On the face of it, you might think that an outsourced 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 employee, per payroll. Which is far more than you’d pay than by simply processing it in-house right? Let’s find out.
TABLE OF CONTENTS
- Outsourced Payroll Costs
- In-House Payroll Costs
- Payroll Cost Comparison
- Total Savings (What's Better)
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 superannuation and uploading to clearing house
- 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 function built in.
For comparison we will make use of a low and high range for the cost of the outsourced payroll service ($5 for low, $10 for high). We will base our calculations on a fortnightly payroll, being the most common paycycle in Australia.
Outsourced Payroll
Here's the approximate outsourcing payroll cost per employee in Australia:
Low cost ($5 per payslip):
50 employees x $5 x 26 (fortnights per year) / 12 (months)
= $541/month
High cost ($10 per payslip):
50 employees x $10 x 26 (fortnights per year) / 12 (months)
= $1083/month
Does that sound too expensive? Lets compare how much in-house payroll costs..
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 Cost Comparison
Now, let's compare the total monthly costs of outsourcing and in-house payroll processing:
| Aspect | Outsourced Payroll | In-House Payroll |
|---|---|---|
| Payroll Processing | $541 (low) | $1,191.70 |
| Software Costs | - | $55 |
| Indirect Staff Costs | - | $252.50 |
| Total Monthly Cost | $541 (low) to $1083 (high) | $1,499.20 |
Total savings
The total savings of using an Outsourced Payroll provider = $415.87 to $957.53 per month
Outsourced 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.
If you are interested in making your payroll easier as well as saving money, submit this form to request an Outsourced Payroll quote.
Related articles
What's the true cost of your payroll (calculator tool)
Tips for getting value out of your outsourced payroll service
