How Much Does Payroll Cost for Small Business? While calculating payroll costs is not complicated, it can still be confusing for business owners. There are many different components, each with its own price tag, that need to be considered before calculating your average payroll cost per month.
The following information will help you find answers to common questions surrounding small business payroll.
How is Payroll Pricing Structured?
While there are many different ways that payroll companies charge customers for their services, there are three common approaches you’ll likely see. For each, we’ll calculate the average costs for a company with 10 employees who pays bi-weekly.
Per Frequency
Charging fees per pay frequency is the predominant way payroll companies charge for their services. That means however often you pay employees (weekly, bi-weekly, semi-monthly or monthly), you’ll be charged a base fee and a charge for each employee you pay.
This approach is good for businesses with fairly predictable payrolls that don’t have a lot of changes or extra payroll runs. If this sounds like you, you can expect to see individual employee charges that run from $1.50 to $3 per employee and base fees per pay period between $20 and $40. So that means you would pay about $140 a month based on a fee of $3 per check and a base fee of $35.
So that means you would pay about $140 a month based on a fee of $3 per check and a base fee of $35.
Per Employee Per Month (PEPM)
This pricing structure is increasing in popularity because it often results in savings for employers. Rather than paying fees each payroll, with PEPM, you can run unlimited payrolls and just pay one monthly base fee plus a fixed rate for the number of employees you pay each month.
PEPM is a good choice for companies who may have additional payroll runs for things like bonuses or commissions. With this option, you would pay a base fee of about $75 and around $6 per employee, making your total charge for the month roughly $135 plus shipping fees for the checks.
With this option, you would pay a base fee of about $75 and around $6 per employee, making your total charge for the month roughly $135 plus shipping fees for the checks.
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.
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.
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.
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, pay cards, 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
Some payroll companies may include one or more of these services in their base fee. For example, here at Complete Payroll Services, 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.
Payroll Pricing Models
Payroll software prices usually depend on the number of employees and level of features. There are three common payroll software pricing plans:
Per month, plus per employee monthly subscription plan – In a software-as-a-service (SaaS) pricing model, companies pay a monthly fee to access software through the cloud. The most common subscription plan for payroll software is a per month, plus per employee monthly fee.
For example, Patriot Software charges companies $10 per month, plus $4 per employee each month for the Basic plan. A company with 100 employees would pay $410 per month.
Monthly subscription plans often come in several tiers with varying levels of features and services. The most expensive plans may include more technical support, HR advice and a dedicated accountant to review and file taxes.
This option is popular with companies of all sizes because the monthly fee is small and the per employee, per month fee is scalable. Companies also have flexibility in the features they choose to deploy.
Per month subscription plan – Some vendors offer a per month subscription plan that includes an unlimited number of employees. These solutions, however, generally have limited functionality and support.
The ideal customers for per month subscription plans are small businesses that don’t have extensive payroll needs. Larger companies will likely need more comprehensive features like tax filing and the ability to edit employee checks.
Perpetual license fee – Companies that deploy ERP, HRMS or accounting solutions on-premise can often purchase a perpetual license for a payroll module as well. This one-time fee is generally much higher than a monthly subscription price and doesn’t include upgrades.
With a perpetual license, however, companies have more opportunities to customize the software. In addition, the payroll module is better integrated with other modules for accounting, HR, and time and attendance.
Conclusion
If you run your own business, you may think payroll will cost you an arm and a leg. The truth is it doesn’t have to. There is something called the Texas Two-Step when it comes to small business accounting and this article will explain exactly what it means. If you run a small business and you need to pay employees, the state of Texas requires that you pay your employee’s payroll taxes through a third party payroll service.