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How Much Does Payrolling Cost?

Posted on June 8th, 2016 Read time: 3 minutes

Sara Jensen, National Business Development Manager

First things first, before we get into the cost of outsourced Payrolling, let’s make sure we’re all on the same page about what Payrolling really means.  Click here to learn what Payrolling is.

Now that you understand what Payrolling is and you’ve determined that it meets your business needs, the next logical question is, “How Much Does Payrolling Cost?”

The answer is not that simple.  The cost of Payrolling services vary wildly by multiple factors such as the number of contractors to be payrolled, what state they will be working in, what type of work they will be doing, how much the payrolled Contractors are making as an hourly pay rate…and the list goes on.

Rather than site a generic figure that won’t provide much value, it’s first important to understand the foundation of how most Payrolling firms price their services.  As a standard, most staffing and payrolling firms will quote an all-inclusive percentage markup on top of the Contractor’s pay rate, which will be used to determine the hourly bill rate that will be invoiced to the Client.

Example:

  • $35 hourly pay rate to the Contractor
  • 28% payrolling markup
  • $35 hourly pay rate x 28% = $44.80 hourly bill rate to the Client

The percentage markup includes all statutory costs, such as FICA, Medicare, federal and state unemployment taxes, workers’ compensation coverage and Professional & General liability coverage.  It also includes (but is not limited to) general and administrative costs as well as compliance costs related to the Affordable Care Act and other government-mandated employer requirements.

Several of the costs listed above are not static and can vary.  For example, the state unemployment rate varies by state and by business.  The rate is determined based on each company’s unemployment experience within each state, so as an example, Company A could have a state unemployment cost of 1.5% in Virginia and Company B could have a cost of 3.5% in that same state.

The cost for workers’ compensation coverage varies as well.  The risk of injury to someone working in an office environment is much less than someone working on a construction site for example, hence the cost for covering workers comp for constructions workers is higher.

Volume and longevity also play major roles in the cost for Payrolling services.  Like with many purchases, the more you buy, the more savings you can negotiate per ‘unit’.  It is the same idea with Payrolling – the more contractors or temps you want to payroll, the more overall discount you can ask for, as the Payrolling service provider will receive more revenue due to volume than compared to charging a higher cost for a small group.

Similarly, clients that payroll contractors for longer-term projects (think 6 months to a year or more) can experience a lower cost compared to those that have contractors working on short-term projects.

Even with knowing all of the variability in pricing for payrolling services, you still want to know a general ballpark of what Payrolling can cost, right?  If you are self-sourcing contractors for professional or office-setting work, you can realistically assume a payrolling markup of somewhere in the 20-30% which is applied on top of the pay rate.  If you use contractors for light industrial work, your cost could very well be higher.

The range referenced above is what you could expect from a firm that specializes in Employer of Record/Contractor Payrolling services.  Temp staffing firms typically charge a higher payrolling-only rate since payrolling is not their core service and is typically only taken if staffing is part of the equation.  You could expect a temp staffing firm to charge a payrolling rate of roughly between 35-60%.

The best way to find out how much Payrolling would cost your Company is to call a Contractor Payrolling service provider and request a quote that is tailored to your specific needs.  You will need to be prepared to provide all of the information mentioned above about the Contractor(s) in order for the firm to provide you with a solid quote.  By reaching out directly, you can get the pricing information you want, while also learning more about the service provider to ensure they can fulfill your company’s payrolling service needs.

Innovative Employee Solutions has been a leading provider of payrolling for over 30 years.  Contact sjensen@innovative-es.com them today to find out more about payrolling or simply to see if you are being provided a competitive rate.

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