Rates and data last verified 17 February 2026 by the ExpertSure editorial team. Sources are listed in the methodology below the calculator.
Running payroll manually costs UK small businesses significantly more than most owners realise, with the average employer spending 3 to 5 hours per month per 10 employees on calculations, payslip preparation, HMRC submissions, and pension administration. For a business with 20 staff, that equates to roughly 8 hours per month — and at an effective hourly cost of £25 to £40 for the person handling payroll, the annual expense reaches £2,400 to £3,840 before accounting for error correction time and compliance risk.
HMRC issues penalties starting at £100 for late PAYE filing, rising to £400 or more for persistent defaults, and incorrect submissions can trigger investigations that cost thousands in professional fees. Payroll software subscriptions typically cost £3 to £8 per employee per month, meaning a 20-person business pays £720 to £1,920 annually — often saving 60% to 75% compared to manual processing. This calculator quantifies your potential savings.
FREE QUOTE COMPARISON
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- Payroll software for ten employees costs £20 to £24 a month - QuickBooks Payroll Core is £5 plus £1.50 per employee as a QuickBooks Online add-on, BrightPay Cloud is £22.95 and Sage Payroll Essentials is £24, all before VAT
- Businesses with fewer than 10 employees can use free HMRC-recognised software - the gov.uk list of recognised products includes HMRC’s own Basic PAYE Tools, so software can cost £0 for the smallest employers
- Late filing penalties run from £100 to £400 a month by employer size - £100 for 1 to 9 employees up to £400 for 250 or more, but HMRC does not charge for a first miss in a tax year or a late FPS covering payments within 3 days of payday
- Time savings alone are modest at the calculator’s defaults - for 25 employees at £20 an hour, cutting payroll from 20 to 3 minutes per employee a month saves £1,700 a year, or £200 after the £5 mid-range software cost
How to Use This Calculator
Enter your number of employees and how frequently you run payroll (weekly, fortnightly, or monthly).
Estimate the hours you currently spend on payroll each month — include time for calculations, submissions, queries, and error correction.
Input your hourly cost for the person handling payroll (their salary divided by monthly hours, or your accountant’s hourly rate).
Compare the result against typical payroll software costs to see your potential annual saving and the time you could redirect to revenue-generating activities.
How much payroll software saves depends mostly on how long payroll takes you now and how often errors creep in, so treat any headline saving with care and put your own figures into the calculator.
Use the calculator to compare manual payroll costs (admin time, errors, penalties) against software pricing, using your own time and error history where you have it.
The Hidden Costs of Manual Payroll
Manual payroll costs admin time every pay run, and mistakes cost more time to put right, plus HMRC penalties when submissions are late.
Many small businesses start with manual payroll using spreadsheets or basic accounting software. While this avoids upfront software costs, it creates three major hidden expenses:
1. Administrative Time
The calculator assumes manual payroll takes 20 minutes per employee per month; change it to match your own time. On that assumption, a business with 25 employees spends 8.3 hours on payroll every month, or 100 hours a year.
At an admin cost of £25 an hour, that is £2,500 per year in time alone. The calculator assumes software cuts the work to 3 minutes per employee; your own figure depends on how much of the process the software automates.
2. Payroll Errors and Overpayments
Common payroll mistakes include:
- Incorrect tax code application
- Wrong National Insurance calculation
- Missed or incorrect pension contributions
- Statutory pay miscalculations (sick, maternity, paternity)
Each error costs time to identify and correct, plus refunds and some damage to staff trust. Software that calculates tax, NI and pension deductions automatically removes many of the manual calculation steps where these errors start.
3. HMRC Penalties for Late or Incorrect Submissions
Under Real Time Information (RTI) rules, employers must submit Full Payment Submission (FPS) returns to HMRC on or before every payday. Late or inaccurate submissions trigger automatic penalties ranging from £100 to £400 per month depending on your employee count.
HMRC does not charge a penalty for your first late submission in a tax year, but later ones in the same year are charged each month they happen.
How Much Does Payroll Software Cost?
Published prices for basic cloud payroll for ten employees run from about £20 to £24 a month before VAT (QuickBooks Payroll, BrightPay Cloud, Sage Payroll), roughly £2 per employee. Enterprise systems with HR integration and managed payroll (ADP, Ceridian) are priced on quotation.
Payroll software pricing follows a per-employee-per-month (PEPM) model, with three main tiers:
Budget Tier: about £2 per employee per month
Cloud platforms like Sage Payroll, BrightPay Connect, and QuickBooks Payroll offer core features: automatic tax and NI calculations, RTI submission, payslip generation, and pension integration. These are ideal for businesses with 1–50 employees and straightforward payroll needs.
For a 25-employee business, Sage Payroll Essentials works out at £60 a month (£720 a year) before VAT: £12 including five employees, plus £2.40 for each of the other 20.
Mid-Range Tier: usually quote-based
Platforms like Moorepay, PayFit, and Ciphr add HR features (absence tracking, employee self-service, document storage), advanced reporting, and multi-location support. Best suited for 50–250 employees or businesses with complex pay structures (shift work, overtime, commissions).
Premium Tier: quote-based
Enterprise systems like ADP Workforce Now, Ceridian Dayforce, and SD Worx include full HR suites, time & attendance integration, benefits administration, and dedicated payroll support. These platforms also offer managed payroll services where the provider runs payroll on your behalf.
HMRC Penalties for Late Payroll Submissions
HMRC charges penalties for late RTI submissions: £100 a month for 1–9 employees, rising to £400 a month for 250 or more. If a submission is more than 3 months late, HMRC can add a further penalty of 5% of the tax and National Insurance that should have been reported.
Under the Real Time Information (RTI) system, employers must file a Full Payment Submission (FPS) on or before each payday. Late submissions trigger automatic penalties, even if you eventually pay the correct tax and NI.
Penalty Structure by Employee Count
HMRC penalty amounts scale with business size:
- 1–9 employees: £100 per month
- 10–49 employees: £200 per month
- 50–249 employees: £300 per month
- 250+ employees: £400 per month
Penalties are charged monthly for as long as you remain non-compliant. If a submission is more than 3 months late, HMRC can add a further penalty of 5% of the tax and NI that should have been reported, and interest on late payments.
When HMRC Does Not Charge a Penalty
HMRC will not charge a late filing penalty if it is your first failure in the tax year, if your FPS is late but every payment on it was made within 3 days of your employees’ payday, or if you are a new employer and send your first FPS within 30 days of paying an employee. HMRC watches for employers who rely on the 3-day rule repeatedly.
Fair Work Agency (from 7 April 2026)
The Fair Work Agency began operating on 7 April 2026, bringing together the bodies that enforce the minimum wage and other employment rights. HMRC continues to run minimum wage enforcement for it during 2026/27. Underpaying the minimum wage carries a penalty of up to 200% of the arrears, halved if the arrears and penalty are paid within 14 days.
This makes accurate, timely payroll processing more critical than ever. Payroll software with automatic RTI submission and built-in compliance checks is the most reliable way to avoid penalties.
Payroll Software Savings by Company Size
The table compares the admin time cost of manual payroll with software, at the calculator’s time assumptions and Sage Payroll Essentials’ published price. It leaves out errors and penalties, which depend on your own history.
| Employees | Manual Time Cost/yr | Time Cost with Software/yr | Sage Payroll Essentials/yr | Net Time Saving |
|---|---|---|---|---|
| 10 | £1,000 | £150 | £288 | £562 |
| 25 | £2,500 | £375 | £720 | £1,405 |
| 50 | £5,000 | £750 | £1,440 | £2,810 |
| 100 | £10,000 | £1,500 | £2,880 | £5,620 |
Illustrative. Manual payroll assumes 20 minutes per employee per month and software 3 minutes (the calculator’s assumptions), at £25 an hour fully loaded. Sage prices exclude VAT; Payroll Essentials covers up to 150 employees.
Related Calculators
Explore our other free business calculators:
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- Employee Cost Calculator — Calculate the true cost of hiring
- Staff Turnover Cost Calculator — Estimate the cost of losing staff
- Annual Leave Calculator — Work out holiday entitlement
