How much does it cost to run payroll?

Last updated: August 28, 2026

The total cost of running payroll includes more than employee wages or salaries. It also includes employer payroll taxes, employer-paid benefits, insurance costs, other employment-related expenses and any payroll software or provider fees.

Payroll cost key takeaways:

• Payroll cost depends on several factors, including business size, payroll frequency, number of employees, operating states and the level of payroll support needed.
• When calculating total payroll cost, employers should include more than wages — payroll taxes, benefits, insurance, other employment-related expenses and payroll fees all contribute to the true cost of paying people.
• Payroll service costs often vary by provider and may include monthly or annual base fees, per-payroll processing fees and per-employee charges.
• The cost of payroll service for small businesses can differ depending on whether an employer chooses DIY payroll, payroll software or a full-service HR and payroll provider.
• Payroll software prices may include subscription fees, per-employee charges and added costs for features like tax filing, direct deposit, time tracking or benefits administration.
• Employers should review potential payroll service fees for add-ons such as year-end tax forms, off-cycle payroll runs, multi-state payroll, new hire reporting, compliance support and accounting software integrations.

Payroll is one of the many costs of doing business for those that have employees. This expense typically varies depending on the payroll method, the size of your business and where it operates. Accuracy is also important because government agencies may impose costly fines on employers who make mistakes or miss deadlines.

How much does it cost to run payroll?

Different payroll providers offer different pricing structures, but most have per-payroll processing or per-employee fees. There may also be annual or monthly base costs for additional services, like year-end Form W-2 preparation and delivery.

Common factors that affect payroll cost

Payroll is not a one size fits all service. Various aspects will determine total cost, such as:

• Payroll frequency
• Total number of employees
• The types of services needed
• How often payees are added or removed
• The number of states where people are employed

Additional payroll service fees

A payroll provider’s price structure may not always include everything you need to run payroll from start to finish. Services that sometimes incur separate fees include:

• Direct deposit
• Automatic check signing
• Paycheck printing and delivery
• Tax filing
• Year-end processing (Forms W-2, 1099, etc.)

Add-ons can drastically increase payroll expenses, so employers may want to confirm what services are included in the package before making a commitment with a provider.

New hire reporting

The federal government requires employers to report new or rehired employees to a designated state agency within 20 days. Some payroll providers will file these reports on behalf of a client at no added cost, but others may consider this an add-on service.

Explore Learn all about ADP's small business payroll solutions

Cost of payroll services for small businesses

Small businesses today have realistic, affordable ways to deliver a world-class payroll outcome. Their options are to do it themselves, purchase payroll software or outsource payroll to a full-service provider. Whichever of these methods is chosen, along with the size of the workforce and the specific services needed, will largely determine the total cost.

Do-it-yourself payroll

DIY is the cheapest payroll option and one that some businesses choose in their early stages. With this approach, expenses typically depend on how employees are paid. Banks, for instance, charge fees for direct deposit and checks come with the cost of paper, printing and delivery.

There is one caveat, however, for small business owners who calculate payroll on their own. It’s time-consuming and errors are expensive, especially if it becomes necessary to hire a tax attorney.

What are total payroll costs?

Total payroll costs are the total expenses an employer incurs to compensate and pay employees, including wages, taxes, benefits, insurance and payroll administration fees and any applicable software fees.

But it's not a one-size-fits-all service. Various aspects will determine the total cost, such as:

Employee wages and salaries

Employee wages and salaries are the direct compensation paid to workers for their time, skills and job responsibilities. This includes hourly wages, annual salaries, overtime pay, bonuses, commissions and other forms of taxable earnings provided in exchange for work performed.

Employer payroll taxes (FICA, FUTA, SUTA)

Employer payroll taxes are mandatory taxes businesses pay based on employee compensation. These include FICA taxes, which fund Social Security and Medicare, FUTA taxes that support federal unemployment programs, and SUTA taxes that fund state unemployment benefits. Together, these payroll taxes represent a significant portion of an employer’s labor costs beyond employee base pay.

Employee benefits and insurance

Employee benefits and insurance encompass the non-wage compensation employers provide to support their workforce. Common offerings include health, dental, and vision insurance, retirement plan contributions, paid time off, life insurance, disability coverage and wellness programs. These benefits help attract and retain employees while enhancing overall job satisfaction and financial security.

How to calculate your total payroll costs

Various factors can affect your total payroll cost, including:

• Payroll frequency
• Total number of employees
• The types of services needed
• How often payees are added or removed
• The number of states where people are employed
• Additional payroll service fees

To understand the true cost of hiring an employee, employers need to look beyond base wages or salary. Total payroll costs include the employee’s gross pay, employer-paid payroll taxes, benefits, insurance, and any additional labor-related expenses. A simple way to estimate this is by using a cost formula, which gives you a more complete view of what a new hire will actually cost your business.

Gross wages or salary + employer payroll taxes + employer-paid benefits + insurance costs + other employment-related costs + payroll fees = Total payroll cost.

Let’s say you’re thinking of extending an offer to a prospective employee in Florida for $75,000 annual salary.

Assuming a 6.2% employer Social Security tax, 1.45% employer Medicare tax, 0.6% FUTA rate and Florida state unemployment of 2.7%. Since Social Security has a wage-based limit of $184,500, the state unemployment tax and FUTA have a wage-based limit of $7,000, and Medicare tax has no wage-based limit, this means that employer taxes will be 5,968.50

Let’s add in $2,250 employer-paid benefits, $7,250 insurance costs, $1,000 other employment-related costs and $550 in payroll fees. This means your projected to spend $92,018.50 in estimated annual payroll cost for that employee who’s receiving $75,000 annually in gross wages.

This means your projected to spend $92,018.50 in estimated annual payroll cost for that employee who’s receiving $75,000 annually in gross wages.

How much do payroll services cost?

Payroll service costs can vary depending on your business size, payroll frequency, number of employees, and the level of support or features you need.

Type of payroll	Cost	Difficulty	Support	Best for	Typical costs involved	Be aware of
DIY payroll	Usually low. Potentially includes bank fees.	Often has a higher level of difficulty due to manual processes.	No support	Sole proprietors, very small businesses, owners with payroll & tax knowledge and time to manage it	Low direct cost, tax filing fees, time investment	High risk of tax filing errors, time consuming, responsibly to stay current on payroll and tax law
Payroll software	May include subscription fee, per-employee charge or additional fees.	Typically a low level of difficulty due to automated ways of calculating wages	Varies by provider and plan	Small to medium-sized businesses, Owners who want efficiency but still want control	Usually includes a base monthly fee or per employee fee	Some tax filing services cost extra, costs increase as employee count grows
Payroll provider	Typically the highest cost option	Often the lowest difficulty due to comprehensive processes	Generally the highest level of support, sometimes including designated support reps	Businesses with limited HR resources, companies with complex payroll requirements, multi-state employers, organizations seeking compliance support	Generally has a base monthly fee or per employee fee; additional fees may apply for HR, benefits administration, and compliance services	Highest cost option, less direct control over payroll process, changes may require provider coordination and lead time

Do-it-yourself (DIY) payroll

DIY is the cheapest payroll option and is often chosen by businesses in their early stages. With this approach, expenses typically depend on how employees are paid. Banks, for instance, charge fees for direct deposit, and checks come with the cost of paper, printing and delivery. The caveat is, calculating payroll on your own can be time-consuming, and errors are expensive, especially if it becomes necessary to hire a tax attorney.

Payroll software

Payroll software typically offers a more automated way to calculate wages, withhold taxes, run payroll and generate reports. Costs may include a monthly subscription fee, a per-employee charge or additional fees for features like tax filing, direct deposit, time tracking or benefits administration.

Partnering with an HR and payroll provider

Working with an HR and payroll provider is usually the most comprehensive option, offering payroll processing along with support for tax compliance, benefits, onboarding, HR tools and employee self-service. While this option may cost more than DIY payroll or basic software, it can help reduce administrative work, improve accuracy, and give employers access to expert support.

High payroll costs used to be something Tina Pope, Controller at Systems Design International, Inc. (SDI), dealt with. But partnering with RUN Powered by ADP® marked a turning point for Tina and the SDI team. Now, payroll and HR are efficient, fit their budget and don’t take up nearly as much brain space or time as before.

Read Tina’s story.

Factors that affect payroll service pricing

Payroll service pricing can vary based on how complex your payroll needs are, including how many employees you pay, how often you run payroll, and whether you need added compliance or reporting support.

Number of employees and pay frequency

The size of your workforce and how often you pay employees can have a direct impact on payroll service costs. Many providers charge a base monthly fee plus a per-employee fee, so costs may increase as you add employees. Pay frequency can also matter.

Additional payroll service fees

Some payroll services include basic features in their standard pricing, while others charge extra for add-ons. These additional fees may apply to services like year-end tax forms, direct deposit, off-cycle payroll runs, multi-state payroll, time tracking, benefits administration or integrations with accounting software.

New hire reporting and compliance

Payroll providers may also charge for compliance-related services, such as new hire reporting, tax registration support, wage garnishment administration, or help managing federal, state, and local payroll requirements. Some payroll providers will file these reports on behalf of a client at no added cost, but others may consider this an add-on service. These services can be especially valuable for employers that are growing quickly, hiring across multiple states, or looking to reduce the risk of payroll errors and missed reporting deadlines.

Strategies to manage and reduce payroll costs

Businesses can reduce payroll costs by streamlining payroll processes, minimizing errors, and lowering the time spent on manual administrative tasks.

Automating payroll processing

Payroll automation can help save time by handling tasks like wage calculations, tax withholdings, direct deposits, and payroll reports. By reducing manual data entry, businesses can improve accuracy, speed up payroll runs, and free up internal teams to focus on higher-value work.

Avoiding common payroll mistakes

Payroll mistakes can be costly, but many common issues can be avoided with consistent processes, accurate records and the right payroll support. Be aware of these frequent errors:

• Misclassifying workers
• Missing payroll tax deadlines
• Calculating overtime incorrectly
• Relying on outdated or incomplete employee records
• Missing state and local payroll requirements

Misclassifying workers: Employees and independent contractors are treated differently for payroll tax withholding, benefits eligibility and reporting. Misclassification can create tax exposure, penalties and rework, so employers should review worker roles, IRS guidelines and classifications regularly.

Missing payroll tax deadlines: Payroll taxes must be deposited and reported on schedule. Late deposits or filings can result in penalties and interest, making calendar reminders, automated tax support and periodic payroll reviews important safeguards.

Calculating overtime incorrectly: Overtime rules can vary based on employee classification, hours worked and applicable federal, state or local requirements. Employers should verify overtime eligibility and make sure time data is accurate before each payroll run.

Relying on outdated or incomplete employee records: Incorrect addresses, tax elections, direct deposit details or employment status can lead to payroll errors and employee frustration. Keeping employee records current helps support accurate paychecks, tax forms and compliance reporting.

Missing state and local payroll requirements: Businesses with employees in multiple locations may need to manage different tax rates, wage and hour rules, paid leave requirements and reporting obligations. Multi-state or local compliance needs should be reviewed before hiring in a new jurisdiction.

What does this mean for employers?

Payroll cost includes far more than wages alone. By accounting for employer taxes, benefits, insurance, payroll service fees and compliance needs, businesses can better understand the true cost of paying employees and choose a payroll approach that supports accuracy, efficiency and growth.

Learn all about ADP's small business payroll solutions.

Frequently asked questions about payroll cost

This guide is intended to be used as a starting point in analyzing how to do a payroll and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax guidance or other professional services. Please consult with your legal counsel.

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