Payroll Service Cost by Company Size

Very small businesses have the most flexibility. At 1-5 employees, free or very low cost payroll tools are available, and some businesses manage payroll manually or with basic accounting software. The main cost drivers at this size are whether you need automatic tax filing (adds $15-30/mo over manual tools) and whether you pay W-2 employees versus 1099 contractors (contractors are simpler and cheaper to process). Many sole proprietors at this stage use a basic self-service tool and file taxes themselves.

The 5-25 employee range is where most small businesses transition to a full-service payroll provider. At this stage, the complexity of managing payroll manually grows significantly, and the risk of costly errors or compliance issues makes the service fee worthwhile. You will likely need automatic federal and state tax filing and payment, new hire reporting, direct deposit for multiple employees, and basic HR document storage. Multi-state payroll adds to costs if any employees work in different states.

At 25-100 employees, payroll becomes a significant operational function rather than an administrative task. At this size, HR integration becomes important: connecting payroll to time and attendance systems, onboarding workflows, and benefits platforms eliminates duplicate data entry and reduces errors. Companies in this range should evaluate whether a full-service payroll provider or an integrated HRIS with payroll functionality offers better value. Dedicated account managers and same-day or next-day direct deposit options become more relevant.

At 100 or more employees, payroll is a complex function that often requires an enterprise-grade HRIS or a dedicated payroll specialist. Off-the-shelf SMB payroll tools start to show their limitations: complex pay structures, multiple pay groups, union rules, garnishments, multi-state compliance, and benefits administration at scale. Many businesses in this range evaluate integrated HRIS platforms that include payroll as one module, or move to dedicated enterprise payroll providers with custom pricing. PEO arrangements can also make sense for this size if benefits access and HR compliance support are key concerns.