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How Much Does It Cost to Outsource Payroll

How Much Does It Cost to Outsource Payroll

Wondering about the cost of outsourcing payroll for your business? Payroll is crucial for keeping employees happy and staying compliant. Whether you’re a small or big company, as you grow and deal with workers in different states, payroll can get complex. If you’re considering outsourcing, you might be curious about the cost.

In short, it’s affordable. On average, you can expect to pay around $1.50 to $5 per month per employee and if you talk about the price in India then it can be around ₹150 to ₹200 per employee per month in India. This cost varies based on different factors like location. In this article, we’ll break down the pricing approaches, factors that might increase the cost, and ways to save on outsourcing.

By the end, you’ll have a clear idea of what to budget for payroll outsourcing. If you need more guidance on payroll services and how they match your business needs, check out our complete guide to payroll solutions.

How does payroll pricing work?

Payroll companies charge businesses in different ways, but three common methods stand out. Generally, the fees mainly cover payroll processing, and any extra services come with separate costs, which we’ll discuss later.

Let’s break down the average costs for a company with 10 employees paid bi-weekly in the examples below.

1. Per Frequency

Charging per pay frequency is the most common method. It means you pay for each employee every pay period, no matter how often you pay them (weekly, bi-weekly, semi-monthly, or monthly). Usually, the fees include a base fee and a charge for each employee paid.

This is suitable for businesses with predictable payrolls and few changes. If that’s your case, expect individual employee charges ranging from $1.50 to $5 per employee, and base fees per pay period between $20 and $70. For example, with a $3 fee per check and a $35 base fee, you’d pay around ₹10,220 per month (considering 1 USD = 74 INR).

2. Per Employee Per Month (PEPM)

This pricing structure is gaining popularity because it often saves employers money. Instead of paying fees for each payroll, with PEPM, you can run unlimited payrolls and pay one monthly base fee plus a fixed rate for the number of employees you pay each month.

This is a good choice for companies with additional payroll runs for bonuses or commissions. For a base fee of about $75 (₹5,550) and around $6 (₹444) per employee, your total charge for the month, in our example, would be roughly ₹15,990.

3. Fixed Pricing

Some situations, especially with Do-It-Yourself (DIY) online solutions, involve a fixed rate per month covering a set number of employees or a range (e.g., $65 (₹4,810) for 1-9 workers, $125 (₹9,250) for 10-20, and so on).

This is the only fee for payroll processing, regardless of how often you pay your employees each month. Keep in mind that some companies may limit the number of employees you can process payroll for. However, if you’re relatively small and your employee count is steady, this can be a simpler, less expensive approach to outsourcing payroll.

What makes payroll services cost more or less?

1. Number of Employees:

If you have more employees, the cost tends to be higher.

Statistic: On average, businesses with over 100 employees pay 30% more for payroll services.

2. Payroll Schedule and Frequency:

The more often you run payroll, the higher the cost may be.
Statistic: Companies with weekly payrolls spend 20% more on payroll services compared to those with bi-weekly schedules.

3. Required Payroll Service Features:

Additional features or complexity can increase costs.
Statistic: Businesses using advanced payroll features pay 15% more for services than those with basic requirements.

4. Type of Deposit:

Choosing direct deposit or other methods may affect costs.

Statistic: Companies opting for paper checks as the primary payment method spend 25% less on payroll services than those using direct deposit.

Simple Ways to Save Money on Payroll Outsourcing

Saving money on payroll outsourcing is crucial for businesses. Let’s explore five practical ways to manage costs effectively:

1. Choose Direct Deposits

Using accounting software for direct deposits can save you money. The cost is usually below $2 per paycheck, which is significantly less than what many Managed Payrolls charge.

Statistical Insight: On average, businesses can save over 30% on payroll processing costs by opting for direct deposits.

2. Adjust Payroll Periods

The frequency of your payouts affects outsourcing costs. If you switch from weekly to biweekly payments, you could cut your expenses in half.

3. Statistical Insight:

Businesses that shift from weekly to biweekly payments typically reduce their annual payroll outsourcing expenses by around 50%.

4. Avoid Penalties

Many small and medium-sized companies face hefty fines due to miscalculations and filing errors. The average penalty amounts to several hundred dollars annually. Emphasizing accuracy can significantly reduce these unnecessary expenses.

Statistical Insight: Businesses that prioritize accuracy in payroll processing can reduce penalty expenses by up to 40%.

5. Utilize Interns

Hiring and nurturing young talent is a cost-effective strategy. Developing interns allows you to save money while fostering bright professionals.

Statistical Insight: Businesses employing interns can cut labor costs by approximately 25% compared to hiring experienced staff.

6. Opt for Adhoc Workers

Temporary workers from reputable agencies offer a valuable resource. The staffing agency handles their payrolls, reducing your overall job expenses.

Statistical Insight: Businesses that utilize adhoc workers can save up to 20% on payroll processing and administrative costs.

By implementing these strategies, businesses can not only streamline their payroll processes but also achieve substantial cost savings.

How to Choose the Best Payroll Outsourcing for Your Business

Which is the best payroll software in India? Choosing the right payroll outsourcing for your business is a big decision, and there are many things to think about. Cost is just one factor. Start by finding out which companies are the best in your region or nationally. If you’re thinking about working with Complete Payroll Solutions, check out the costs for each package we offer. To make it easier, let’s break it down and look at some numbers.

Choosing HivePyroll as your Outsourced Payroll Company:

HivePyroll is a well-established company that has a track record of delivering top-notch payroll services to businesses of all sizes. We are a leader in the industry with the know-how to manage your important reporting and processing tasks. Our goal is to make sure your pay cycles run smoothly and align with your business operations. Our experienced payroll service providers also guarantee complete compliance.

Here’s why you should choose HivePyroll:

We offer reliable cloud-based payroll software at a competitive cost. You can trust that your payroll needs are in capable hands.

In summary:

HivePyroll provides affordable payroll services for businesses of any size. We cater to all types of payroll needs, whether they’re straightforward or more intricate. We collaborate with employers to find the right setup for their business that also fits their budget. Checkout our payroll software pricing.

Frequently Asked Questions

Outsourcing payroll can be particularly advantageous for small to medium-sized businesses. Research indicates that outsourcing can lead to significant cost savings and increased efficiency. For instance, a study by PricewaterhouseCoopers (PwC) found that companies can save up to 18% by outsourcing their payroll functions. The time and resources required to manage payroll in-house often surpass the cost of outsourcing. For example, a company that spends ₹10,000 per month on payroll outsourcing services can often save more than this amount in administrative costs, software, and employee hours otherwise spent on managing payroll internally.

1. Cost of Goods Sold (COGS):

If a business sells products or services, payroll fees can be classified as COGS. This categorization is appropriate when payroll expenses are directly tied to the production of goods or delivery of services. For example, if a business employs 10 workers at a payroll fee of ₹82,000 (approximately $1,000) per employee per month, the total monthly payroll expense of ₹8,20,000 would be subtracted from the revenue to determine the gross profit.

2. Operating Expense:

Payroll fees can also be classified as operating expenses, which are necessary for the business's day-to-day operations but not directly tied to revenue generation. For instance, the same business with 10 employees incurs ₹8,20,000 monthly in payroll fees. This amount would be deducted from the revenue, but as an operating expense rather than directly reducing the COGS.

3. Non-Operating Expense:

In some cases, payroll fees might be categorized as non-operating expenses. This classification is less common and typically used for expenses not essential to the core business functions. Using the previous example, the monthly payroll expense of ₹8,20,000 would be accounted for as a non-operating expense, thus not impacting the gross profit but affecting the net profit.

Outsourcing HR and payroll can significantly benefit businesses by managing critical, yet time-consuming tasks such as payroll processing, tax compliance, and employee management. According to a Deloitte survey, 59% of businesses outsource to reduce costs, while 47% aim to focus on core business functions. This allows companies to streamline their operations and ensure compliance with regulatory requirements, thereby avoiding costly penalties.

A payroll fee is the charge incurred for payroll services provided by an external provider. This fee typically includes processing employee payments and managing tax withholdings. For instance, if a payroll provider charges ₹246 (approximately $3) per employee per pay period and a company pays its employees bi-weekly, the monthly payroll fee per employee would be ₹492.

Standard costing in payroll involves using a predetermined, fixed cost for labor, rather than the actual cost. This method is often used in project-based industries like construction. For example, a contractor might use a standard labor cost of ₹20,000 per employee per month, regardless of the actual cost, to simplify budgeting and project costing.

Outsourcing payroll refers to the delegation of payroll processing and related tasks to an external agency. This can include an individual or a specialized payroll provider. When payroll tasks are managed outside the company, they are considered outsourced. In contrast, managing payroll in-house involves handling all payroll processes within the company, requiring dedicated staff and resources. Outsourcing can lead to more accurate, timely payroll processing and ensure compliance with various regulations.

Outsourcing payroll involves hiring a third-party firm to manage your company’s payroll tasks. These firms may focus solely on payroll or offer additional HR services.

Outsourcing payroll saves time and reduces costs, maintains tax accuracy, ensures compliance, provides security, eliminates software concerns, spreads out support, and offers direct deposit.

For many small or medium businesses, outsourcing payroll is cost-effective. The time and resources saved typically outweigh the expense of a dedicated payroll service.

In payroll outsourcing, a third-party firm takes over payroll responsibilities, ensuring timely and accurate salary and wage management, along with compliance and tax accuracy.

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