How much cheap payroll software really costs
The free HMRC payroll tool is capped at nine employees and produces no payslips at all [1]. Yet every UK employer must give each worker a payslip on or before payday [2], and file a Full Payment Submission to HMRC in real time every time staff are paid [3]. The gap between what a free tool does and what the law demands is where the real cost of cheap payroll software hides.
For an owner-managed business watching every line of the budget, price matters. A headline figure of a few pounds a month looks attractive, but the sticker price is only part of the equation. The cost that lands on the business is the sticker price plus the time, the correction work, and the penalties that a thin tool leaves behind.
This article sets out how UK payroll software is priced, what the lowest tier of the market actually includes, where the free HMRC tool stops, and how to judge whether a low price reflects good value or a compliance gap waiting to open.
Key takeaways
- The free HMRC tool handles fewer than 10 employees and does not produce payslips or assess auto-enrolment [1].
- Every UK employer must issue a payslip and file Real Time Information on or before payday [2].
- A late Full Payment Submission can cost £100 a month for a small employer, rising with headcount [4].
- Per-payslip pricing scales with payroll activity, not with the number of seats bought upfront.
- HMRC recognition is the baseline any serious UK payroll product must meet, not a premium feature [5].
What "cheap" buys and where it stops
The cheapest option in the market is the government's own free tool. It is genuinely free, and for a micro-employer with a handful of staff it can run the core Pay As You Earn calculation and submit to HMRC [1]. The limits arrive quickly. It is capped at nine employees, it produces no payslips, and it does not carry out auto-enrolment assessment [18].
Those gaps are not cosmetic. A payslip is a legal right for every worker, and it must show gross pay, deductions and net pay [2]. Auto-enrolment is a statutory duty: an employer must assess staff, enrol those who qualify and pay a minimum contribution [9]. A tool that does neither leaves the employer to bridge the gap by hand, and manual bridging is where errors start.
Commercial payroll software fills those gaps. At the entry level it typically bundles payslip generation, Real Time Information filing, and auto-enrolment assessment into one monthly fee. The question is not whether to pay, but which pricing model gives the business the lowest total cost for the payroll it actually runs.
How UK payroll software is priced
Most UK payroll products use one of three models. The right one depends on headcount, pay frequency and how much the workforce changes month to month.
| Pricing model | How it is charged | Suits |
|---|---|---|
| Per-employee licence | A fee for each active employee per month, often with a base charge | Stable headcount, monthly pay |
| Per-payslip | A charge each time a payslip is produced | Variable headcount, weekly or ad-hoc pay |
| Flat annual licence | One fixed fee for the year regardless of headcount | Predictable, larger teams |
A per-employee licence is easy to compare between providers, but the bill grows with every hire and is charged even in a month when a worker is paid nothing. A per-payslip pricing model instead tracks payroll activity, so the cost follows the work done rather than the seats held. For a business with seasonal staff or weekly payrolls, that difference compounds across a year.
The market range is wide. The same payroll, at the same headcount, can cost several times more from one provider than another depending purely on the model. That spread is the single strongest argument for reading past the headline figure before signing up.
The hidden costs that sit outside the sticker price
Three costs rarely appear on a pricing page. The first is correction work. A wrong Full Payment Submission has to be fixed and resubmitted, and the admin time to do that is real even when HMRC charges nothing [3]. The second is penalties. A late FPS costs a small employer £100 for each month it is late, and more as headcount rises [4].
The third is the cost of getting statutory pay wrong. Statutory Sick Pay changed on 6 April 2026, with waiting days removed and the Lower Earnings Limit test scrapped under the Employment Rights Act 2025 [11]. Software that has not been updated for that reform quietly underpays or overpays sick leave, and the employer carries the risk. Cheap software that lags on legislation is not cheap once a correction is due.
Judging value, not just price
The floor for any UK payroll product is HMRC recognition. Recognition certifies that the software meets HMRC's specification for sending Full Payment Submissions and Employer Payment Summaries through Real Time Information [12]. Every serious product carries it, so it is a baseline rather than a differentiator [5]. A tool that cannot file RTI is not a bargain, it is a liability.
Above that floor, value comes from coverage. A payroll run touches income tax bands [16], National Insurance thresholds [6], the National Minimum Wage [15], student loan deductions [14], and pension contributions under auto-enrolment [10]. Software that automates all of these removes the manual steps where a cheap tool leaks time and accuracy. Modern SME payroll software calculates each of these on every payrun, which is where a slightly higher monthly fee earns its keep.
There is also the employer National Insurance picture to weigh. The employer rate rose to 15% on earnings above the £5,000 Secondary Threshold from 6 April 2026 [7]. Employment Allowance can offset up to a set amount of that bill for eligible employers [8]. Software that applies the allowance and the right NI category automatically protects a margin that manual payroll can easily erode. The mechanics are set out in the employer National Insurance guide.
For a business issuing the occasional payslip rather than running a full scheme, a one-off instant payslip generator can be the genuinely cheap answer, with no monthly commitment at all. The cheapest correct option depends entirely on the shape of the payroll.
Conclusion
The lowest price and the lowest cost are not the same thing in UK payroll. A free or near-free tool that stops short of payslips, auto-enrolment and current statutory rates shifts work and risk back onto the employer, and that work has a price even when the software does not. The true cost of cheap payroll software is measured after the corrections and the penalties, not on the pricing page.
The direction of travel favours products that automate the whole compliance chain and price on activity rather than seats. As statutory pay and employer National Insurance keep moving, the value of software that updates itself and files correctly on the first attempt only grows. A small business payroll decision made on total cost, not headline price, is the one that holds up across a full tax year.
Frequently asked questions
Is free payroll software safe to use for a small UK business?
The free HMRC tool is safe for its narrow purpose, running Pay As You Earn for fewer than 10 employees and filing to HMRC [1]. It becomes risky when the business needs payslips or auto-enrolment, because it produces neither [18]. At that point the employer is meeting legal duties by hand, which raises the chance of an error [2].
What is the cheapest way to produce a single payslip legally?
For a one-off payment, a per-payslip service avoids any monthly subscription while still meeting the legal requirement to show gross pay, deductions and net pay [2]. This suits sole traders and occasional employers who do not run a continuous scheme. A business running regular payroll will usually find a subscription cheaper over a year than repeated one-off charges [17].
Does cheap payroll software still file Real Time Information to HMRC?
Only if it is HMRC-recognised. Recognition is what certifies the software to send Full Payment Submissions and Employer Payment Summaries through Real Time Information [12]. Any product that cannot file RTI leaves the employer exposed to late-filing penalties, which start at £100 a month for a small scheme [4].
Why do payroll prices vary so much for the same number of staff?
The main driver is the pricing model. A per-employee licence, a per-payslip charge and a flat annual fee produce very different bills for the same payroll, and the same headcount can cost several times more from one provider than another [5]. Coverage matters too: software that automates National Insurance, student loans and pensions removes manual work that a cheaper tool pushes back onto the employer [6].
