How Much Do Payroll Services Cost? (Are They Worth It?)

According to a 2022 Ernst & Young survey, 1 in 5 payroll cycles contains errors — each costing an average of $291. For a company running bi-weekly payroll, that adds up to at least $1,500 per year in avoidable penalties. But the cost of payroll compliance goes far beyond occasional errors. In the U.S., some companies have faced penalties as high as $2.4 million for failing to comply with overtime laws. In Canada, it’s estimated that payroll professionals spend 56% of their time on compliance — amounting to ~$9.9 billion annually in labor costs alone.

The cost of and the time spent on keeping payroll error-free is enough for many companies to think: we can’t do this on our own. Every business needs to manage payroll — and whether they handle it in-house or outsource to a provider, it always comes at a cost.

So, how much do payroll services cost, and are they worth that price? Here’s the short answer:

On average, outsourced payroll services cost a base fee of around $50 to $80 per month, plus $6 to $12 per employee per month (PEPM). For a company with 20 employees, this translates to approximately $170 to $320 per month or $2,040 to $3,840 per year. In contrast, payroll software may cost anywhere from $6 to $22 PEPM, often with no (or lower) base fees. Depending on the provider, your monthly cost for 20 employees could range from $120 to $440 ($1440 to $5,200 annually).

But service cost isn’t the only factor to consider. Setup, processing time, error handling, configuration, and customer support all play key roles in your decision. Whether or not to use a payroll service is more than a matter of preference. It’s a strategic decision that can save thousands of dollars and countless hours down the line.

Let’s compare the true cost of outsourcing payroll to the value of using in-house payroll software to see how these choices affect your payroll process.

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Understanding the Cost of Outsourced Payroll Services

Outsourced payroll services work by transferring all of your payroll tasks to a third-party provider (typically a service bureau), PEO (Professional Employer Organization), or an accounting firm. Instead of managing payroll internally with your own staff and software, these vendors take over the entire process for you — calculating pay, withholding taxes, distributing direct deposits, filing forms, and making sure you stay compliant.

For smaller teams with no internal HR, or businesses that want to remove compliance burdens completely, this can sound appealing. But it’s important to know what you’re actually paying for (and how those costs scale as you grow).

What Do Payroll Services Typically Charge?

Outsourced payroll pricing usually includes a base fee and a per-employee fee, with optional add-ons.

• Base fees: Most providers charge a monthly base fee just to access the service, typically ranging from $50 to $80 per month. Some charge per payroll run instead, meaning if you pay employees bi-weekly or semi-monthly, you’ll pay that monthly fee twice (sometimes three times) every month.
• Per-employee fees: On top of the base, expect to pay around $6 to $12 per employee per month. If the service charges per run, a bi-weekly schedule will result in 26 charges per employee each year. These costs add up fast for growing teams or high-frequency payroll cycles.
• Annual or bundled pricing: A few providers offer fixed-rate packages based on size, but most rely on the base + per-employee model. At the same time, custom quotes are common, especially for companies with multiple locations or more than 50 employees.

Here's a sample* breakdown:

‍*NOTE: All figures above are estimates and subject to change based on your plan, industry, or custom quote. As such, these figures may not accurately reflect the current cost of any service listed in the table.

What’s Included in That Cost?

When you pay for outsourced payroll services, what are you actually getting? At a minimum, most providers include the basics:

• Calculating employee pay and taxes
• Withholding and submitting payroll taxes to the proper agencies
• Direct deposit or paper check issuance
• End-of-year tax forms like W-2s and 1099s
• Basic reports for payroll history or deductions

Some services also offer premium add-ons like HR support, benefits administration, time tracking, or compliance resources.

Hidden or Additional Fees To Watch For

When comparing payroll services, it’s important to look beyond the base rate and per-employee charges to find the total cost. Many businesses are surprised to discover extra costs that weren’t visible at first glance.

Common hidden or additional fees include:

• Setup fees: Some services charge a one-time fee to onboard your company or migrate your payroll data.
• Year-end processing fees: You might pay extra for W-2s, 1099s, and other annual filings.
• Off-cycle or bonus runs: Need to issue a one-time bonus or correction? That may trigger a separate charge.
• Support tiers: Basic plans often limit customer support. Dedicated service reps or faster response times may require an upgrade.
• PEO-specific charges: If you use a PEO, pricing might be based on a percentage of your total payroll. These models also bundle in HR compliance tools, which can make apples-to-apples cost comparisons difficult.

In short, the “headline price” rarely reflects your actual monthly or annual spend. Most payroll services don’t publicly disclose their base fees or per-employee rates (let alone their additional fees). Typically, you’ll need to initiate a Request for Proposal (RFP) or speak with a sales rep just to get accurate pricing details.

The Cost of Payroll Software (In-House Payroll Processing)

Payroll software (typically cloud-based) offers a more flexible and often more cost-effective alternative to payroll outsourcing. Rather than relying on a third-party service bureau, payroll software allows organizations to maintain control over the process and unique configurations while still improving compliance and accuracy over manual payroll. Plus, the efficiency gains from automatic processing can lead to significant cost savings over time.

How Payroll Software Pricing Works

Payroll software pricing generally follows a subscription-based model, which may take different forms:

• Per employee per month (PEPM) fees: The majority of mid-market payroll software providers use a PEPM model, charging a set amount for each employee, processed monthly.
• Per run fees: Like outsourcing, some payroll software providers will charge per payroll cycle, albeit typically at a lower cost.
• Tiered pricing based on features: For some software, key features like enhanced reporting, multi-country support, and access to a dedicated account rep may be available only in higher pricing tiers.
• Flat monthly or annual subscription fees: Some providers may charge a flat fee regardless of the number of employees or pay runs. However, this is not as common with scalable solutions and may only be available to smaller teams.

Some platforms combine these models. For example, a provider might offer tiered PEPM pricing where each level unlocks more advanced functionality. Others may charge a small base fee in addition to PEPM. As with any software investment, it’s important to look closely at the full pricing structure to make sure the solution aligns with your needs and growth plans.

What’s Included in That Cost?

Not all payroll software is the same. Some platforms provide payroll only, while others include benefits and HR features by default. Typically, the price of payroll software includes:

• Cloud-based software, operated by your team
• Employee pay and taxes calculated automatically
• Direct deposit issuance
• Automatic production of end-of-year tax forms like W-2s and 1099s
• Employee self-service access to W-2s, tax withholding, and wage info
• Advanced reporting for payroll history, deductions, labor costs, etc. (all in-house)
• Integration options with other platforms

Criterion HCM’s Flexible Pricing Model

At Criterion, we designed our subscription model to meet the unique needs of each client. Here’s how it works:

• PEPM pricing: Our payroll module is priced at $6.50 per employee per month, with no additional base fees.
• Modular approach: Clients can purchase payroll alone — or add modules such as full HR or talent engagement/recruiting (for additional PEPM fees).
• Implementation fees: We charge a one-time, contract-percentage-based implementation fee that includes customization.
• Integrated system: Our modules operate on a single database to provide seamless integration between payroll, HR, and talent management functions. That way, if you choose to add more modules later on, the data is automatically connected across your system.

This modular, integrated approach lets organizations scale their HR capabilities over time — without incurring unnecessary costs. Even if you’re not ready to use HR and talent features yet, starting with just the Payroll module is still a smart investment. The initial setup lays the groundwork for a fully connected, scalable system later on.

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Comparing Payroll Software Costs

This table shows estimated pricing* from various payroll software providers (for a company with 10 employees):

‍*NOTE: All figures above are estimates and subject to change based on your plan, industry, or custom quote. As such, these figures may not accurately reflect the current cost of any service listed in the table.

As shown, payroll software can be a cost-effective option — as long as you choose the right platform. Some software providers actually charge more than outsourced payroll services, depending on the pricing structure and your company size. Of course, the added control and automation still offer significant value, especially for organizations with HR staff already in place to manage the process. However, not all payroll solutions are priced equally. Evaluate your options carefully so you understand what you're paying for.

Payroll Services vs. Payroll Software: A Deeper Cost Analysis

Beyond the sticker price, organizations must also factor in internal labor costs and the tradeoffs that come with the nature of the payroll process in either solution.

The Tangible Value of Data Control

Payroll doesn’t end when employees get paid. For many organizations, reporting is just as critical. For example, a nonprofit may need to break down wages by project, grant, and location in a single report. In construction, there are specific reporting rules regarding certified payroll and prevailing wages. Plus, finance teams often require detailed labor cost reports tied to positions, sites, unions, or seasonal trends.

Payroll outsourcing often falls short in providing limited access to data. If you need a custom report, your options are typically:

• Request it from your provider (if they even offer it). Custom reports can cost $50–$200 per report, and their accuracy relies heavily on the provider truly understanding your needs and your industry.
• Build it manually in a spreadsheet using static payroll exports. If your payroll solution isn’t integrated with your other systems (project management, ERP, etc.), you’ll need to gather data from multiple sources and piece the report together yourself. This can take 4–6 hours per report. Since the average controller in the U.S. makes about $50/hour, that’s roughly $300 in labor — every pay cycle.

With Criterion, custom reporting is built in. You can generate reports yourself, or get our help setting them up. Even if you incur a customization cost for one report, that’s a one-time fee for a report you can run later as many times as you like for free. Plus, with our API integrations, reports can even sync automatically to your ERP, so you always have what you need — with no support tickets, no delays, and no hours lost.

Value of Bundling: Maximizing Efficiency and Savings

Payroll software often unlocks broader efficiencies — especially when it’s part of a full Human Capital Management (HCM) suite. Platforms like Criterion combine payroll with HR, time tracking, benefits, and talent management in one single system. That unified architecture keeps your data flowing seamlessly, reduces duplicate entries, and helps prevent costly errors.

Outsourced providers offer a similar all-in-one model through Professional Employer Organizations (PEOs), which take on full responsibility for payroll and HR. In a PEO setup, the provider may even become the “official employer,” managing everything from pay and benefits to compliance. The main advantage of a PEO is simplicity. You don’t need much internal HR staff, and the administrative burden on your company is minimal.

But with a PEO, you give up significant control — not just over payroll, but over your entire workforce experience. You also lose the ability to tailor processes to your business and culture. Plus, even though PEOs take on most payroll admin work, your organization may still be held liable for their compliance failures.

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Error Handling Costs

Outsourced payroll providers often promise error-free processing — but a quick look at their user reviews tells a different story. The real question isn’t whether errors will happen (they always do). It’s who has the power to fix them.

Even a simple mistake from your own organization (like a missed time punch or incorrect wage entry) will be your responsibility to resolve, regardless of who is processing payroll.

For example, consider the penalties of a late tax deposit. This can escalate to the maximum penalty in a single pay period:

• 1-5 days late = 2%
• 6 days = 5%
• 15 days = 10%

Assuming you catch this error early enough, your in-house team can quickly fix the error and make the deposit right away from your payroll software. But if you’re relying on a massive provider like QuickBooks (which serves over 5 million users), you’ll likely need to call them or submit a ticket and wait for them to resolve it on their end.

The real risk in this scenario is the delay. Every day that payroll errors persist presents greater financial risk for your organization. But when you don’t have direct access to your payroll data, you can’t resolve issues as quickly. Worse still, some outsourced providers charge extra to correct mistakes (on top of whatever penalty you may already owe).

Control over error resolution is one of the most overlooked benefits of in-house payroll software. With Criterion HCM, your team gains access to all your payroll and HR data. You have complete control over your system, so you can address issues quickly and avoid penalties.

System Management Cost

Whether you outsource payroll or manage it in-house, someone on your team still has to be involved. That might mean running payroll directly through software or simply feeding data to a third-party provider. Either way, HR leaders, payroll managers, or controllers will need to oversee the process. In some cases, you may need more than one person. Let’s consider the salary cost alone for those positions.

With an outsourced payroll service, you may only need a single HR manager ($80k to $100k annually) to coordinate everything. They would typically handle time collection, transmit payroll-relevant files, respond to employee pay questions, and work with the vendor on corrections, audits, and compliance issues.

In contrast, running payroll in-house with software may require a small team, particularly as your headcount grows. For example, a company with 100 employees might have a controller or payroll manager (around $117k per year) managing the payroll process. This person would validate time data, file taxes, review GL data for accuracy, etc. You’ll likely also need an HR manager ($80k–$100k), and potentially a systems coordinator ($70k–$90k) to coordinate integrations and new workflows.

Of course, these team members aren’t managing payroll systems full-time. They also bring value across multiple functions and may already be on staff in your organization. In these cases, the additional cost is minimal — and the right software can actually make existing teams more efficient. Some organizations even reduce headcount over time by automating manual tasks, saving thousands each year and freeing up HR and payroll teams to focus on more strategic work.

Implementation and Scalability

Implementation is often the largest upfront cost when moving to payroll software, both in time and resources. But for organizations that want full control over payroll processing and reporting, implementation is a necessary step. This typically includes:

• Setup and configuration: Tailoring the system to your company’s structure and workflows
• Data migration: Importing employee records and historical payroll data
• Training: Getting HR and payroll staff up to speed on the new tools

Timelines for implementation vary widely, but many organizations (when guided by a helpful software partner) complete the process within a few months.

While it may seem like a hurdle at first, implementation is a strategic investment in long-term scalability. Once your system is configured, your team trained, and your workflows dialed in, you’ll be better positioned to save time each pay period and adapt easily to changes.

That’s a key difference from payroll outsourcing. Most outsourced services require you to conform to their processes. This may work early on, but becomes limiting as your needs evolve. With a properly configured software solution, your payroll process grows with you. It’s flexible, customizable, and less likely to require another system overhaul down the line.

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Payroll Services vs. Payroll Software: Primary Tradeoffs

When assessing the cost of payroll services, consider not just the monetary expense but also the qualitative benefits and potential drawbacks of each approach. Here are the essential pros and cons:

Pros and Cons of Outsourced Payroll Services

Payroll Software Solutions

Final Verdict: Is Outsourcing Payroll Worth It?

So, are payroll services worth the cost? They can be.

The decision between outsourcing payroll and using in-house payroll software depends on your organization’s size, resources, and long-term goals. Start by calculating the full cost of your current payroll setup (whether that includes outsourcing fees or the internal time spent running payroll manually). This gives you a clearer picture when comparing the cost of payroll services to alternatives like software.

Are you running into frequent errors, compliance issues, or delays? This might indicate that your current solution isn’t keeping up. For example, if you’re relying on spreadsheets to cut costs, switching to affordable payroll software can significantly reduce errors and boost compliance, which will reduce costs anyway.

Here’s a quick look at the tradeoffs to help simplify the decision:

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Outsourcing offers convenience and built-in expertise, but it often comes with higher ongoing costs and less day-to-day control. For some businesses (particularly those with 1–5 employees and no HR staff) outsourcing can be a smart, short-term solution that improves compliance without much internal oversight. Some organizations choose to outsource during early growth phases, then reevaluate once they’ve built internal HR capacity. In any case, it’s worth reviewing the cost-effectiveness of outsourcing as you grow.

For many growing companies, payroll software offers greater long-term value. Costs are more predictable and scalable, with volume discounts or caps that help control expenses as your workforce expands.

More importantly, in-house software gives you greater control and flexibility — allowing seamless connection to HR, time tracking, recruiting, project management, and accounting systems. All of this culminates in real-time access to your most important data.

Plus, with software, you own the platform and your workflows. With a properly configured solution, your payroll process can scale alongside your business without the need for major reinvestment.

Make Payroll Cost-Effective With Criterion

Payroll services can cost a few thousand dollars per year for small- to mid-sized businesses. For some, the convenience is worth it. But many organizations (especially those with HR or finance teams in place) find that payroll software delivers the same accuracy and compliance for a lower long-term cost.

The key is understanding what you're paying for, the kind of support your team needs, and how your business is expected to grow.

Criterion HCM helps growing organizations take control of payroll without added complexity. Our platform automates calculations and tax filings from time tracking data and simplifies reporting for better accuracy. We specialize in complex needs like union, certified, and multi-jurisdictional payroll — especially in construction and nonprofit sectors.

With flat, per-employee pricing and no surprise fees, Criterion offers predictable costs as part of a fully integrated HCM suite. Start with payroll, then expand into HR, benefits, and talent tools as needed (without disruption). Plus, you’re never on your own: our implementation and support teams guide you every step of the way. That way, you can run in-house payroll confidently from day one.

See how switching to the right platform could save your organization time and money. Book a free demo of Criterion’s Payroll solution today.