Outsource Payroll or Run It In-House in Sri Lanka?
Outsourcing buys expertise and cover; in-house buys control and speed. Cost comparison at 10, 30 and 100 employees, and a decision checklist.
On this page
- What the outsourcing fee actually covers
- The real in-house cost: time, software, errors
- Cost comparison at 10, 30 and 100 employees
- Who keeps the statutory liability either way
- Confidentiality and continuity risks
- The hybrid model most SMEs end up with
- A decision checklist
- Do this automatically in Humanised
- Frequently asked questions
- Is payroll outsourcing cheaper than software for a small business?
- If I outsource, am I still liable for EPF and ETF mistakes?
- What should a payroll outsourcing quote include?
- At what headcount should a small business move off spreadsheets?
- Can I switch from outsourced to in-house payroll mid-year?
- Does outsourcing remove the need for any in-house HR system?
Outsourcing buys expertise and cover. Someone else keeps up with EPF, ETF and APIT changes and covers the work when staff are away. Running payroll in-house buys control and speed. You see figures right away and change something without a phone call. The cost gap between the two narrows sharply above about 30 employees. That is where the fixed cost of good in-house software starts to beat a per-employee bureau fee.
What the outsourcing fee actually covers
A payroll bureau is an outside firm that runs your payroll. Its monthly fee typically covers four things. Processing the pay run. Calculating EPF (12% employer, 8% employee), ETF (3% employer) and APIT. Preparing the remittance forms. Producing payslips. What differs between providers is whether the fee also covers year-end reporting (the annual employer return). It also differs on new joiners and leavers, and on support when the Labour Department or IRD asks a question. The fee ranges here are what we see in the market, not an official tariff. Our companion piece on pricing payroll services as an accountant explains how firms set their own fees. Get a written quote covering exactly what is and is not included. Do this before comparing two providers on headline price alone.
The real in-house cost: time, software, errors
In-house payroll looks free because it is usually done by someone already on the payroll. But it is not free.
- Time. A monthly pay run for 10 to 30 staff typically takes one to three days a month. This is for a competent person, once EPF, ETF, APIT, leave and any variable pay are accounted for.
- Software or spreadsheets. A spreadsheet is free until the first formula error, or the first staff member who leaves mid-month. Dedicated payroll software for Sri Lanka removes most of that risk but has its own monthly cost.
- Errors. A wrong EPF earnings base, a missed new joiner, or a late payment all carry a surcharge. It runs from 5% to 50% on the contribution under the EPF and ETF Acts. This cost lands on the employer whether payroll is done in-house or by someone else. The statutory liability never moves. Run your own numbers through the EPF and ETF calculator to see what a missed month actually costs.
- Knowledge risk. If the one person who knows the process leaves, in-house payroll can stop working until someone is retrained.
Cost comparison at 10, 30 and 100 employees
| Headcount | Typical outsourced bureau fee* | Typical in-house cost (software + staff time) | Where the gap sits |
|---|---|---|---|
| 10 employees | Charged per employee or a small flat fee | Humanised Startup tier, LKR 10,000/month, plus part of one person’s time | Outsourcing often cheaper in cash terms; in-house software is close once time is valued |
| 30 employees | Per-employee fee scales up | Humanised Small Business tier, LKR 25,000/month (flat, up to 50 employees), plus dedicated part-time payroll time | Gap narrows: a flat-tier software cost stays fixed as headcount grows within the tier, a per-employee bureau fee does not |
| 100 employees | Per-employee fee continues to scale, or moves to an enterprise contract | Enterprise-tier software (custom pricing) plus a dedicated payroll role | In-house with proper software is usually cheaper and easier to control at this size |
*Outsourcing fee ranges are market observations at the time of writing, not sourced to a rate card. Confirm current pricing directly with providers listed on payroll companies in Sri Lanka. Humanised pricing, by contrast, is fixed. Startup is LKR 10,000/month for up to 15 employees. Small Business is LKR 25,000/month for up to 50. Enterprise is on request, with no setup fee.
Who keeps the statutory liability either way
Both models sometimes obscure this. The employer stays responsible for EPF, ETF and APIT compliance, whoever processes the numbers. A payroll service agreement can set out who does the work. It can also set out who pays for a mistake between the two parties. But it cannot move the employer’s statutory duty to pay contributions on time. See our companion article on late EPF liability for how this plays out when a bureau pays late.
Confidentiality and continuity risks
- Outsourcing puts salary data in a third party’s systems. Check their data-handling terms, and what happens to your records if you switch providers.
- In-house concentrates knowledge in one or two people. The main protection is a documented process, plus a system any trained replacement can pick up rather than a personal spreadsheet.
- Either model can fail during a single person’s leave or departure. A named backup who can actually run a pay cycle is what prevents that.
The hybrid model most SMEs end up with
Many Sri Lankan SMEs land on a middle path. Payroll is calculated and processed in-house using dedicated software. A bureau or an accounting firm is kept for the parts that need specialist judgement. This can mean a complex termination, a first-time gratuity calculation, or the annual employer return. This keeps day-to-day control in-house while buying expertise only where it is needed. It avoids paying a full outsourcing fee for routine processing.
A decision checklist
- Under about 15 to 20 staff with simple pay structures: either model works. Compare the bureau’s all-in fee against a Startup-tier software subscription plus your own time.
- Growing past 30 staff, or adding shift pay, multiple allowances or a leaver most months: in-house with proper software usually wins on cost and speed.
- No one inside the business wants to own EPF, ETF and APIT compliance, or finance staff turnover is high: outsourcing buys continuity. The cost is recurring and scales with headcount.
- Either way, confirm in writing who is responsible for a late payment surcharge. Keep your own copy of every remittance filed, because the statutory liability sits with you regardless of the answer.
Do this automatically in Humanised
Humanised calculates EPF, ETF and APIT every month. It also prepares the C-form, R4 and bank file, from LKR 10,000/month for up to 15 employees. See payroll software for Sri Lanka.
This is general payroll guidance. Every case is different. For your own case, speak to a payroll practitioner or a lawyer.
Frequently asked questions
Is payroll outsourcing cheaper than software for a small business?
Often yes below about 15 employees, because a bureau’s per-employee fee is small in absolute terms. Above that, a flat-tier software subscription tends to become cheaper. Its cost does not rise per head within the tier.
If I outsource, am I still liable for EPF and ETF mistakes?
Yes. The employer is the party the EPF and ETF Acts hold responsible for correct, on-time contributions. This is true whatever a service agreement with a bureau says between the two of you.
What should a payroll outsourcing quote include?
Ask whether it covers EPF/ETF/APIT calculation, remittance form preparation, payslips and year-end reporting. Also ask about support for one-off events like a termination or a new joiner. Fees that look similar can cover very different scopes.
At what headcount should a small business move off spreadsheets?
Most SMEs feel the strain somewhere around 15 to 20 employees. That is when manual EPF/ETF/APIT calculation and leave tracking start taking real time each month. See when to switch from Excel to payroll software.
Can I switch from outsourced to in-house payroll mid-year?
Yes, though it needs planning. Get your full year-to-date EPF, ETF and APIT figures from the outgoing provider before the switch. Also get your employee register. This way, the new system’s running totals are correct from day one.
Does outsourcing remove the need for any in-house HR system?
No. You still need your own employee records, leave data and approvals. A payroll bureau processes numbers you send it. It does not replace your HR records.
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