How much does payroll cost in the United Kingdom?
Reviewed by Mellow Editorial Team, HR & payroll content team
Running payroll in the UK costs between roughly £4 and £18 per employee per month when you use a managed payroll provider, though in-house processing carries hidden costs that can push the true figure considerably higher. The right number depends on your headcount, complexity and how much of the work you handle yourself.
What drives the cost of UK payroll
Several factors determine what you actually pay — or spend — to run payroll:
Headcount. Most providers price per employee, so costs scale with your team. Some charge a flat monthly base fee plus a per-head rate; others use tiered pricing that drops the per-head cost as you grow.
Pay frequency. Running weekly payroll generates four times the processing work of monthly. If any employees are paid weekly or fortnightly, expect to pay more than the base rate.
Complexity. Benefits in kind, salary sacrifice schemes, multiple pay rates, commission calculations, redundancy payments and student loan deductions all add time and therefore cost. A straightforward monthly salaried team is the cheapest scenario.
RTI compliance. Every time you pay employees, HMRC requires a Full Payment Submission (FPS) on or before payday under Real Time Information rules. Errors or late submissions attract penalties. Providers factor this compliance burden into their pricing; doing it in-house means your team carries that risk.
Year-end obligations. You must issue P60s to all employees by 31 May and file P11Ds for benefits in kind by 6 July each year. These deadlines add to the annual cost of running payroll correctly.
The cost of in-house payroll
Many businesses assume that doing payroll themselves saves money. Often it does not, once you account for the real inputs:
- Staff time. A payroll administrator or finance manager spending two to four hours per month processing payroll has a cost attached to those hours.
- Software licences. Decent UK payroll software costs anywhere from around £5 to over £30 per month depending on features and employee count.
- Training and staying current. Tax codes change, thresholds shift at each Budget, and legislation evolves — the Employment Rights Act 2025 strengthened day-one rights for employees, adding more compliance considerations for employers. Someone in your business needs to keep up.
- Error correction. Mistakes in tax calculations, National Insurance deductions or pension contributions take time to fix and can result in HMRC penalties or employee disputes.
For a business with five to fifteen employees, in-house payroll often costs more in staff time than outsourcing would, especially once you factor in software.
Employer costs beyond payroll administration
The administration fee is only part of what payroll costs an employer. The statutory obligations layered on top of gross salary are significant:
- Employer National Insurance is charged at 13.8% on earnings above the secondary threshold (category A employees).
- Pension auto-enrolment requires a minimum employer contribution of 3% of qualifying earnings, with employees contributing at least 5%.
- Statutory leave and pay. Employees are entitled to 5.6 weeks' statutory annual leave (28 days including bank holidays for a five-day week). Statutory Sick Pay and statutory family leave pay (maternity, paternity, shared parental) all carry obligations that must be processed through payroll accurately.
These on-costs typically add 20–25% to the cost of an employee's gross salary, entirely separate from what you pay a provider or spend internally to administer it.
What managed payroll providers actually charge
At the lower end of the market, self-service payroll software with basic RTI filing starts at around £5–£10 per month for very small teams. Full-service managed payroll — where a bureau handles calculations, submissions and employee queries — tends to sit between £8 and £18 per employee per month, with some enterprise providers pricing above that for complex organisations.
Bureau services typically include RTI submissions, payslip generation, P60 and P11D filing, and auto-enrolment management. Some include HR integrations or expense processing; others charge these separately.
If you employ contractors or workers across multiple jurisdictions alongside UK employees, provider pricing can vary significantly, and you should check exactly what is included for each worker type.
Comparing the true cost
A useful way to think about it: take the fully loaded hourly cost of whoever manages payroll internally, multiply by realistic hours per month, then add software. Compare that total to a managed or outsourced quote. For most businesses under around 20 employees, the numbers are closer than expected — and the managed option removes the compliance risk.
Beyond a certain headcount, bringing payroll in-house can make economic sense, but it requires dedicated resource, robust software and a clear process for staying current with HMRC requirements and employment law changes.
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