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How does outsourced payroll work in the UK?
Outsourced payroll in the UK means hiring a specialist payroll bureau, accountant, or payroll company to run payroll on your behalf rather than handling it internally.
What an outsourced payroll provider typically handles
Most providers can manage:
- Employee wage and salary calculations
- Payslip creation and distribution
- PAYE income tax deductions
- National Insurance (NI) calculations
- HMRC submissions through Real Time Information (RTI)
- Workplace pension auto-enrolment
- Pension contribution calculations and submissions
- Statutory payments such as:
- Statutory Sick Pay (SSP)
- Statutory Maternity Pay (SMP)
- Statutory Paternity Pay (SPP)
- Statutory Adoption Pay (SAP)
- Student loan deductions
- Attachment of earnings orders (court orders, child maintenance, etc.)
- New starter and leaver processing
- P45 and P60 production
- Year-end payroll reporting
- Construction Industry Scheme (CIS) payroll for contractors (if required
What taxes and deductions are taken care of?
A payroll provider will usually calculate and submit:
| Tax/Deduction | Handled by payroll provider? |
| PAYE Income Tax | Yes |
| Employee National Insurance | Yes |
| Employeer National Insurance | Yes |
| Workplace Pension Contributions | Yes |
| Student Loan Repayments | Yes |
| Postgraduate Loan Repayments | Yes |
| Attachment of Earnings Orders | Yes |
| CIS Deductions | Usually as an add-on |
The provider submits payroll information directly to HM Revenue and Customs via RTI, helping ensure compliance and reducing the risk of penalties for late or incorrect filings.
Typical UK payroll outsourcing costs
Pricing is usually charged per employee per month (PEPM).
Small business pricing
| Employees | Typical Monthly Cost |
| 1–5 employees | £25–£60/month |
| 5–10 employees | £50–£150/month |
| 25 employees | £150–£300/month |
| 50+ employees | Often £3–£8 per employee |
Basic payroll services generally cost around £4–£10 per employee per month, while fully managed services can range from £10–£25 per employee per month depending on complexity and additional HR support.
Additional costs
Some providers charge extra for:
- Payroll setup/migration (£100–£1,000 one-off)
- Pension administration
- CIS processing
- Weekly payroll runs instead of monthly
- HR support
- BACS payment processing
- P11D benefits reporting
Example
A UK company with 10 employees on monthly payroll might pay:
- Payroll processing: ~£60/month
- Pension administration: ~£20–£30/month
- Total outsourced payroll cost: roughly £100–£160/month depending on service level.
Why businesses outsource payroll
The main benefits are:
- Reduced risk of HMRC penalties
- Less administrative work
- Better compliance with changing tax rules
- No need for dedicated payroll staff
- Easier management of pensions and statutory payments
- Scalability as the business grows
For many UK SMEs, outsourced payroll is often cheaper than employing a dedicated payroll administrator while providing specialist compliance expertise.
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