Cost Examples, TCO and Selection Checklists
Payroll software 3-year total cost of ownership: a worked example for an 80-employee business
A line-by-line 3-year TCO for payroll and HR software in India, with growing headcount, renewal uplift, modules, one-time costs, staff time and GST, compared with outsourcing.
A payroll software quote shows one year of subscription. The three-year total cost of ownership (TCO) adds what you will really spend: headcount growth, renewal uplifts, modules, implementation, migration, integrations, training and your own team's processing time. In the illustrative example below, an MSME growing from 80 to 100 employees spends about ₹7.1 lakh on software and setup and about ₹9.3 lakh including staff time over three years, before GST, which works out to about ₹286 per employee per month, more than double the ₹120 headline price. All prices are illustrative, not vendor quotes.
This guide belongs to the best-fit selection method. Use the cost estimator and the renewal calculator for your own figures.
The business and the assumptions
A manufacturer-distributor in one state with a sales office in a second state. Assumptions (all illustrative):
| Assumption | Value |
|---|---|
| Employees | 80 in year 1, 90 in year 2, 100 in year 3 |
| Payroll + HR suite | ₹120 per employee per month in year 1 |
| Base fee | ₹2,000 a month (₹24,000 a year) |
| Attendance module | ₹30 per employee per month |
| Renewal uplift | 8% a year on all recurring prices |
| Implementation fee | ₹40,000 one-time |
| Migration and parallel run (internal effort) | ₹30,000 one-time |
| Biometric integration | ₹25,000 one-time |
| Training | ₹10,000 one-time |
| Payroll processing time | 12 hours a month at ₹500 an hour |
Year-by-year calculation
Year 1
| Line | Calculation | Amount |
|---|---|---|
| Subscription | 80 × ₹120 × 12 | ₹1,15,200 |
| Base fee | ₹24,000 | |
| Attendance | 80 × ₹30 × 12 | ₹28,800 |
| Recurring subtotal | ₹1,68,000 | |
| One-time costs | ₹40,000 + ₹30,000 + ₹25,000 + ₹10,000 | ₹1,05,000 |
| Year 1 software and setup | ₹2,73,000 |
Year 2 (prices up 8%: ₹129.60 PEPM, ₹25,920 base, ₹32.40 attendance)
| Line | Calculation | Amount |
|---|---|---|
| Subscription | 90 × ₹129.60 × 12 | ₹1,39,968 |
| Base fee | ₹25,920 | |
| Attendance | 90 × ₹32.40 × 12 | ₹34,992 |
| Year 2 total | ₹2,00,880 |
Year 3 (another 8%: ₹139.97 PEPM, ₹27,994 base, ₹34.99 attendance)
| Line | Calculation | Amount |
|---|---|---|
| Subscription | 100 × ₹139.968 × 12 | ₹1,67,962 |
| Base fee | ₹27,994 | |
| Attendance | 100 × ₹34.992 × 12 | ₹41,990 |
| Year 3 total | ₹2,37,946 |
The three-year total
| Item | Amount |
|---|---|
| Software and setup, 3 years | ₹2,73,000 + ₹2,00,880 + ₹2,37,946 = ₹7,11,826 |
| Staff time | 12 h × ₹500 × 12 months × 3 years = ₹2,16,000 |
| TCO before GST | ₹9,27,826 |
| Employee-months | 80 × 12 + 90 × 12 + 100 × 12 = 3,240 |
| TCO per employee-month | ₹9,27,826 ÷ 3,240 = ₹286 |
| Software and setup only, per employee-month | ₹7,11,826 ÷ 3,240 = ₹220 |
GST. Vendor charges in this example (subscriptions, base fees, attendance, implementation, integration and training; not the internal migration effort) total ₹6,81,826. GST at 18% adds about ₹1,22,729. A GST-registered business making taxable supplies can usually claim it as input tax credit; otherwise it is a real cost.
What moves the result most
| Change | Effect on 3-year TCO (illustrative) |
|---|---|
| Uplift capped at 5% instead of 8% | Saves roughly ₹18,600 across years 2 and 3 |
| Processing time cut from 12 to 6 hours a month | Saves ₹1,08,000 |
| No attendance module (manual import) | Saves ₹1,05,782 in fees but adds staff time and error risk |
| Headcount reaches 130 by year 3 | Year 3 subscription rises by about ₹50,000 |
The biggest lever is often processing time, not the PEPM rate. A product that integrates attendance and posts journals automatically can be cheaper overall than a lower-priced one that needs manual work.
Comparison: outsourcing the same payroll
An outsourced bureau at an illustrative ₹350 PEPM, all-inclusive:
| Line | Calculation | Amount |
|---|---|---|
| Bureau fees | 3,240 employee-months × ₹350 | ₹11,34,000 |
| Onboarding | ₹20,000 | |
| Internal time to prepare inputs and check outputs | 4 h × ₹500 × 36 months | ₹72,000 |
| TCO before GST | ₹12,26,000 |
In this illustration software is about ₹3 lakh cheaper over three years, but it needs a capable in-house payroll person. Without one, the bureau may be the safer choice. See outsourcing versus software versus in-house.
How to build your own TCO
- Project headcount for each year, using average active employees.
- Price every recurring line with the uplift written in your contract (or a cautious assumption).
- List one-time costs, including internal migration effort and parallel-run time.
- Add your team's monthly processing hours at a loaded cost.
- Decide GST treatment.
- Divide by employee-months to compare options of different shapes.
Check the switching case in the payback guide and the hidden costs and failure patterns.
Frequently asked questions
Why three years?
Subscriptions renew yearly, but switching payroll costs time and risk, so most businesses keep a system for several years. Three years captures uplifts and growth without guessing too far ahead.
Should we count staff time if the person is salaried anyway?
Yes, if the time could be used for other work. It is the honest way to compare software with outsourcing.
What if headcount falls?
Check whether your contract allows reducing committed headcount at renewal, and whether there is a minimum.
Are these prices realistic?
They are illustrations to show the method. Use written quotes for real decisions.
Sources
- CBIC GST — GST and input tax credit rules
- Ministry of Labour and Employment — statutory features that drive module needs
- EPFO — EPF processing requirements
- Income Tax Department — salary TDS requirements
