Payroll Software Buying Guide

Your accountant mentions it in passing at year-end, or payroll takes longer each month because the spreadsheet is growing too wide to scroll across on a laptop.

Then the penny drops: you have outgrown the manual approach.

Payroll software is not optional once you are running PAYE for more than a handful of staff. It is the mechanism through which you stay legally compliant, pay people correctly, and avoid a fine from HMRC or The Pensions Regulator.

This guide explains what to look for, where the real trade-offs sit, and which direction suits different types of UK employer.

Does the software need to be on the HMRC recognised list?

Yes. If you are running PAYE in the UK, your payroll software must be capable of submitting reports to HMRC online.

The GOV.UK guidance is clear: you must get software that reports PAYE information online unless you qualify for a specific exemption (which almost no business does).

HMRC publishes a list of recognised payroll software at gov.uk/guidance/find-payroll-software-that-is-recognised-by-hmrc.

The list is divided into free products (for employers with fewer than 10 employees) and paid products.

Every major provider reviewed on this site (Xero, Sage, BrightPay, IRIS, Employment Hero, and Pento) appears on the paid-for list.

HMRC’s own Basic PAYE Tools is free and functional for very small payrolls, but it has no payslip generation, no integration with accounting software, and limited support when something goes wrong.

The recognition status tells you the software can file RTI submissions. It does not tell you whether it is any good at doing so reliably, quickly, or with minimal manual intervention.

That is where the evaluation work begins.

What does RTI readiness actually require in the software you choose?

RTI (Real Time Information) means you submit a Full Payment Submission to HMRC every time you pay staff. The submission must arrive on or before payday.

Late submissions trigger automatic penalties after the first instance, and HMRC’s tolerance for chronic late filers is narrow.

What this requires from your software is the ability to send an FPS. It requires the automation to send it without you having to remember to do so separately from running payroll. Most cloud payroll tools handle this in the background.

Desktop software sometimes requires a manual step: you run payroll, then you separately send the submission.

For a busy HR manager running payroll on the 25th of the month while also dealing with three other things, that separate step is a liability.

You also need the software to handle Employer Payment Summary (EPS) submissions. These are filed in months where you have claimed statutory pay back from HMRC, or to report that no employees were paid.

Missing an EPS means HMRC assumes your PAYE bill is the same as last month and charges accordingly.

Sage Payroll and Xero both handle FPS and EPS automatically. BrightPay (desktop) prompts you to send submissions after running payroll, which requires a manual confirmation. IRIS Payroll Professional includes automated submission scheduling.

Pento is cloud-native and files automatically without any action required beyond approving the payroll run.

Why does auto-enrolment integration determine your admin burden more than anything else?

Auto-enrolment is the legal requirement to assess workers and enrol eligible ones into a qualifying workplace pension scheme. Eligible means aged 22 to state pension age and earning more than £10,000 per year.

Your duties begin on the day you employ your first member of staff.

The problem is not the enrolment itself. The problem is what happens every pay run: pension contributions must be calculated on qualifying earnings (currently between £6,240 and £50,270), deducted from gross pay, and paid to your pension provider alongside employer contributions.

If your payroll software does not handle this automatically, you are building a parallel spreadsheet to track it.

The software integration you need has two parts. First, the payroll tool must calculate contributions correctly and produce a pension data file each period.

Second, it must either send that file directly to your pension provider or integrate with a middleware layer (like NEST’s data exchange portal) to do so.

Xero integrates directly with NEST, Royal London, and several other major UK pension providers. Sage Payroll integrates with a broader range of providers and supports the PAPDIS standard that most UK schemes accept.

BrightPay has consistently strong auto-enrolment functionality, including re-enrolment reminders every three years, which is one of the compliance tasks most employers forget about. Employment Hero includes its own bundled pension product alongside third-party integrations.

Pento handles auto-enrolment as part of its fully managed model.

If your pension provider is not on the software’s integration list, you will receive a CSV file each period and upload it manually. That is workable but not sustainable once headcount grows.

Should you choose bureau-led or self-service payroll software?

This is the decision that catches most buyers off guard. Bureau-led software is designed for accountants or payroll bureaus running payroll on behalf of multiple clients.

Self-service software is designed for employers running their own payroll internally.

BrightPay is the clearest example of bureau-led design. Its interface, licensing model, and workflow are built around a bureau processing payrolls for a portfolio of employers.

If your accountant runs your payroll, there is a good chance they already use BrightPay. This works well. Your accountant has a tool they know, compliance is their responsibility, and you receive payslips and reports.

The limitation is that you have less direct access and less visibility unless BrightPay Connect (the cloud layer) is enabled.

Xero is built for self-service. Your finance team or Office Manager runs payroll directly inside the Xero accounting platform you already use for invoicing and bank reconciliation.

The payroll module adds RTI filing and basic auto-enrolment.

The trade-off is that Xero’s payroll is narrower in scope than specialist tools: it covers the basics well but lacks advanced capabilities around employee scheduling, complex pay structures, or bureau-style multi-entity management.

Employment Hero sits between the two. It is self-service but with optional managed payroll services, and it combines HR, payroll, and rostering in one platform.

That breadth is genuinely useful if you are scaling and do not want separate HR and payroll systems. The risk is that you are paying for features you will not use until headcount justifies them.

IRIS Payroll Professional is used by both bureaus and internal payroll teams. It is more capable than Xero at handling complex pay structures (commission, multiple pay frequencies, director NI calculations) and is the right answer if your payroll is irregular or high-complexity.

The interface is older and the learning curve is real.

How should you compare pricing models when they are structured so differently?

UK payroll software uses three main pricing structures: per-employee-per-month (PEPM), annual licence, and tiered bands.

Xero charges per employee per month on top of its accounting subscription. At the time of writing, payroll is included in Xero’s plans from £15/month for up to 5 employees.

Sage Payroll is priced by employee band: roughly £8/month for 1-5 employees, rising to higher tiers.

BrightPay uses an annual licence: the desktop version costs around £159/year for up to 10 employees, and the Connect (cloud) add-on is priced additionally per employer. Employment Hero is PEPM and can become expensive quickly when you include the full HR platform.

Pento is PEPM with pricing available only by quote, positioning itself at mid-market.

The number that matters is not the headline price. It is the total cost at your projected headcount in 12 months. A per-employee model that looks cheap at 10 staff can cost four times as much at 40.

An annual licence that looks expensive initially often becomes better value by year two.

Watch for what is excluded. Some plans charge extra for payslip distribution, for phone support, or for multiple pay frequencies. BrightPay desktop includes most of this in the licence fee.

Xero payroll support is channelled through their help centre rather than direct phone access.

Does cloud vs desktop still matter in 2026?

Less than it did three years ago, but the distinction still has operational consequences.

Cloud payroll means your data is stored on the provider’s servers, accessible from any device, updated automatically, and backed up without any action from you. Xero, Employment Hero, and Pento are cloud-native.

There is no version to install, no local backup to worry about, and no risk of the payroll data sitting on a laptop that gets lost.

Desktop payroll means the software runs locally, data is stored on your machine or server, and you manage backups. BrightPay’s desktop version has been the dominant product in this category for UK SMEs and bureaus.

The application is fast and reliable, but if your laptop fails before you back up, payroll data is at risk.

BrightPay Connect addresses this by syncing data to the cloud, but it is an add-on rather than the default experience.

For a business starting payroll software for the first time, cloud is the straightforward choice unless your accountant specifically recommends desktop BrightPay as part of their bureau workflow.

For businesses migrating from desktop to cloud, the key question is whether historical payroll data can transfer.

Most cloud providers accept a CSV import of YTD figures, but it is worth confirming the exact process with the provider before you sign.

How easy is it to migrate from spreadsheets or a bookkeeper?

Harder than the sales material suggests, and easier than people fear. The honest answer depends on how clean your existing data is.

What the software needs from you at migration: employee names, National Insurance numbers, tax codes, year-to-date earnings and deductions for the current tax year, and employee bank details. If you have been running payroll from spreadsheets, you probably have most of this.

If a bookkeeper has been running it, request a data export before you switch.

Xero and Sage both have guided setup flows that walk you through employee import. Sage’s migration support is stronger, with a UK phone support team that can assist directly. Employment Hero offers onboarding calls for new accounts.

BrightPay has detailed migration documentation for accountants moving clients from other software.

One practical issue that trips up mid-year migrations: if you switch software mid-tax-year, you must carry across year-to-date payroll figures accurately. Errors here cause incorrect P60s at year end and can result in employees underpaying or overpaying tax.

Get the YTD figures signed off by whoever ran payroll previously before you migrate.

How do you make the final decision?

Use this framework. It takes about fifteen minutes.

Start with your current accountant relationship. If your accountant runs payroll for you, ask what software they use. Staying on the same platform eliminates a handover risk and likely means no additional software cost.

If you are taking payroll in-house, that factor drops away.

Then answer three questions. How many employees will you have in 18 months?

If the answer is under 15, Xero or Sage cover most cases at reasonable cost. If the answer is 15 to 50, Employment Hero or BrightPay Connect become worth evaluating.

Over 50, Pento and IRIS Payroll Professional enter the conversation.

Second: do you need the payroll to connect to existing accounting software? If you use Xero for accounting, the Xero payroll module removes a reconciliation step. If you use Sage 50, Sage Payroll integrates cleanly.

If you use QuickBooks, the payroll integration options are narrower.

Third: how unusual is your payroll? Commission-heavy sales teams, construction industry scheme deductions, multiple pay frequencies, or director-only payrolls all require features that entry-level cloud tools sometimes lack.

Irregular payroll is where IRIS and BrightPay outperform the accounting-led tools.

The weakest buying decision is choosing based on price alone at current headcount.

Choose based on where you will be in 18 months, what your accountant supports, and whether the tool can file RTI automatically without you remembering to do something extra.