Payroll Outsourcing or Payroll Software: Which Does a 20 Person Company Need?

Last Updated on October 19, 2026 by Abhijit Divekar

At 20 employees, payroll stops being a monthly spreadsheet and becomes a real job. Salaries, leave, PF, ESIC, professional tax and TDS all need to be right, every month, on time.

So should you buy payroll software or outsource payroll? Both work. The right choice depends on who will run payroll, how much time they have, and how well your team knows Indian compliance.

What payroll software does

Payroll software is a tool. You enter attendance, leave and salary details, and it calculates pay, deductions and payslips. Good software also creates challan files, bank files and reports.

• Calculates salaries the same way every month
• Lets employees download payslips
• Usually costs less per month than a full service

But it does not check your inputs, file returns on the EPFO and ESIC portals, or warn you when a rule changes. Software makes payroll faster for someone who already knows payroll. It does not replace that person.

What payroll outsourcing does

With payroll outsourcing, a specialist team runs payroll for you. You share attendance, joiners, exits and salary changes. The partner calculates and checks salaries, shares payslips and handles filings.

• Payroll checked before salaries go out
• PF, ESIC, professional tax and TDS filed on time
• Someone to answer employee salary questions
• Updates when wage rules or rates change

The trade off is a higher monthly fee and a little less direct control. You still need one person to send inputs on time.

Why 20 employees is a turning point

Several labour laws apply based on headcount, and many of them meet around 20 people:

• PF: registration becomes mandatory at 20 or more employees.
• ESIC: applies in most states at 10 or more employees, for staff within the wage limit.
• Professional tax and TDS: monthly deductions and regular returns, with state rules for PT.

At this size, the number of deadlines and portals grows quickly, and one missed filing can mean interest, penalties or unhappy employees.

The real cost of each option

Do not compare only the subscription price. Add the time of the person who runs payroll and the cost of mistakes.

• Software: a lower monthly fee, but several hours of your team every month for inputs, checks and filings, and nobody outside checking the work.
• Outsourcing: a higher per employee fee, but about an hour of your time each month and a specialist review every cycle.

If you already have a skilled payroll person, software is usually cheaper. If not, outsourcing often costs less in practice once you count hours saved and penalties avoided.

Which one should you choose?

Choose payroll software if

• Someone on your team knows PF, ESIC, PT and TDS well
• They have time every month to run payroll and filings
• Your salary structures are simple

Choose payroll outsourcing if

• The founder or a busy manager runs payroll today
• Nobody is confident with statutory compliance
• You have staff in more than one state
• You have had late filings or salary errors before

Many growing companies use both: an HRMS for attendance, leave and payslips, and a partner who runs payroll and filings from that data.

Four questions to ask before you decide

• Who will run payroll every month, and how many hours can they give it?
• Can that person file PF, ESIC, PT and TDS without help?
• How many states do your employees work in?
• Will you be 20 people next year, or 50?

If your answers point to limited time and limited compliance knowledge, outsourcing is usually the safer choice. If you have a skilled person with time to spare, software will serve you well.

Frequently asked questions

Is payroll software enough for a 20 person company?

It can be, if someone on your team understands Indian payroll compliance and has time to run it every month. The software calculates, but a person still has to check inputs and file returns.

Is payroll outsourcing expensive for a small company?

Fees are usually charged per employee per month. For a 20 person team, this is often less than hiring a dedicated payroll person, and it includes filings.

Do I need to register for PF at 20 employees?

Yes. PF registration becomes mandatory once your company has 20 or more employees.

Can I switch from software to outsourcing later?

Yes. A good payroll partner can take over your salary data and filings. The start of a month or quarter is the easiest time to switch.

Will I lose control if I outsource payroll?

Not if the process is set up well. You still approve the salary sheet every month and get all reports and payslips.

Need help deciding?

HRTailor works with small and growing businesses across India. We can run your payroll and compliance end to end, or set up an HRMS your team uses every day. Not sure which fits? We will look at your team and recommend the simplest option.

Book a free 30 min payroll call

Related reading

• Payroll outsourcing services in India
• HRMS software for small businesses
• Payroll outsourcing vs in house payroll