When searching for the right payroll provider for your business, understanding pricing models is crucial for making a cost-effective decision. With 61% of small businesses outsourcing their payroll according to the National Small Business Association, knowing how these services are priced can significantly impact your bottom line.
At Lift HCM, we’ve worked with businesses of all sizes to simplify their payroll processes and demystify the costs. In this article, we'll analyze the two predominant pricing structures in the payroll industry: Per-Process and Per-Employee-Per-Month (PEPM). By the end, you'll have the knowledge to select the model that best aligns with your business size, growth trajectory, and financial goals.
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Per-process pricing operates on a transactional basis – you pay a fee each time you run payroll. This typically includes a base processing fee plus an additional charge for each check or direct deposit processed during a pay period.
With per-process pricing, your payroll costs are directly tied to your payroll frequency and employee count. Here's how the calculation typically breaks down:
Example Calculation: For a business with 25 employees running semi-monthly payroll (24 pay periods annually):
Monthly Cost = (Base fee × Number of pay periods) + (Per-check fee × Number of employees × Number of pay periods)
📉 Real-World Data Point: According to a 2024 survey by Payroll Services Alliance, businesses with fewer than 10 employees typically spend 20% less with per-process pricing compared to PEPM models.
Graph showing how per-process pricing costs increase with employee count across different payroll frequencies
PEPM pricing follows a subscription-based approach where you pay a fixed monthly fee based on the number of active employees in your system. This model has gained popularity due to its simplicity and predictability, now used by approximately 68% of mid-sized payroll providers according to Payroll Industry Analytics.
With PEPM pricing, your monthly bill calculation is straightforward:
Example Calculation: For a business with 25 employees:
Monthly Cost = Base platform fee + (Per-employee fee × Number of employees)
💡 Industry Insight: The average PEPM rate decreased by 7% between 2023 and 2025 due to increased competition among cloud-based providers, according to the Association of Payroll Specialists.
Cost comparison chart showing PEPM vs. Per-Process pricing across different business sizes
To illustrate the difference between these pricing models, let's analyze the annual costs for businesses of different sizes and payroll frequencies:
Small Business (10 Employees)
| Payroll Frequency | Per-Process Pricing | PEPM Pricing |
| Monthly | $1,020 | $1,320 |
| Semi-Monthly | $1,920 | $1,320 |
| Bi-Weekly | $2,080 | $1,320 |
| Weekly | $4,160 | $1,320 |
Mid-Size Business (50 Employees)
| Payroll Frequency | Per-Process Pricing | PEPM Pricing |
| Monthly | $2,700 | $5,100 |
| Semi-Monthly | $5,100 | $5,100 |
| Bi-Weekly | $5,500 | $5,100 |
| Weekly | $11,000 | $5,100 |
📌 Key Insight: The break-even point between these pricing models typically occurs around 25-30 employees for businesses running semi-monthly payroll.
Regardless of which pricing model you choose, be vigilant about these potential hidden costs:
Breakdown of common hidden fees in payroll service contracts
The optimal pricing model depends on several factors specific to your business operations:
You have a small team (typically under 15 employees)
You run payroll less frequently (monthly or semi-monthly)
Your employee count fluctuates seasonally
You have simple payroll needs without complex benefits or deductions
You prefer a pay-as-you-go approach
Your business is growing steadily
You run payroll weekly or bi-weekly
You need consistent monthly costs for budgeting
You require comprehensive HR and payroll features
You value transparent, all-inclusive pricing
You want to avoid surprise fees
When evaluating payroll services, ask these questions to understand the true cost and value:
Recent market research shows several important trends in payroll service pricing:
Shift toward PEPM: The industry has been steadily moving toward PEPM pricing, with a 15% increase in adoption since 2020.
Bundled services: 76% of providers now offer bundled services that include core HR functions alongside payroll.
Tiered pricing structures: Many providers now offer tiered pricing based on service levels rather than pure employee count.
Technology-based discounts: Some providers offer discounts for using their mobile apps or employee self-service features.
Industry-specific pricing: Specialized rates for industries with complex payroll needs like restaurants, healthcare, and construction.
While cost is important, consider these factors that affect the total return on investment:
Choosing a payroll provider is a critical decision, a partnership that profoundly impacts both your business and your employees, demanding careful consideration to avoid future regrets. To assist in this process, we've created an educational article, "What Is a Payroll Service Provider & How Do You Choose the Right One?," which highlights must-have features and potential red flags, empowering you to make a confident, long-term choice.
At Lift HCM, we specialize in creating customized payroll solutions tailored to your unique business requirements, offering flexibility and predictability while navigating the complexities of payroll pricing. Remember, investing in the right payroll solution, even with slightly higher monthly fees, can yield significant returns by saving time, minimizing compliance risks, and providing valuable insights into labor costs.