How much does payroll cost for a small UK business?

How much does payroll cost? It depends on how many people you pay, how often you pay them and how much of the work you hand over. HMRC’s Basic PAYE Tools is free for employers with fewer than 10 employees; software adds a monthly subscription, and a fully managed service costs more but takes the work off your hands. At Augustus Payroll, fully managed payroll starts from £15 a month plus VAT for a one-person business, and costs £114 a month plus VAT for a business with eight employees.

This guide compares each option, explains what a fee should include and sets out what affects the price.

Key takeaways

• Outsourced payroll: at Augustus Payroll, fees start from £15 a month plus VAT for a one-person business, and the price per employee falls as your team grows.
• Payroll software: you pay a subscription and still run every pay run yourself.
• HMRC Basic PAYE Tools: free, for businesses with fewer than 10 employees.
• Pay frequency matters: weekly pay runs cost more than monthly, because each run is extra work.

How much does payroll cost per employee in the UK?

Payroll prices vary more than most published price lists suggest, because providers charge in different ways: per employee, per payslip, or as a fixed monthly fee with a minimum. The lowest per-employee rates you see advertised usually apply to large payrolls, so a small business should expect to pay more per head. At Augustus Payroll, fees start from £15 a month plus VAT for a one-person business. For larger companies, it can come down to £5.50 per employee a month. All prices below are plus VAT.

Payroll size	Augustus Payroll price (plus VAT)
One-person business	From £15 a month
Eight employees	£114 a month
Larger companies	From £5.50 per employee a month

What is the average cost of payroll for a small business?

The cost of payroll for a small business is best worked out by headcount and pay frequency, because most fees scale with the number of payslips. The price per employee comes down as the team grows, so a larger payroll pays less per head than a small one, as the example below shows.

Example: a café with eight staff

Say you run a café with eight staff paid monthly. Your price will depend on whether anyone works variable hours, how many starters and leavers you have, and how pensions are handled. At Augustus Payroll, payroll for eight employees costs £114 a month plus VAT, which works out at £14.25 per employee. That includes payroll processing, journals sent straight to your accounting software, direct payment of wages to your employees, and access to our client and employee portals and apps. If some staff are paid weekly, expect a higher price, because each pay run is extra work.

Does HMRC have free payroll software?

Yes, HMRC offers free payroll software called Basic PAYE Tools, for businesses with fewer than 10 employees. It calculates tax and National Insurance and sends that information to HMRC.

Free does not mean it covers everything. You still run each pay run yourself, deal with workplace pension auto-enrolment separately, and are responsible for getting every submission right and on time.

How much does an accountant charge for payroll?

What an accountant charges for payroll varies, and many include it in a wider package with accounts and tax returns. Ask for the payroll element to be priced separately, and check what it includes against the list below.

Some accountants outsource their payroll to a specialist. We offer outsourced payroll for accountants as well as for employers directly.

What should a payroll fee include?

A payroll fee should cover every task the law requires you to do on each pay run, plus support when something changes. Before you compare prices, check whether a quote includes the following:

• Calculating pay and deductions, including tax and National Insurance.
• Payslips for every employee.
• Real Time Information (RTI) submissions: HMRC’s running payroll guidance requires a Full Payment Submission on or before payday.
• Starters and leavers, including P45s.
• Year-end documents, including P60s.
• Auto-enrolment: assessing employees and dealing with the workplace pension.
• Monthly HMRC figures: what you owe, and any reductions for statutory pay.
• Changes: legislation, tax codes and annual rate updates.

Watch for extras that raise the headline fee, such as setup costs, pension auto-enrolment and charges for late changes. Ask for a quote that lists everything included, so you can compare like for like.

Is it cheaper to do payroll yourself or outsource it?

It is usually cheaper on paper to do payroll yourself, but outsourcing can cost less once your own time counts. Running payroll in-house means you handle every pay run, submission and change. If it takes two hours a month and your time is worth £40 an hour, that is £80 a month of your time, before you count the cost of putting a mistake right.

DIY tends to work for very small, stable payrolls with a confident owner. Outsourcing tends to make sense when any of these apply:

• You have regular starters and leavers, or staff on variable hours.
• You pay weekly, or on more than one pay cycle.
• You have statutory pay, pensions or Construction Industry Scheme (CIS) payments to deal with.
• You have already missed a deadline or had to correct a submission.

HMRC says late payment may incur a penalty, and you must pay by the 22nd of the next tax month, or the 19th if paying by post. Deadlines do not move because you were busy.

What affects the price of payroll?

The price of payroll is set by how many people you pay, how often, and how complicated your payroll is. The main factors are:

1. Headcount. Most providers charge per employee or per payslip.
2. Pay frequency. Weekly costs more than monthly.
3. Complexity. Variable hours, multiple departments, CIS, and statutory pay add time.
4. Pensions and add-ons. Auto-enrolment, HR, and reporting can be charged separately.
5. Minimum fees. Very small payrolls may pay a monthly minimum rather than a per-employee rate.

Frequently asked questions

How much should I pay for payroll?

It depends on how many people you pay, how often and how complex your payroll is. At Augustus Payroll, fees start from £15 a month plus VAT for a one-person business, and the price per employee comes down as your team grows. Be wary of very low per-employee prices: they often apply only to large payrolls, or leave out pensions, starters and leavers, or year-end work.

Do small businesses need payroll software?

Yes, most employers need software or a provider, because pay details must be reported to HMRC electronically on or before payday. Employers with fewer than 10 employees can use HMRC’s free Basic PAYE Tools. Larger employers need commercial software or an outsourced service, and many small ones choose one to save time.

Is payroll a monthly cost?

Payroll is usually billed monthly, either as a set fee or per employee or payslip. Some software is paid annually instead. Check whether there is a one-off setup fee, so you compare the first-year total, not just the monthly price.

Can I run payroll myself as a sole director?

Yes, a sole director can run their own payroll, and many use HMRC’s Basic PAYE Tools. You will still need to register as an employer if required, keep records, and report to HMRC on time. Check the rules on becoming an employer first, or ask your accountant if you are unsure.

How to get an accurate payroll quote

Now you know how much payroll costs; the next step is getting a quote that matches your actual payroll. Have your headcount, pay frequency and any pensions or CIS details ready. Our CIPP-qualified team at Augustus Payroll runs fully managed weekly and monthly payroll from our base in West Wales, using HMRC-recognised software and as a Bacs-approved bureau. Our payroll outsourcing service suits businesses across South Wales and the UK, and if you want to see what the handover looks like, read our guide on how to outsource payroll. For a free, no-obligation quote, contact us.