Worked Costings and Selection Checklists
Payroll and HR software 3-year total cost of ownership: a worked example with two options
A line-by-line 3-year TCO for payroll and HR software at a 60-employee Australian business, with headcount growth, renewal uplifts, USD pricing, one-off costs and internal time.
The 3-year total cost of ownership (TCO) of payroll and HR software is the sum of every subscription month over three years at your real (and growing) headcount, plus add-ons, hardware, set-up, data migration, training, your own staff time, renewal uplifts, exchange-rate effects and any exit costs. In the illustrative example below, two options that look $3 per employee apart on pricing pages end up about $3,800 apart over three years once growth, a USD-priced module and one-off costs are counted, and the cheaper-looking option is the more expensive one. The method matters more than the figures: replace every number with your own quotes.
This guide is part of how to choose payroll and HR software. All prices, exchange rates and hours are illustrative, not vendor prices.
The business
A manufacturer and distributor in Victoria and New South Wales:
- 60 employees now, expected 70 in year 2 and 80 in year 3;
- mostly full-time, on one manufacturing award plus salaried office staff;
- payroll run fortnightly by one payroll officer;
- wants HR records, onboarding, leave approvals and self-service;
- uses cloud accounting software.
The two options
- Option A — payroll plus HR platform (one product, AUD-priced): $18 per employee a month on the tier with HR and onboarding, plus a $3 award interpretation add-on. Contract allows a renewal uplift of up to 5% a year.
- Option B — standalone payroll plus a separate HR tool: payroll at $9 per employee a month (AUD, award rules included) plus an HR platform at USD 6 per employee a month. Uplift up to 5% a year on each. Exchange rate assumed 0.65 USD per AUD in year 1, 0.62 in year 2 and 0.62 in year 3 (a cautious assumption).
Headline comparison: A is $21 per employee, B is $9 + USD 6 ≈ $9 + $9.23 = $18.23. B looks about $3 cheaper.
Subscription over three years
Option A (price rises 5% a year):
| Year | Employees | Price per employee | Annual cost |
|---|---|---|---|
| 1 | 60 | $21.00 | 60 × $21.00 × 12 = $15,120.00 |
| 2 | 70 | $22.05 | 70 × $22.05 × 12 = $18,522.00 |
| 3 | 80 | $23.15 | 80 × $23.15 × 12 = $22,224.00 |
| Total | $55,866.00 |
Option B (both parts rise 5% a year; HR part in USD):
| Year | Employees | Payroll (AUD) | HR (USD → AUD) | Annual cost |
|---|---|---|---|---|
| 1 | 60 | 60 × $9.00 × 12 = $6,480.00 | 60 × USD 6.00 × 12 = USD 4,320 ÷ 0.65 = $6,646.15 | $13,126.15 |
| 2 | 70 | 70 × $9.45 × 12 = $7,938.00 | 70 × USD 6.30 × 12 = USD 5,292 ÷ 0.62 = $8,535.48 | $16,473.48 |
| 3 | 80 | 80 × $9.92 × 12 = $9,523.20 | 80 × USD 6.62 × 12 = USD 6,355.20 ÷ 0.62 = $10,250.32 | $19,773.52 |
| Total | $49,373.15 |
Year-3 prices are rounded to the cent ($23.15, $9.92, USD 6.62). On subscriptions alone, B is about $6,500 cheaper over three years.
One-off and running costs
| Cost line | Option A | Option B |
|---|---|---|
| Set-up and award configuration | $4,000 | $3,500 |
| Data migration (year-to-date, leave balances, employee records) | $2,500 | $3,500 (two systems) |
| Training | $1,500 | $2,000 |
| Payroll officer and HR time during implementation (80 h vs 110 h at $60) | $4,800 | $6,600 |
| Integration between payroll and HR (set-up) | $0 | $2,400 |
| Integration upkeep and data re-keying, 3 years (illustrative 2 h a month at $60) | $0 | $4,320 |
| Card fees on USD charges (3% of $25,431.95) | $0 | $762.96 |
| Subtotal | $12,800.00 | $23,082.96 |
The 3-year total
| Option A | Option B | |
|---|---|---|
| Subscriptions | $55,866.00 | $49,373.15 |
| One-off and running costs | $12,800.00 | $23,082.96 |
| 3-year TCO | $68,666.00 | $72,456.11 |
| Per employee per month (average 70 employees × 36 months) | $27.25 | $28.75 |
Option A is about $3,790 cheaper over three years in this example, despite the higher headline price, because a single system avoids a second migration, integration upkeep and FX costs. If the Australian dollar strengthened instead, or the integration needed no upkeep, the gap would shrink or reverse; that is why you should run the numbers for your case.
Sensitivity checks worth running
| Change | Effect on the comparison (illustrative) |
|---|---|
| AUD stays at 0.65 for three years | B's HR cost falls by about $867 (about $893 with card fees); B is still dearer |
| Headcount stays at 60 | Both fall; A's advantage narrows because subscriptions weigh more |
| Uplift capped at 3% instead of 5% | Both fall by roughly 2–3% of subscriptions |
| Integration upkeep is 0.5 h a month instead of 2 h | B's cost falls by $3,240 and B is about $550 cheaper |
The last row shows how one assumption can flip the result. Measure it during the trial.
How to build your own TCO
- Use the cost per employee estimator for a monthly range by software type.
- Project headcount for three years, including casual peaks if the vendor counts paid employees.
- Apply the contract's uplift cap with the renewal uplift calculator.
- Convert USD at a cautious rate; see USD-priced HR software.
- Add one-off costs and internal time honestly.
- Add the expected exit cost (data export, read-only access) if you might switch within the term.
For smaller businesses, see the cost per employee worked examples; for the benefit side, the award-automation payback example.
Frequently asked questions
Should GST be in the TCO?
If you are GST-registered and can claim credits, compare GST-exclusive figures. If not, include GST.
Why include internal time?
Because it is a real cost: the hours your payroll officer spends on implementation are not spent on other work. Value them at wage plus on-costs.
Is three years the right horizon?
It matches common contract terms and the time it usually takes to recover implementation costs. Larger implementations often use five years.
What about the cost of payroll errors?
Leave it out of the TCO, but treat a product that fails your award test as unsuitable, whatever its cost.
Sources
- business.gov.au — budgeting for business software
- Australian Taxation Office — GST credits and imported digital services
- Reserve Bank of Australia — historical exchange rates for setting a cautious assumption
- Fair Work Ombudsman — record-keeping requirements that affect exit and migration costs
