Third-Party Payroll vs In-House Payroll for 100+ Employees: Cost and Risk Compared
Quick answer: with in-house payroll, every employee stays on your rolls and every compliance risk stays with you; your real cost is the payroll team, software, filings and the price of mistakes. Third-party payroll moves the employment, salary processing and statutory filings to a partner for a management fee, usually 3% to 8% of CTC, while the people still work for you every day. For teams of 100 or more, the decision comes down to total cost, compliance risk and how much control you need over headcount.
Most companies compare the two models on the partner’s fee alone. That leaves out most of what in-house payroll really costs. Here is a fair comparison.
What each model means
In-house payroll: your company is the employer. Your HR or finance team runs payroll, pays salaries, deposits PF, ESIC, professional tax and TDS, and files every return.
Third-party payroll: a partner becomes the legal employer of the staff you place with it. It issues the contracts, pays salaries and handles statutory compliance. You choose the people, direct their work and receive one monthly invoice. For the full picture, see how third-party payroll works and what it costs.
A middle option, payroll outsourcing, lets a provider process your payroll while your company stays the employer. It cuts the workload, but not the liability.
In-house payroll is not free
There is no invoice for in-house payroll, but the cost is real and spread across several budgets:
- People: payroll and HR time for inputs, processing, queries, joiners and exits.
- Software: a payroll or HRMS licence, usually priced per employee per month.
- Statutory work: PF, ESIC, professional tax, Labour Welfare Fund and TDS, each with its own due date and portal.
- Advice: tax and labour law help whenever rules change, as they did with the Labour Codes.
- Errors: interest and damages on late deposits, rework and time spent on notices.
What a third-party payroll invoice includes
A third-party payroll invoice has three layers, plus GST:
- Salary cost: the gross pay agreed with each employee, the same as in-house.
- Statutory cost: employer PF and ESIC where they apply, plus gratuity provision. Also the same as in-house, because the law sets them.
- Management fee: the partner’s charge, usually 3% to 8% of CTC. This is the only new cost, so compare it with your full in-house cost, not with zero.
Before you sign, ask for a sample invoice for one employee with every layer shown.
Side-by-side comparison
| In-house payroll | Third-party payroll | |
|---|---|---|
| Legal employer | Your company | The payroll partner |
| Headcount on your rolls | Increases with every hire | Does not increase |
| Cost you can see | None: spread across teams and budgets | One monthly invoice with a management fee |
| Statutory filings | Your team, every month | The partner, with monthly proof to you |
| Compliance risk | Fully with you | Mainly with the partner; you keep a residual duty |
| Flexibility to scale | Slower | Faster for projects and new locations |
| Best for | Stable core teams with a strong payroll function | Project teams, many states, fast hiring |
Who carries the compliance risk
With in-house payroll, every late deposit or missed return is your liability. With third-party payroll, the partner carries the primary responsibility, but not all of it. Since 21 November 2025, contract labour falls under the Occupational Safety, Health and Working Conditions Code, 2020. As the principal employer, you keep duties you cannot hand over; for example, if the partner does not pay wages on time, you may have to pay the shortfall and recover it from the partner.
That is why the partner matters as much as the fee. Insist on monthly proof of every PF, ESIC and tax deposit. Our checklist of 10 questions to ask before you choose a third-party payroll partner covers this in detail.
Which model fits your company
In-house payroll usually suits:
- A stable core team with few joiners and exits
- An experienced payroll team and reliable software
- Operations in one or two states
Third-party payroll usually suits:
- Project teams, new plants or new cities
- Payroll across many states with different rules
- Roles you want to keep off your main headcount
Many large employers use both: core staff in-house and project or location teams on third-party payroll.
To decide:
- List your full in-house payroll cost for one year.
- Get costed quotes from two or three partners for the same headcount.
- Compare risk as well as price: who files, who proves payment and how quickly errors are fixed.
Frequently asked questions
Is third-party payroll cheaper than in-house payroll?
Not always. The management fee is visible, while in-house costs are spread across staff time, software, advice and errors. For large or fast-changing teams, the full in-house cost is often higher than it first appears, so compare both on a full-cost basis.
Who is the employer under third-party payroll?
The payroll partner is the legal employer. It issues the employment contract, pays salaries and handles statutory compliance, while the employee works for your business under your direction.
Does third-party payroll remove all compliance risk?
No. The partner carries the main responsibility, but as the principal employer you keep certain duties under the OSH Code, such as making sure wages are paid. Choose a partner who shows monthly proof of every statutory payment.
What is the difference between third-party payroll and payroll outsourcing?
In third-party payroll the partner becomes the employer. In payroll outsourcing a provider only processes your payroll, and your company stays the employer and keeps the liability.
Compare your payroll cost with ours. TMS has run third-party payroll and staffing for Indian and international employers since 2006. Share your headcount and salary bands, and we will prepare a costed comparison of your current payroll against third-party payroll. Request your comparison.
This article is general information as of November 2026. It is not legal advice.