Does Managed (Outsourced) Payroll cost too much?

On the face of it, you might think that a managed payroll service is a luxury your business cannot afford.

Depending upon the provider / service required you could reasonably expect to be paying between $5-10 per head per employee, per payroll. Which is far more than you’d pay than by simply processing it in-house right? Let’s find out.

Let’s break this down and go through a worked example.
Company X is a business with 50 Employees.
Weekly commitment to payroll processing for the in-house Payroll Officer is 1 day per week.

Some examples of the the sort of activities they would be doing:

  • Entering / checking timesheet data
  • Checking / adjusting leave balances
  • Correspondence with staff on timesheets
  • Wage / rate updates
  • Termination payouts
  • Checking against awards for OT / Penalty conditions
  • Processing the payroll
  • Running / distributing reports
  • Processing Super and uploading
  • Single Touch Payroll (STP) processing
  • Uploading bank file to portal for processing

The business processes payrolls every fortnight.

They use a simple but common model for In-house processing using spreadsheets for timesheets and accounting software with a payroll module included.

I’ll make use of a low-high range for the cost of the managed service ($5 - $10).

Managed Payroll

Monthly cost

Low = 50 * 5 x 26 (fortnights per year) / 12 (months)

= $541.67

High = 50 * 10 x 26 (fortnights per year) / 12 (months)

= $1083.33

Does that look too expensive? ...Lets keep going.

In-House Payroll

Monthly cost in Salary

$65,000 (annual salary of payroll officer) + 9.5% super / 261 (business days in 2018) = 272.70 (cost per day) * (1 day per week * 4.37 weeks per month) = $1,191.70 per month

Software Costs

Accounting Package with Payroll = $55 per month

Indirect Staff Costs

Average Tenure for employees is around 3.3 years in Australia (measured by the ABS in 2014).

Cost per year for hiring / on-boarding / training + Lost opportunity cost (time that could have been spent making money on other activities) I have estimated to be at least $10,000 (this could easily be much higher if staff turnover is higher and opportunity cost are more significant).

Cost per year = 10,000 / 3.3 (tenure length) = $3,030

Cost per month = 3030 / 12 = $252.50 per month

Total In-House Costs per Month

1,191.70 + 55 + 252.50 = $1,499.20


Managed (Outsourced) Payoll = $541.67 to 1083.33

Total Savings using Managed Payroll = $415.87 to $957.53 per month

So as it turns out Managed Payroll is in many cases a significantly cheaper option when you factor in all the real costs associated with the in-house processing of Payrolls.

Are you interested in making your payroll easier as well as saving money? Submit this form to request a Managed Payroll quote or click below to request a call-back to discuss your requirements.

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