The Real Cost of Not Outsourcing Your Payroll

Most accounting firms are re-imagining how they deliver payroll in 2025. It’s a complex, high-effort service with a relatively low return on investment. Between chasing deadlines, managing compliance updates, and fielding client queries, payroll consumes significant time and resources without adding much to the bottom line.

Yet many firms still rely on in-house teams to run it. That means taking on the full cost of recruitment, salaries, training, software, hardware, holiday cover, and compliance risk, all for a service that often just breaks even.

This blog unpacks the real cost of running payroll internally in 2025. We’ll break down every major expense involved, from hiring and infrastructure to hidden operational overheads, using current UK salary and recruitment data. Then, we’ll assess how outsourced payroll compares, both in terms of cost and capacity, giving you a clear view of what it’s really costing to keep payroll in-house.

If you’re still running payroll the traditional way, this comparison might make you reconsider.

The True Cost of Running Payroll In-House

Keeping payroll delivery in-house gives you control but it comes at a significant cost. And when you break down the numbers, it’s easy to see why more firms are choosing to outsource. Here’s what you’re really paying to keep payroll internal in 2025.

1. Salary Costs

According to Indeed (June 2025):

• Average salary for a Payroll Specialist in the UK: £34,000–£38,000 per year
• In London, salaries stretch up to £42,000+

If your firm handles high-volume or complex payrolls, you’ll likely need someone experienced, pushing that figure closer to £40,000–£45,000.

2. Recruitment & Hiring Fees

Most firms turn to recruitment agencies to find payroll staff, and that’s not cheap:

• Typical recruitment fee: 15–25% of annual salary
• For a £38,000 role, you’re paying £5,700–£9,500 just to hire
• Add job ads, HR time, interviews: ~£1,000+

And that’s per hire. If someone leaves within 12–18 months (as many payroll professionals do), you’re simply repeating this cost.

3. Employer Overheads

Salary isn’t the only cost. You also pay:

• Employer National Insurance (15% on earnings above £5,000)
• Pension contributions (3% minimum)
• Holiday pay (28 days)
• Sick leave, maternity/paternity cover
• Private healthcare or other staff benefits (if applicable)

All in, these add roughly 30–35% to the base salary.

Total cost of employment for a £38,000 specialist:

£38,000 + £13,300 (35%) = £51,300 per year

4. Training & Software

• Annual training/CPD: £500–£1,000
• Payroll software licences: £600–£1,500 per year (depending on platform & volume)
• IT, desk space, hardware, and overheads: £2,000–£3,000 per head annually

Let’s round it out:

£5,000+ per year per payroll team member

5. Sickness, Absence & Leave Cover

Payroll can’t wait if your in-house staff are away:

• You either overburden another staff member (risking errors)
• Or hire temporary cover at higher rates (25–50% markup through agencies)

None of this is billable, but it’s all coming out of your pocket.

Annual Cost of an In-House Payroll Employee

Multiply this by 2–3 team members, and you’re spending well over £120,000–£180,000/year to keep payroll in-house – and that’s assuming zero turnover and no urgent hiring needs.

The Case for Payroll Outsourcing

Outsourced payroll providers typically offer fixed per‑employee or per‑payrun fees with inflation/indexation built-in. Crucially, they absorb all recruitment, training, infrastructure, absence, and compliance burden, letting your firm streamline operations.

Typical Outsourced Payroll Costs

• £5–£10 per employee, per month
• Or £50–£80 per client, per month depending on complexity

Let’s say your firm handles 50 payroll clients with 20 employees each (1,000 payslips/month):

• £7.50 × 1,000 = £7,500/month
• Annualised: £90,000

That’s for 1,000 payslips. The same workload that might require 2–3 full-time payroll staff in-house.

In-House vs. Outsourced Payroll: A Side-by-Side Comparison

2025 & Beyond: Why Outsourcing is Now Essential

• Evolution of Operating Models
  The modern accountancy firm is leaner, leveraging outsourced payroll services to stay agile and profit-focused. You no longer compete on manual payroll processing; firms are becoming platforms delivering advisory, analytics, and tech-driven efficiency.
• Economic Headwinds & Regulatory Change
  With rising employer NI (now 15%) and the new Employment Rights Bill, internal payroll complexity and costs are escalating.
  Recruitment slowdown and caution in hiring post-pandemic mean retaining headcount carries higher risk.
• Tech-Driven Client Expectations
  Clients expect real-time access to payroll data, seamless integration, and digital compliance tools. Outsourced providers plug directly into client systems, offering cloud-based dashboards, which are costly to build in-house.
• Value Repositioning
  By offloading administrative payroll, your team can pivot toward strategic advisory – benchmarking, cost‑optimisation, compliance consultancy, profitability insights. That’s where margins lie today.

Final Word

The numbers don’t lie: retaining payroll in-house is an expensive, inflexible model. Outsourcing, on the other hand, eliminates hidden costs, reduces risk, and positions your firm to thrive in 2025 and beyond.

This isn’t theory; it’s where the industry is headed. The real cost of not outsourcing is not just budget drain, but opportunity cost. The stronger your payroll offering, the more you can invest in growing advisory and strategic services, delivering greater value to clients and future-proofing your firm.

Ready to save costs and grow your payroll function at the same time? Call us at + 44 208 146 0808 or email us at [email protected]. We also provide a no-obligation trial to help you assess our service risk-free before making any commitments.