, contact your provider about modifying your plan.

Human and software errors also contribute to high payroll service costs. Do your research and choose a highly rated provider with good reviews and robust features. If you maintain internal payroll staff, hire experienced, knowledgeable, and trustworthy individuals.

Frequently asked questions 

What is decentralized payroll?

Whereas most payroll systems are managed centrally, decentralized payroll systems distribute responsibilities across various departments or entities. Companies with international workforces can pay employees via regional entities that employ them on behalf of the parent organization.  

Are payroll services worth it? 

Payroll services are worthwhile because they save time and reduce errors when paying employees. Payroll outsourcing companies also ensure compliance with local tax regulations. They automate and simplify payroll processes while providing expert support to you, your team, and your overall business.  

How much should small businesses spend on payroll?

Payroll costs vary, but small businesses should typically designate 20–30% of the company’s gross revenue toward paying employees.

Can you do payroll yourself? 

You can handle payroll yourself, but leaving it to the experts is often easier. The task requires a robust understanding of taxes and regulations, making DIY payroll challenging and time-consuming. Mistakes can be far-reaching and costly, exposing your business to serious liability. Outsourcing payroll is more efficient and reliable.

Maximize payroll efficiency with Oyster 

Oyster offers global payroll services for internationally distributed teams. The platform provides a streamlined solution for efficiently managing your company’s payroll, helping you consolidate payroll tasks and promptly pay team members worldwide. With Oyster’s global payroll solution, you can process payroll in 140+ currencies with over 99% accuracy. Whether you work with full-time employees or contractors, Oyster provides seamless integration and comprehensive support.  

About Oyster‍

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.