Every founder running an Indian SMB eventually hits the same question around the 15–20 employee mark: is it time to stop doing payroll on a spreadsheet, and if so, do you build the capability in-house or hand it to a payroll service?
The honest answer is that most advice on this topic is written by payroll service providers, which makes it unsurprisingly biased toward outsourcing. Here’s a more neutral breakdown of what each path actually costs, in money and in time, cross-checked against a real comparison of the best hrms software in india rather than any single vendor’s numbers.
The Hidden Cost of “Free” Spreadsheet Payroll
Before comparing in-house software to outsourcing, it’s worth being honest about the baseline most small businesses actually start from: Excel, plus a founder or ops person who also handles five other things.
This isn’t free. The real costs are:
- Compliance risk. PF, ESI, professional tax, and TDS rules change often enough that a manually maintained spreadsheet drifts out of date within a year or two, usually without anyone noticing until a notice arrives.
- Founder time. At even a modest ₹1,500/hour opportunity cost, 6–8 hours a month on payroll admin is ₹9,000–₹12,000/month in time that could go toward revenue-generating work.
- Error correction. Manual payroll errors, such as wrong TDS slabs or missed PF contributions, cost more to fix retroactively (interest, penalties, employee trust) than they would have to prevent.
Option 1: In-House Payroll Software
Buying a payroll software license and running it yourself (or with a part-time HR hire) typically costs:
| Cost Component | Typical Range (India, 20–50 employees) |
|---|---|
| Software subscription | ₹50–₹150 per employee/month |
| Setup/onboarding | ₹5,000–₹25,000 one-time |
| Internal admin time | 3–5 hours/month once set up |
| Compliance filing add-ons | Often bundled, sometimes ₹2,000–₹5,000/month extra |
Where this wins: You retain control over the process, data stays in-house, and per-employee cost tends to drop meaningfully as headcount grows. A 50-person company on a per-employee-priced tool often pays less per head than a 15-person company on the same platform.
Where this loses: Someone internally still needs to understand compliance well enough to configure the software correctly. The software doesn’t file your PF returns for you unless you actively use that module, and many SMBs pay for compliance features they never fully activate.
Option 2: Outsourced Payroll Service
Handing payroll to a third-party provider (an accounting firm, a dedicated payroll processor, or a PEO-style service) typically runs:
| Cost Component | Typical Range (India, 20–50 employees) |
|---|---|
| Service fee | ₹300–₹800 per employee/month |
| Onboarding | ₹10,000–₹40,000 one-time |
| Internal admin time | 1–2 hours/month (mostly approvals) |
| Compliance filing | Usually included |
Where this wins: Compliance risk shifts substantially to the provider, internal time drops to near-zero, and you’re not dependent on one internal person’s knowledge walking out the door with them.
Where this loses: Per-employee cost is meaningfully higher, often 2–4x the software-only route, and you lose some responsiveness; a same-day correction that takes five minutes in your own system might take a support ticket and a day’s turnaround with an external provider.
The Actual Decision Framework
In practice, the crossover point isn’t really about company size. It’s about two other variables:
- Do you have someone internally who can own compliance accuracy? If yes, in-house software is usually cheaper at any size. If no, outsourcing buys you a safety net worth paying for.
- How often does your payroll structure change? Fast-growing companies with frequent role changes, variable pay, and new state registrations tend to outgrow outsourced providers’ flexibility faster than they outgrow software.
A Quick Worked Example
Take a 30-person SMB as a concrete case. On the in-house software route, at roughly ₹100 per employee per month plus 4 hours of internal admin time, the annual cost lands around ₹36,000 in subscription fees plus roughly ₹72,000 in founder or ops time (48 hours a year at ₹1,500/hour), for a total of about ₹1,08,000.
On the outsourced route, at roughly ₹500 per employee per month with 1.5 hours of internal admin time, the annual cost is closer to ₹1,80,000 in service fees plus about ₹27,000 in internal time, totaling roughly ₹2,07,000. The outsourced option costs nearly double here, but it also removes most of the compliance risk that the in-house number doesn’t price in at all. Whether that trade-off is worth it depends entirely on how confident you are in your internal team’s compliance knowledge, which is the real question hiding underneath the headline cost comparison.
A reasonable middle path many Indian SMBs land on: run in-house payroll software for day-to-day processing, and use an outsourced compliance consultant for filings and audits, capturing most of the cost savings of the software route while covering the compliance blind spot.