Payroll is one of the areas of running a business where getting it wrong has real consequences. Late or incorrect pay affects your employees. Errors in PAYE or National Insurance reporting affect your relationship with HMRC. Missed auto-enrolment contributions create legal liability. Choosing the right payroll software reduces the risk of all of these.
HMRC Recognition and Real Time Information
The first requirement is that any payroll software you use must be HMRC-recognised and capable of submitting Real Time Information (RTI) reports. RTI requires employers to report payroll information to HMRC on or before each pay date — not just at the end of the year. HMRC maintains a list of recognised payroll software on their website.
This is non-negotiable. Software that is not RTI-capable cannot be used to run payroll in the UK.
PAYE, National Insurance, and Statutory Payments
Good payroll software handles all standard deductions and additions automatically. This includes income tax under PAYE, National Insurance contributions for both employee and employer, statutory sick pay (SSP), statutory maternity and paternity pay (SMP/SPP), and student loan deductions.
The calculations should update automatically when HMRC changes tax rates, thresholds, or National Insurance rates. If you are manually updating these figures, the software is not doing its job.
Auto-Enrolment Pension Compliance
If you employ staff who meet the age and earnings thresholds, you are legally required to automatically enrol them in a workplace pension and make employer contributions. Payroll software should handle the assessment of which employees need to be enrolled, calculate contributions, and ideally integrate with your pension provider to submit contribution data directly.
Check which pension providers the software integrates with. If you already have a pension scheme in place, confirm your provider is supported.
Payslips and Employee Self-Service
Payroll software should generate payslips automatically and distribute them to employees. Many modern packages offer an employee portal or app where staff can view their payslips, P60s, and other documents without you needing to email them individually.
This saves time and gives employees the self-service access they increasingly expect.
Number of Employees
Payroll software is often priced by the number of employees. Check the pricing at your current headcount and at the headcount you expect to reach. A package that is affordable for five employees may become expensive at twenty.
Also check whether there is a cap on the number of pay frequencies. If you pay some employees weekly and others monthly, confirm the software handles multiple pay schedules.
Integration With Your Accounting Software
Payroll and accounting are closely related. Payroll costs feed into your profit and loss account, and bank payments for wages need to be reconciled. If your payroll software integrates directly with your accounting software, this happens automatically rather than requiring manual journal entries.
Check what integration is available between any payroll software you are considering and the accounting software you use. Some accounting packages include payroll as a built-in feature or as an add-on, which simplifies this entirely.
Year-End Processing
At the end of each tax year, payroll software needs to produce P60 forms for all employees and submit a final Full Payment Submission (FPS) or Employer Payment Summary (EPS) to HMRC. The software should walk you through this process and generate P60s automatically.
Check how the software handles leavers during the year. P45 forms for employees who leave should be produced automatically when you process their final payment.
Support and Updates
Payroll rules change frequently — rates, thresholds, and legislation are updated regularly. Your payroll software must update to reflect these changes before they come into effect. With subscription-based software, updates are usually automatic. With older desktop software, you may need to actively apply updates.
Support quality is important in payroll more than in most software categories. Payroll problems are time-sensitive — if something goes wrong on pay day, you need fast, knowledgeable help. Check what support channels are available and read reviews specifically about support responsiveness.
Standalone vs Integrated Payroll
You have two broad options: standalone payroll software, or payroll as part of your accounting package. Many accounting software providers include payroll as an add-on or at a higher subscription tier.
Integrated payroll has the advantage of simplicity — one login, one subscription, and payroll data flows directly into your accounts. Standalone payroll software may offer more advanced features if your payroll is complex.
For most small businesses, integrated payroll within your accounting software is the simpler and often more cost-effective choice. Standalone software makes more sense for businesses with complex payroll requirements or those whose accountant manages payroll separately.
For a broader view of choosing the right software for your business, see our guide on how to choose accounting software for your UK small business. For understanding what Making Tax Digital means for your business, see our guide on What Is Making Tax Digital.
