Payroll Outsourcing for Small Business: A Practical Guide

Quick answer: Outsourced payroll typically covers processing, payslip generation, tax withholding and filing, and pension/superannuation contributions — for a per-employee monthly fee that's usually cheaper than the time cost of doing it in-house once you have more than a handful of employees.

What's included in a typical payroll outsourcing engagement

• Running payroll on a fixed schedule (weekly, biweekly, or monthly)
• Payslip generation and distribution to employees
• Tax withholding calculations and filings (IRS/state, HMRC, or ATO depending on jurisdiction)
• Pension auto-enrolment (UK), superannuation guarantee contributions (Australia), or 401(k) coordination (US)
• New hire onboarding and termination processing
• Year-end filings (W-2s in the US, P60s in the UK, payment summaries in Australia)

Where compliance differs by country

US payroll involves federal and state-level withholding that varies by state, plus FICA contributions. UK payroll runs through HMRC's PAYE system with real-time information (RTI) submissions required each pay run. Australian payroll must comply with Single Touch Payroll (STP) reporting to the ATO and correct superannuation guarantee calculations. Getting any of these wrong typically triggers penalties rather than just a correction notice, which is why most small businesses outsource this specific function even when they keep bookkeeping in-house.

What it costs

Outsourced payroll is usually priced per employee per pay run, often in the $5–$15 per employee range depending on complexity, on top of a base monthly platform fee.