How Much Do Payroll Services Cost? Pricing Explained

Payroll services help businesses manage employee compensation, tax withholdings, and regulatory compliance. They streamline accurate and timely employee payments, handling necessary tax filings and reporting to federal and state agencies. The costs for these services are not uniform, varying significantly based on a business’s specific needs and other factors. This article will explain the various elements that influence payroll service expenses.

Key Factors Determining Payroll Service Costs

The number of employees is the most significant factor, as many providers scale charges based on headcount, often with a fee per employee per month. Larger workforces generally incur higher overall costs, though some providers offer volume discounts.

Pay frequency also impacts costs, as providers may charge per payroll run or offer unlimited runs for a set fee. Companies processing payroll weekly or bi-weekly may face higher expenses compared to those with monthly cycles due to the increased frequency of transactions.

Payroll complexity is another factor, with variations like salaried versus hourly employees, commission structures, tips, or multiple state payrolls. Handling garnishments or diverse deductions, such as 401(k) contributions or health insurance premiums, also increases fees. Industry-specific needs, like high employee turnover or unique union dues, can further influence costs due to specialized processing.

Understanding Payroll Service Pricing Models

Payroll service providers utilize various models to structure their charges. The most common approach is the per-employee, per-month (PEPM) model, where a fixed fee is charged for each active employee, often with an additional base fee per payroll period. This model is popular for its simplicity and predictability, making budgeting straightforward for businesses with consistent employee numbers.

Some providers use a flat monthly fee, particularly for very small businesses with basic payroll needs. This fixed fee covers all services up to a certain employee count, offering a clear expense. Tiered pricing structures are also prevalent, where the per-employee rate or base fee changes as the number of employees crosses specific thresholds. This allows providers to offer different service levels or discounts for larger workforces. Transaction-based fees may apply for individual actions beyond routine payroll, such as off-cycle payroll runs or specific tax filings, adding incremental costs as these services are utilized.

Common Add-On Services and Their Charges

Beyond basic payroll processing, numerous services can be added for an extra charge, increasing the overall expenditure. HR support is a common add-on, encompassing services like employee handbook creation, compliance advice, or onboarding assistance, which can cost an additional $10 to $15 per employee per month. Time and attendance tracking systems, which integrate with payroll to record employee hours, typically incur an extra fee of $5 to $8 per employee per month.

Benefits administration, involving the management of health insurance, 401(k) plans, or flexible spending accounts, often comes with additional per-employee charges, ranging from $5 to $10 per employee per month. Advanced tax filing and compliance services go beyond basic federal and state payroll tax filings. These may include local tax filings, state unemployment tax (SUTA) management, or year-end W-2 and 1099 generation and mailing, often costing $25 to $50 per month. Other optional services include new hire reporting to state agencies and garnishment administration for handling wage withholdings.

Typical Cost Scenarios for Businesses

Payroll service costs vary significantly based on business size and the scope of services required.

Very small businesses with 1 to 5 employees can expect to pay around $20 to $150 per month for basic payroll services. This range often includes a base fee of approximately $20 to $50, plus a per-employee charge of $4 to $15. For example, a business with three employees might pay $50 per month plus $6 per employee, totaling $68 monthly for core services.

Small businesses with 5 to 25 employees typically face monthly costs ranging from $175 to $300 for more comprehensive services. This often includes a base fee and per-employee charges, with some providers offering tiered pricing as the employee count grows. For instance, a business with 10 employees might pay between $76 and $100 per month, while a business with 25 employees could incur costs closer to $130 to $200 per month, depending on the chosen plan and add-ons.

Medium businesses with 25 to 100 employees can expect monthly costs between $550 and $1,100 for robust payroll solutions that integrate HR and benefits administration. Providers often charge a base fee that can range from $100 to $1,000, along with per-employee fees of $5 to $15 per month. A company with 50 employees, for example, might pay around $400 to $650 per month, reflecting the increased complexity and service requirements.