How Much Does Outsourced Payroll Cost For A Small Business? [2024]

Updated: October 8th, 2022

What Is Payroll?

Payroll means the amount paid to employees for helping you out in your business. This includes salaries, wages, and other benefits.

This number depends on if you decide to pay yourself a salary upfront and how many employees you have on payroll. If you do plan to pay yourself, the average salary founders make is $50K.

How Much Does Running Payroll Cost?

Running payroll costs depends on several factors, but it can generally cost you a minimum of $150 per employee per year to a maximum of $250 per employee per year.

In other words, a business with 10 employees can cost annually:

  • You'd pay as little as $1500/year.
  • You'd pay an average of $2,000/year.
  • The maximum you'd pay is $2500/year, or more (as you hire an experienced staff).

Structure Of Payroll Pricing

The structure of payroll pricing, or pay scale, is a system that employers use to decide an employee’s compensation. Generally the things like merit, pay comparison with similar jobs, and length of employment are taken into account.

There are three types of payroll structures (source), which are as follow:

  1. Traditional: It is the second most widely used payroll structure system. In this system the employers set a minimum and maximum payroll range for employees and decide the pay grades within the structure.

  2. Broadband: It is more flexible than the traditional structure, you have more room to determine payroll without any limitation of a narrow range. However, this structure can lead to major pay inequalities.

  3. Market-based: This structure is based on what other employers pay employees. Do some research from external resources to understand the market rates for any particular post. In many ways it is a combination of traditional and broadband structures.

Factors That Affect The Cost Of Payroll.

The cost of payroll depends on many factors; here are the main ones:

  • Number of employees - It is quite simple the more employees you hire, the more you would have to pay them, which would exceed your payroll costs.
  • Payroll frequency - How many times you pay your employees directly affects your payroll costs. Either you pay them annually, monthly, or fortnightly. Each has its pros and cons.
  • Medium of payroll - How do you pay your staff? Either you pay with the checks in hand or transfer in bank accounts, your payroll costs would be impacted.
  • Additional tax services - Any additional tax on the services you use might significantly impact your overall payroll costs. For a permanent employee, the business must pay the Social Security and Medicare taxes, which together add up to 7.65% (source) of wages.

A List Of The Best Payroll Automation Softwares

There are several payroll automation tools that you can use in your business; here are a few of the best options.

  1. ADP Workforce Now: ADP Workforce Now is a comprehensive solution for managing teams, payroll, and other staff benefits. Now includes features such as payroll processing, tax filing, performance management, and much more.
  2. BambooHR: BambooHR is a cloud-based HR management software. Ideal for small and midsize businesses. They offer growing companies a human resource information system that includes time tracking, payroll processing, etc.
  3. Gusto: Gusto is a modern, online HR platform that aids business owners in taking care of all human resource tasks. They have features like employee onboarding, running payroll, administrating health benefits, and so on.

How To Lower Your Payroll Costs?

  1. Reduce employee turnover - Hiring more staff than needed would put extra payroll costs on your hand. Thus, reducing the turnover would help in reducing the overall payroll cost.
  2. Decrease working hours - Employees sitting idle and charge you for working hours is not a good idea for your business. You can always decrease their working hours and reduce your payroll costs if they aren't needed.
  3. Remove redundant work - Some redundant work can take a lot of your staff's time in business. Hence, if you remove those work, you can increase the efficiency of your employees for valuable work.
  4. Provide commissions instead of salaries - Staff members usually don't work to their maximum potential in the salary package. However, switching to commissions on each task would make them work more efficiently.
  5. Use payroll automation software - Instead of managing each employee with an old school method, you can switch to payroll automation software. This kind of software is less-time consuming, effective, flawless, and better.



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