Reduce payroll cost means lowering total spend on salaries, overtime, benefits and admin without cutting service quality — mainly through better overtime management, staffing balance, payroll software, automation, and outsourcing. With UK employer National Insurance at 15% and the National Living Wage rising to £12.71 an hour from April 2026, UK businesses face growing pressure to control payroll costs.
Your clients whether they are big or small employ a bunch of staff to conduct their business smoothly. Your clients incur expenses, such as salaries and other benefits, to take care of these staff. These expenses are referred to as payroll costs. Along with what your clients pay them, payroll cost also includes what it cost to pay them. In this blog, we will explain how to reduce payroll costs.
Conducting the payroll on time and accurately is important because any delay or inaccuracy in the employee’s salaries will lead to loss of trust, demoralisation, and in the long term, losing experienced employees. That is why many businesses including your clients are spending a substantial part of their revenue towards payroll costs, thus making it a considerable burden on them.
To make matters worse, payroll regulations in the United Kingdom also go through constant updates which makes it difficult for your client’s to keep up with. That’s why they are increasingly assigning the payroll tasks to accounting practices like yours.
Key Takeaways
- Payroll costs split into direct costs (salaries, wages, contractor pay, benefits, bonuses) and indirect costs (payroll taxes, admin) — both need managing to cut the total bill.
- Employer National Insurance stays at 15% on earnings above the £5,000 Secondary Threshold for 2026/27.
- The National Living Wage rises to £12.71/hour (a 4.1% increase) from 1 April 2026, pushing up payroll costs for many UK employers — GOV.UK.
- The five main levers to reduce payroll cost are: managing overtime, balancing staffing, using payroll software, outsourcing payroll, and automating recurring tasks.
- Practices can cut client payroll costs and free up internal capacity by outsourcing payroll processing to a specialist provider like Corient.
What Are the Different Types of Payroll Costs?
Payroll costs fall into two categories: direct costs (salaries, hourly wages, contractor payments, benefits, and bonuses paid straight to employees) and indirect costs (payroll taxes and the administrative overhead of running payroll).
To effectively manage your client’s payroll costs, you must understand that payroll costs are divided into direct and indirect categories. Let’s take a closer look at them.
Direct Payroll Costs
Under direct payroll costs come the salaries and other benefits your clients have to pay to their employees, which surely make up the largest portion of your client’s payroll cost.
Under direct payroll cost come the following:
1. Salaries
Your clients regularly pay their regular employees salaries regardless of the number of hours they work. Usually, companies pay salaries on a monthly basis.
2. Hourly Wages
Hourly wages are paid to employees based on the number of hours they have worked. The hourly wage rate is generally fixed and paid on a regular pay period.
3. Contractor Payments
Payments are made to non-employees hired for a specific purpose, and once they fulfill their contractual responsibility, they receive payment. For example, companies make payments to freelance accountants.
4. Benefits
Your clients will offer multiple benefits for their employees, starting with health insurance, travel allowances, and wellness programs. Some of these benefits are mandatory, and some are optional, which your clients opt for to retain existing employees and attract new ones.
5. Bonuses
Your clients have used bonuses to boost their employees’ morale. Clients exercise discretion in paying bonuses, which constitute additional financial compensation beyond the contractually agreed salary. During festive occasions or as performance-based incentives, clients typically use bonuses.
Because your clients employ staff, they indirectly incur payroll costs, even though they do not directly pay these expenses to the employees.
Things that come under indirect payroll cost are as follows:
6. Payroll Taxes
The government taxes a certain percentage of your client’s employee’s salaries, called payroll taxes.
The main payroll tax UK employers pay is Employer National Insurance, which remains at 15% on earnings above the £5,000 annual Secondary Threshold for the 2026/27 tax year (GOV.UK, Rates and thresholds for employers 2026 to 2027). This is charged on top of gross salary, so it should be factored into any client’s total cost of employment, not just their take-home pay.
7. Administrative Costs
Running payroll, making payments to the staff, and ensuring the benefits reach all staff members are all administrative expenses. Also included in the administrative costs are tax filings, sending direct deposits, and the costs of checking papers.
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How Can You Reduce Payroll Costs for Business Success?
The most effective ways to reduce payroll costs are to manage overtime, balance staffing between hires and freelancers, use payroll software, outsource payroll, and automate recurring administrative tasks.
Hence, we have come up with ways for your client to reduce their payroll costs.
Management of Overtime
When your client’s employees work overtime more frequently, their payroll costs are out of control. To reduce overtime expenses, your clients can set up an alert in their employee scheduling software. Whenever an employee completes their regular working hours, the software will automatically try to assign the remaining task to other employees, thus avoiding paying overtime and reducing the payroll costs.
Keep a Balance in Staffing
Your clients must not recruit new talent every now and then but should focus on training the existing employees with new skills and allowing the existing staff to handle a heavier load. Furthermore, if training is not feasible, they can utilize freelancers or accounting outsourcing to accomplish the task. By balancing between the two, your clients can significantly reduce their payroll costs.
Use of Payroll Software
Working on payroll manually and on paper is prone to human errors and misplacement. In the digital age, companies utilize payroll software like Sage, Brightpay, and Xero for payroll processing. The software will catch any irregularity before it becomes an issue. For example, auto-generated reports generated by the payroll software will give you a perfect breakdown of the payroll cost.
Getting payroll wrong is expensive in its own right: 53% of UK companies have been penalised for payroll mistakes in the past five years (Moorepay), which is a strong argument for investing in better software or specialist support rather than treating payroll as a routine admin task.
Outsourcing Payroll
It is one of the simplest and most popular ways of reducing your clients’ payroll costs. Outsourcing accounting to a service provider will reduce the burden of your client’s payroll responsibilities, thus helping their in-house team manage it. A service provider will charge your clients as per the services they avail. When your clients compare these charges to the cost of recruiting and training an in-house staff, they will find that outsourcing saves them money. Corient’s payroll team works directly with UK accounting practices to run client payroll, apply the correct Employer NI and National Living Wage rates, and file Real Time Information with HMRC — so practices can offer payroll without carrying the compliance risk in-house.
Automation of Recurring Tasks
Certain recurring tasks that do not require human intervention and can be automated may be present for your clients. This will reduce the need for staff, making technology an integral part of your client’s payroll process. Thus, reducing the need for human intervention will decrease payroll costs and boost productivity.
How Much Does Payroll Cost?
Payroll costs vary by headcount, sector and location, but UK employers can expect a growing share of the bill to go on Employer National Insurance (15%) and National Living Wage increases, on top of admin and software costs.
Currently, your clients might face significant expenses due to payroll costs, but they can substantially reduce these by implementing the mentioned methods. However, your clients may be hesitant to adopt these methods for various reasons, such as a lack of time or expertise. Therefore, they will hand over the payroll task to your accounting practice.
This pressure is set to grow: the National Living Wage for workers aged 21 and over rises 4.1% to £12.71 an hour from 1 April 2026, adding roughly £900 a year to the cost of each full-time employee on the lowest rate (GOV.UK, National Living Wage increases to £12.71 per hour).
But let’s face it, handling such high volumes of payroll related work requires a highly experienced team at your disposal. Without it your process will slow down leading to your client’s losing faith. To avoid such a situation, you must consider the option of outsourcing accounting to a service provider such as Corient Business Solutions.
Our bookkeeping, year-end, VAT, and payroll outsourcing services are designed to give your practice an edge in the market, thus saving you time to invest in other important tasks. For an instant estimate, practices can also use our Payroll Pricing page or our Management Accounts and Back Office Support services if payroll is one of several cost centres you want to streamline.
People Also Ask
What is the biggest driver of payroll cost increases in 2026?
The two biggest drivers are Employer National Insurance, which stays at 15% on earnings above the £5,000 Secondary Threshold for 2026/27, and the National Living Wage, which rises 4.1% to £12.71 an hour from 1 April 2026. Together they raise the baseline cost of every employee before overtime, bonuses or benefits are added, making cost-control strategies more valuable than in previous years.
How much can outsourcing payroll actually save a practice?
Savings vary by headcount and complexity, but outsourcing typically removes the cost of recruiting, training and retaining an in-house payroll specialist, plus the compliance risk of manual errors. With 53% of UK companies penalised for payroll mistakes in the past five years, the cost of getting payroll wrong often exceeds the fee for outsourcing it to a specialist provider (Moorepay).
Does payroll software replace the need for payroll outsourcing?
Not entirely. Payroll software such as Sage, BrightPay or Xero reduces manual errors and speeds up processing, but someone still needs to run it, keep it updated for HMRC changes, and handle exceptions. Many practices combine both: software for day-to-day processing, and outsourcing for extra capacity, compliance oversight, and cover during busy periods like tax year-end.
What counts as an indirect payroll cost?
Indirect payroll costs are the expenses of running payroll itself, rather than paying employees directly — mainly payroll taxes, primarily the 15% Employer National Insurance rate, and administrative costs such as processing payslips, filing Real Time Information with HMRC, and managing benefits. These costs are easy to overlook but add a meaningful amount on top of gross salaries.
Is it cheaper to hire freelancers or full-time staff to control payroll costs?
It depends on the workload. Freelancers avoid ongoing payroll tax, NI and benefit costs, making them cheaper for short-term or variable work, but full-time staff are usually more cost-effective for consistent, ongoing workloads once training and management time are factored in. Many practices find a blended approach — a stable core team supported by freelancers — reduces payroll costs most effectively.
Conclusion
Corient reduces payroll costs for accounting practices in two ways: by lowering what your clients spend on payroll, and by removing the burden of processing it from your in-house team through outsourced payroll services.
In conclusion, by choosing Corient, you are solving two problems. Firstly, reducing the payroll costs of your clients, and secondly, avoiding yourself from becoming overburdened by outsourcing to us. With our help, you can offer your client better client services. We can connect at your convenience by phone or online meeting to discuss about our services in detail.
