Many UK SMEs still clinging to manual payroll
Manual payroll is still surprisingly common across UK small and medium-sized enterprises. Around 31% of these businesses are using spreadsheets or even pen and paper to run payroll. If a company has between 5 and 19 employees, this number jumps to 44%. Those are real businesses making real decisions and managing real people, without the infrastructure in place to avoid basic human error. That’s a weak spot you don’t want in your system.
When your payroll is manual, odds of getting it wrong go up. According to data from Employment Hero’s 2025 survey of 1,000 UK business leaders, 84% of SMEs admit they’ve made payroll errors. Nearly half of those cases involved wrong wage calculations. Another 38% dealt with late or missing payments.
You don’t need complicated analysis to see what this means. Loss of accuracy leads to risks, for finances, compliance, and workforce trust. You delay someone’s pay or get it wrong, and you damage morale. Do that repeatedly, and you erode the foundations of your talent base. From a C-suite perspective, preventing this should be actioned.
Manual systems are outdated, and vulnerable. Any process that relies too much on human input without automated checkpoints invites both inefficiency and liability. This isn’t about tools being shiny or modern, it’s about survivability and operational resilience. If you’re running a business on spreadsheets, you’re gambling with your margins, team productivity, and brand credibility.
Payroll errors come with real financial penalties, and they add up quickly
If your payroll system makes mistakes, you pay for it. Literally.
Employment Hero’s research shows that 40% of UK SMEs have already paid fines due to problems with underpayment, reporting issues, or delays. These aren’t minor accounting hiccups, some of these penalties run into the thousands. That’s not just a regulatory slap, it could delay investment, hiring, even operations.
And let’s not forget this, these costs are not standalone. Fines are the aftermath of bigger failures. Incorrect wages and missed payments don’t just trigger penalties; they cause problems across the organization. They hit employee trust, hinder onboarding, and make talent retention that much harder.
For decision-makers, the takeaway here is straightforward: payroll errors are expensive. They’re also avoidable. Staying manual when scalable, accurate tools are within reach doesn’t make sense. If your finance or HR departments are running payroll without automation, you’re tying a lead weight to growth.
Accuracy in payroll isn’t optional. Get it right every time, and you unlock smoother cash flow, better retention, and solid compliance. Get it wrong, and you’re burning time, money, and credibility. No business aiming for scale or stability can afford that.
Cost is blocking SMEs from automating payroll, but it shouldn’t be
Most SMEs know automation works. They understand the value. What’s stopping many from upgrading their payroll systems isn’t a lack of awareness, it’s cost.
35% of small businesses in the UK say software price is the main reason they’re still running payroll manually. That figure isn’t surprising when you look at the tight margins these companies operate under. The smaller the business, the leaner the budget. And with compliance demands growing, costs around core operations like payroll aren’t just about a monthly fee. They compound across time, compliance risk, and team resources.
But fixating on expense is shortsighted. Payroll automation is not a luxury, it’s risk control. Delaying implementation to “cut costs” only shifts the exposure elsewhere, into fines, inefficiencies, and damage to team performance. Leaders who factor in the full cost landscape, penalties, retention fallout, audit prep time, understand that manual payroll is not actually cheaper.
What business owners need is a clear path to affordable automation, without compromising quality or resilience. Tools exist that check every box, accuracy, compliance, integrations, but still, uptake is slow because of the perceived price tag. That perception needs to change across boardrooms.
One solution: employment hero now offers free payroll software to SMEs
Employment Hero made a decision most software companies wouldn’t dare to make. They removed the cost barrier by offering their payroll platform for free to all UK SMEs. No trial periods, no hidden strings. Just full access, without the financial friction that’s been holding smaller businesses back.
Their reasoning is straightforward. Payroll shouldn’t be where small businesses struggle. According to Kevin Fitzgerald, UK Managing Director at Employment Hero, “With the rising National Minimum Wage, increased National Insurance Contributions and tougher enforcement of employment law, there’s never been a more complicated time to be a small employer.” He says SMEs are “trying to do the right thing, but outdated systems and limited resources are costing them dearly.”
That’s what this move is aiming to fix. It gives 5.5 million UK SMEs immediate access to modern, automated payroll infrastructure, without adding to the cost base. More importantly, it addresses the core compliance risks and operational delays that have been hurting small businesses for years.
For C-suite leaders, this is a practical moment to reassess. Eliminate the cost hesitation. Implement tools that do the job consistently and can scale with the business. Free or not, when a platform removes complexity, improves accuracy, and keeps you compliant, it becomes a strategic asset, not just a software choice.
Employment law is getting more complex, payroll needs to catch up
Compliance is not standing still. In the UK, employment regulations have tightened. The National Minimum Wage has increased. National Insurance Contributions have risen. Oversight is stricter, and enforcement is more consistent. These shifts raise the stakes for payroll accuracy across the board.
This isn’t something small business leaders can push off. The compliance demands are real, and they’re time-sensitive. When regulations change, your payroll system either keeps up, or it becomes a liability. If you’re still depending on manual systems, your reaction time slows down and the potential for mistakes intensifies. That’s not just a back-office issue, it’s a strategic exposure.
Kevin Fitzgerald, UK Managing Director at Employment Hero, put it clearly: “Our research shows payroll has become a compliance minefield. SMEs are trying to do the right thing, but outdated systems and limited resources are costing them dearly.”
For executives, the key takeaway is this: regulatory shifts don’t wait for your systems to catch up. You either build infrastructure that adjusts quickly and accurately, or you fall behind, and the penalties will follow. Efficient payroll operations now need to serve both accuracy and agility. There’s no room for lagging tools or assumptions that tomorrow will look like yesterday. The landscape has already changed.
The digital divide is holding SMEs back from fixing payroll
Many small businesses are still on the wrong side of the digital line. The data shows it. Manual payroll use is high, especially among firms with fewer than 20 employees, where nearly half still use spreadsheets or paper-based methods. The cost argument has been established, but this is also about awareness, time, and perceived readiness.
There’s still a gap in how SMEs adopt technology, not just in payroll, but across their core operations. The problem isn’t that solutions don’t exist. The problem is access and understanding. Too many SMEs assume digital systems are too difficult to set up, too disruptive to integrate, or just not suited to businesses of their size.
That digital hesitation is now costing companies real money. It’s not just about fines or wrong numbers on a payslip. It’s an ongoing drag on operational efficiency, team productivity, and executive focus. When C-suite leaders stay locked into legacy systems, they waste time on avoidable problems and miss out on scalability.
It’s time for those leading small businesses to look past inertia. Streamlined digital platforms are no longer complex or cost-prohibitive. They’re made for businesses that want real-time control and accuracy at scale. Closing the digital gap starts with one decision: switch systems that can’t meet today’s standards for ones that can.
Key highlights
- Manual systems invite critical risk: Manual payroll is still used by over 30% of UK SMEs, driving up errors and inefficiencies. Leaders should transition to automated systems to improve accuracy and reduce exposure.
- Errors are hurting the bottom line: 84% of SMEs have experienced payroll mistakes, and 40% have paid fines as a result. Switching to reliable payroll tools can prevent financial penalties and loss of employee trust.
- Cost shouldn’t block progress: Although 35% of SMEs cite software expense as a barrier, the long-term cost of inaction, via errors, fines, and inefficiencies, is significantly higher. Executives should treat automation as a risk-mitigation investment.
- Free solutions are now on the table: Employment Hero now offers UK SMEs free payroll software, removing the cost barrier completely. Leaders should evaluate and implement accessible tools that solve compliance and accuracy issues at no cost.
- Compliance is getting tougher: With rising wage regulations and enforcement levels, payroll has become a high-stakes function. SMEs must prioritize solutions that keep them agile and fully compliant.
- Digital gaps widen risk exposure: UK SMEs relying on manual payroll fall behind in accuracy, speed, and scalability. Leaders should close the digital adoption gap to strengthen operations and future-proof the business.
