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Payroll costs are expenses made towards paying employees. For an effective payroll, a business owner has to put in place a robust mechanism for processing payroll and other aspects of payroll. You can achieve this through different means, but each comes with its own cost.

Let’s dive deeper into what constitutes payroll costs for small businesses and the cost of running a payroll.

What is included in the payroll cost?

Some people may think payroll costs include just wages and salaries. Payroll costs are beyond that and include other expenses. These include:

Compensation and benefits

Compensations are the monetary value paid in exchange for employees’ labor. Usually, commissions, overtime, reimbursements, and additional earnings are part of the whole compensation package.

The law mandates companies to provide benefits for their employees. Though larger companies include benefits in their packages to attract and retain top talent, statutory benefits include paid-off leaves, paid sick days, health insurance, pensions, transportation allowances, and so on.


An employer withholds a certain amount from an employee’s gross pay. These constitute statutory contributions to the government. This includes

  • Housing funds
  • National health insurance scheme
  • Pensions
  • Social Insurance funds

Payroll tax

Likewise, employers withhold a certain amount in the form of payroll taxes from the employee’s gross pay and remit it to the necessary bodies. Failure to do so can incur fines and penalties. 

What is the cost of payroll?

The cost of payroll is independent of whether you are using payroll software or a payroll provider. There are costs you have to pay to run your payroll smoothly. Different payroll services set a tag for their payroll based on a variety of factors and services they render. The charges include typical base monthly fees, fees per employee, and employer-paid taxes. The average cost of payroll in Nigeria ranges from N3, 000 to N5, 000 per employee ($3 – $5).

Factors that affect payroll costs

The price of payroll depends on a number of factors. It would help if you considered these factors before outsourcing your payroll or automating it.

Payroll frequency

Payroll service providers generally charge a flat fee for every employee on your company’s payroll list for every pay cycle. Your payroll frequency is determined by how often you pay your employees. It may be weekly, biweekly, or monthly. An employer with a weekly payroll cycle incurs more costs than a monthly or biweekly cycle. For example, if a payroll provider charges N3000 or $3 per employee, and you pay your employees weekly, then the fee becomes N12, 000 or $12 per employee; for biweekly, the pay becomes N6, 000 or $6 per month for each employee.  

Employee size

Your payroll costs depend on the number of employees working for you. Considering that most payroll providers charge per employee, an increase in the number of employees on your payroll increases the payroll cost. 

Direct deposit cost

Opting for direct deposit adds an extra charge to the cost of payroll; however, since it’s the most convenient method of paying employees, many employers go for it.

Employee turnover rate

How often you add or remove employees has an impact on your payroll costs. If you are constantly adding new employees to your payroll system, the fees you are expected to pay increase, and the reverse is the case for businesses that are removing payees from the system.

Nature of Services required

Every payroll provider’s pricing plan varies depending on the services they offer. Basic plans like just calculating payroll are cheaper compared to plans that integrate payroll calculations with pay distribution, tax filing and reporting, and HR operations.  

Subscription cost

If you automate your payroll with a payroll system, you will likely pay subscription fees. These fees cover the services provided by some payroll providers, and in most cases, some payroll providers don’t include their services as part of the subscription cost. To gain better clarity, inquire more about the subscription structure and what you are paying for.

Software cost

If you run a payroll house, it’s most likely you will use payroll software to upload and update employee records, calculate payroll, make deductions, and automate pay methods. The provider may charge you for using the system. You need to take this into consideration as the fees go into maintaining the system.

Tax Filing

Extra charges come with tax filing duties. These tasks performed by payroll providers include filing state and federal taxes, preparing year-end taxes, and processing tax forms, all done within a specific time frame and compliantly.

Cost of payroll services for small businesses

In today’s world, there are better and more efficient ways to run an excellent and compliant payroll for small businesses. The options may include running the payroll themselves, using software, or outsourcing to a professional. Whatever method you choose comes with its own cost. You have to consider the features you need and the size of your employees to estimate your spending. 


Doing payroll yourself is the cheapest option for small businesses and the first route for a business in its early stages. The expenses incurred by this method depend basically on how employees are paid. Paying employees with cash adds no extra cost but isn’t very convenient for most employees. The most convenient is a direct deposit or bank transfer. In this approach, you pay only the bank charges attached to each transfer. 

One of the major drawbacks of this method is that it is time-consuming since employers calculate payroll on their own. Also, employers may lack knowledge of tax regulations and default on paying taxes when due, thereby exposing their businesses to the dangers of facing fines and penalties.

Payroll professional

Outsourcing your payroll to a payroll provider or professional is more costly than doing it yourself; however, over time, it will become a cheaper and more reliant way of taking care of your payroll. Managing your payroll through a third party like PoweredUp Consulting reduces the risk of tax penalties and increases compliance. The overall cost depends on the fees per employee set by individual providers, your workforce, and the base fee they may charge.

Payroll software

Some employers may consider automating the payroll process by purchasing payroll software to save time. The total expenses depend on the fees stipulated by the software provider, the features you need, and your employee size. Most payroll software charges a base fee of $40–$80 per month and $4 –$6 per employee. This depends on your company size and the services you want.

How can PoweredUp Consulting reduce your payroll costs?

We understand how tedious and cumbersome it is for small business owners to run their payroll and still remain compliant with regulatory bodies. At PoweredUp Consulting, we believe payroll shouldn’t be a challenge for anyone. We have set up an efficient and reliable system to manage your payroll while you focus on your business at an affordable cost. To learn more about our pricing system, book a consultation with us.

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