As a business owner, payroll is one of your most important functions. Not only does timely and accurate payroll enhance employee satisfaction, it also keeps you in compliance and fine-free. But there’s a lot to get right, from required employee information to tax withholdings.

Payroll may be easy to handle on your own if you’re a small company with just one or a handful of employees and have very simple needs. However, no matter your size, it can quickly get more complicated as you grow, have workers in multiple states, or become subject to the legislative requirements regarding payroll, HR, and benefits that routinely impact employers.

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One of the questions we get most often from companies is: How much does it cost to outsource payroll? The short answer? It’s surprisingly affordable.

While pricing depends on a number of factors, you can generally expect to pay about $150-$200 per employee per year. Here, we’ll breakdown what’s behind this figure and what can drive it up or down to help you find a solution that fits within your budget, no matter who you decide to partner with.

Fixed Pricing

In some situations, especially with Do-It-Yourself (DIY) online solutions, a payroll company will charge a fixed rate per month that covers a set number of employees or a range such as $65 for 1-9 workers, $125 for 10-20 and so on.

That’s the only fee you’re charged for payroll processing, no matter how frequently you pay your employees each month. Be aware that some companies may cap the number of employees you’ll be able to process payroll for so this may not be an option for every business. But if you are relatively small and your employee count is pretty steady, this can be a simpler, less expensive approach to outsourcing payroll.

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In most cases, the fee structures discussed above primarily cover payroll processing only.  There are additional services that are helpful for business owners, but not covered in these fees. We’ll discuss those services next.

What Factors Drive Up the Price?

When looking at payroll costs, it’s really important to understand exactly what’s included. This allows you to make accurate comparisons between companies and have a clear picture of what you’ll be paying. 

In many cases, the quoted costs are just for processing payroll. Any ancillary products or services you want may be an additional cost. Think of it like an a la carte menu at a restaurant. And this is where things can quickly add up.

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Some common services business opt to include with payroll include: 

• Tax filing (the price of which can increase based on the number of states you’re operating in)

• General ledger interface

• Employee pay options like direct deposit and paper checks

• Courier and delivery charges 

• Check stuffing and sealing

• Customized file transfers for 401(k) and workers’ compensation reporting

• Quarterly and year-end reporting

• W-2/1099 and 1095 processing 

• Affordable Care Act (ACA) reporting

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Some payroll companies may include one or more of these services in their base fee. For example, here at TLHA Enterprises, we include tax filing, employee pay options, check stuffing and sealing, quarterly and year-end reporting, and customized file transfers as part of our standard base fee. But most often, you have to pay a separate fee for each add-on or buy a package that includes several popular services.

Depending on what services you choose to outsource and which you handle yourself, these extras can add up to hundreds of dollars and increase your bill for total payroll costs. The key here is to ask what is and isn’t included in the price quote to eliminate any surprises. 

You may also pay more if you choose to add other solutions that payroll companies often provide to increase the efficiency of your HR functions like:

• Time and attendance

• HRIS

• Applicant tracking and recruitment

• Benefit enrollment

• Performance management

• Onboarding

Usually, each of these solutions will have a unique and separate fee structure that you’ll pay in addition to your payroll processing fees.

In most cases, you can cancel your service with a payroll provider at any time and with very little notice. So if the costs end up being more than you expected or can afford, you can always make a change so you’re not locked into these expenses over the long term.