Payroll for small business
Most small employers are paying for payroll software they do not need. Payroll for small business UK purposes is free for a lot of them: HMRC recognises 10 free products for businesses with fewer than 10 employees, and almost nobody mentions them.
Updated 11 September 2026 · Tax year 2026/27
Payroll software, a payroll service, or outsourcing #
Payroll services for small business, payroll programs for small business and payroll systems for small business are three different things sold with overlapping names, and the right answer depends entirely on how complicated your payroll actually is.
| What it is | Who runs it | Typical cost | |
|---|---|---|---|
| Payroll software | A tool that works out pay and files to HMRC | You | Free under 10 employees, otherwise a monthly subscription |
| A payroll service or bureau | Someone runs the payroll on your behalf | Them, using their software | Per payslip, per pay period, plus a standing charge |
| Full outsourcing | Payroll plus pensions, statutory pay and HR admin | Them, end to end | Higher per head, usually a contract |
The distinction that matters legally: outsourcing payroll does not outsource the responsibility. If a bureau files your FPS late, HMRC penalises you, not them. You can recover it from them commercially if your contract allows, but the default position is that the employer is on the hook.
Free payroll software for small business #
A payroll system for small business use does not have to cost anything. HMRC publishes a list of recognised products that are free for employers with fewer than 10 employees:
- Basic PAYE Tools
- 1st FREE+ Payroll & HR
- Primo Payroll
- Collegia FreePayroll
- Employment Hero Free Payroll
- Enrolpay - Small Payroll
- RTI Lite
- IRIS Payroll Basics
- 1 A Simple Payroll
- Stansoft Linux
"Recognised by HMRC" means the software has been tested to file PAYE information correctly. It is not an endorsement of the product beyond that, and the free tiers differ a great deal in what else they do.
What payroll software has to be able to do #
HMRC's requirement is short: the software must report PAYE information online. In practice it needs to record employee details, work out pay and deductions, and submit to HMRC in real time.
Beyond that, the features worth checking are the ones that are optional and often missing: payslips, pension deductions and auto enrolment assessment, statutory sick and maternity pay, student loan deductions, and the ability to issue P45s and P60s.
If you work in construction, check CIS handling separately. Payroll and CIS are different schemes, and software that runs payroll perfectly may have no concept of a CIS deduction at all.
What a payroll service costs #
Bureaux almost always price per payslip per pay period, with a small standing charge on top. That structure has two consequences worth planning around.
First, cost scales with headcount, so the saving from doing it yourself grows as you grow. Second, and more sharply, pay frequency multiplies it. Paying weekly instead of monthly means roughly four times as many payslips for exactly the same people and the same wages. For a small employer with any choice in the matter, moving from weekly to monthly pay is usually the single largest payroll saving available.
Ask specifically what is included. Year-end filing, P60s, P11Ds, auto enrolment assessment, pension uploads and dealing with HMRC on your behalf are frequently priced separately, and a quote that looks cheap per payslip can land somewhere quite different by the time it covers everything you actually need.
Every payroll duty, and when it falls #
| What | When | Note |
|---|---|---|
| Register as an employer with HMRC | Before the first payday | Produces the two reference numbers you will need |
| Choose payroll software | Before the first payday | It must be able to report PAYE information online |
| Send a Full Payment Submission (FPS) | On or before each payday | Late FPS is the most common payroll penalty |
| Send an Employer Payment Summary (EPS) | By the 19th, if needed | Only where you are reclaiming or reporting a nil payment |
| Pay HMRC | By the 22nd electronically | The 19th if paying by posted cheque |
| Assess staff for a workplace pension | Every pay period | Auto enrolment duties start with the first employee |
| Give each employee a P60 | By 31 May | For anyone employed at the end of the tax year |
| Report expenses and benefits on a P11D | By 6 July | Unless benefits are payrolled instead |
The FPS deadline is the one that catches people: on or before payday, not after it. Running the payroll the week after everyone has been paid is late by definition, even if the money went out on time and the figures are perfect.
Before the first payday #
Register as an employer with HMRC before you pay anyone, including yourself. Registration produces two reference numbers that do different jobs and are constantly confused: the Employer PAYE reference identifies you, and the Accounts Office reference is the one you pay with. That is set out in full in the guide to PAYE reference numbers.
Allow time. You cannot file a payroll submission without the reference, and it arrives by post. Registering the week before the first payday is cutting it fine.
Payroll and pensions are one job, not two #
Auto enrolment duties begin on the day you employ your first worker, not at some later review point. Every pay period you have to assess whoever you are paying, enrol anyone who qualifies, deduct and pay contributions, and keep records.
Contributions run on qualifying earnings rather than on gross pay, which is why the 8% minimum is never 8% of a salary. The auto enrolment calculator works out the actual figures, and it is worth checking your software agrees with them.
A company with a single director and no other staff usually has no auto enrolment duties, but must still tell The Pensions Regulator that rather than ignoring the letters.
If you are a single-director company #
This is the most common small business payroll of all, and it is also the simplest.
You need a PAYE scheme only if you take a salary. A director paid entirely in dividends does not. Most directors do take a salary, because a salary at the right level secures a State Pension qualifying year at almost no cost, and the director salary guide sets out why £12,570.00 is usually the answer.
For one director on a fixed monthly salary, free software takes a few minutes a month. Paying a bureau for that is paying someone else to press the same button.
Should you outsource payroll for small business use? #
- Variable hours. Anything where pay changes every period multiplies the work and the chance of error.
- Statutory pay. Sick, maternity, paternity and adoption pay have their own rules and their own reclaim mechanics.
- Frequent starters and leavers. Hospitality and construction feel this hardest.
- More than a handful of people. Past the free software limit you are paying for something anyway, so the question becomes which is the best payroll for small business at your size rather than free or paid.
- You keep missing the FPS. If the deadline is already slipping, that is the answer regardless of headcount.
Common questions #
Is there free payroll software for small business?
Yes. HMRC recognises 10 free payroll products for employers with fewer than 10 employees, including its own Basic PAYE Tools. They are genuinely free rather than trials, and they file to HMRC properly. Most small employers never need to pay for payroll software at all.
What does a payroll service for small business cost?
Bureaux typically price per payslip per period, plus a small standing charge, so the cost scales with headcount and pay frequency rather than being a flat subscription. Paying weekly rather than monthly multiplies the cost by roughly four for the same people.
What is the difference between payroll software and a payroll service?
Software is a tool you operate: you enter the hours, it works out the tax and files to HMRC, and the legal responsibility stays with you. A payroll service is a person or bureau doing it for you. The responsibility still stays with you, which is the part people are surprised by.
Do I need payroll if I am the only director?
Only if you pay yourself a salary. A director drawing only dividends needs no PAYE scheme. A director taking a salary at or above the Lower Earnings Limit does, and so does any company paying anyone else.
What is an FPS and when is it due?
A Full Payment Submission, the report telling HMRC what you paid each employee. It is due on or before each payday, not afterwards. Filing it late is the most common payroll penalty and it is entirely avoidable.
Should a small business outsource payroll?
It becomes worth it when the payroll stops being simple: variable hours, statutory pay, starters and leavers, or more than a handful of people. For a single director on a fixed monthly salary, free software takes minutes a month and a bureau is paying someone to press the same button.
What payroll deadlines must I meet?
An FPS on or before each payday, an EPS by the 19th where one is needed, payment to HMRC by the 22nd electronically, P60s to employees by 31 May, and P11Ds by 6 July. Auto enrolment assessment happens every pay period.