A beginner’s guide to HR and payroll software for small businesses

So when it comes to handling things like payroll and onboarding, it’s no surprise that many small businesses in the UK still rely on spreadsheets, Post-it notes, or systems cobbled together from different bits of software. But that approach can only take you so far.

Manual HR and payroll processes are slow and prone to mistakes. Whether it’s double-checking National Insurance calculations or trying to keep track of holiday entitlement, these time-consuming jobs eat into your day and distract from what really matters: growing your business.

The good news is that HR and payroll software is no longer just for the big players with substantial budgets and their own IT teams. Today, small businesses can get user-friendly, affordable systems that take the pain out of admin and help everything run more smoothly.

In this guide, we’ll walk you through the fundamentals of what HR and payroll software actually does, what to look for, and how to get started while avoiding some common pitfalls.

What is HR and payroll software?

Let’s begin with the basics. HR and payroll software refers to digital tools that make your working life easier by managing your people-related admin in one place.

HR software for small businesses

Sometimes called HRIS (human resources information system) or HCM (human capital management), HR software helps you manage the whole employee lifecycle, from recruitment to retirement. With HR software for small businesses, you can:

• Store employee records and vital documents in one secure location
• Manage holidays and sickness
• Handle recruitment and onboarding
• Track performance and development
• Give employees access to self-service tools

Payroll software for small businesses

Payroll software automates the tedious, fiddly bits of paying your team, so you don’t need to spend hours crunching numbers or worry about whether you’ve remembered to submit to HMRC.

Good payroll software will:

• Calculate PAYE, National Insurance and pension contributions
• Generate payslips
• Submit Real Time Information (RTI) to HMRC
• Handle auto-enrolment for pensions
• Create end-of-year documents like P60s and P45s

The result is less stress, fewer errors, a better employee experience, and more time to focus on the bigger picture.

What to look for in HR and payroll software

Not all systems are created equal. Some are clunky, some are expensive, and some do half the job while leaving you to do the rest. Here’s what to look out for when weighing up your options.

Key HR features to consider

• Employee database: Small business HR solutions should offer a secure, central hub for storing contact details, contracts, and other essentials. This means no more digging through old emails, spreadsheets, and obscurely named files.
• Onboarding tools: Welcome new starters with automated checklists, pre-written emails, and an easy way to upload documents.
• Time off management: Allow employees to request holidays online and track their remaining allowance without a single spreadsheet in sight.
• Performance tracking: Set goals, arrange regular reviews, and record progress to help your team grow and stay motivated.
• Document management and e-signatures: Store and share key policies, contracts, and forms. Employees can sign documents digitally, so there’s no scanning or posting required.
• Self-service portal: Let employees update their personal details, view payslips, request time off, and more (without emailing you every time!).

Must-have payroll features

• PAYE and National Insurance calculations: Make sure tax is calculated correctly every time.
• Real Time Information (RTI) submissions: Stay on the right side of HMRC with automatic submissions each time you run payroll.
• Pension auto-enrolment: Assess eligibility and manage contributions while complying with the law.
• Payslip generation: Automatically create and distribute payslips so there’s little manual effort involved.
• Accounting integration: Link payroll software with your existing systems to avoid the wasted time and errors that come with copying data across.
• End-of-year reporting: Generate P60s, P45s and other statutory documents quickly and painlessly.

The benefits of using HR and payroll software

With all of this in mind, you might still be wondering whether it’s worth changing the way you do things now. The short answer is yes! Here’s why.

You’ll save time

HR and payroll tools for SMEs automate repetitive tasks like running payroll, approving time off, and chasing missing documents for new starters. This frees up your time for work that actually moves the business forward.

You’ll reduce errors

Manual processes are a breeding ground for mistakes, and one wrong number can cause a domino effect of underpayments, overpayments, or incorrect tax calculations. Good software reduces this risk to your business, as well as the stress that goes with it.

You’ll stay compliant

Whether it’s GDPR, HMRC requirements, or UK employment law, staying on top of regulations is a full-time job in itself. HR and payroll software for small businesses comes with built-in alerts that help you stick to the rules and never miss a deadline.

You’ll be ready to grow

Hiring new people soon? No problem. The right software grows with you, letting you add extra users and features when you need them.

Your team will thank you

It can be frustrating for employees when simple processes are tied up in red tape. From interactive payslips to managing holidays, self-service tools give your people the power to manage their own information without coming to you first.

How to choose the right software

Now you know what to look for in HR and payroll software, how do you actually find it? Here’s a simple step-by-step approach.

1. Work out what you need

Start by writing a list of your current situation and pain points. How many employees do you have? Do you need HR, payroll, or both? And what’s your budget? This helps you narrow down your search to the software and features that will make a real difference to your business, not just those that are the flashiest.

2. Compare features

Each piece of software you look at will likely include different combinations of tools. Based on the above, separate the nice-to-haves from the must-haves. And make sure whatever you choose supports UK processes like RTI and complies with UK laws such as the National Minimum Wage and the Working Time Regulations.

3. Check integrations

Consider all of the systems you currently use, and whether you’ll need to continue using them alongside your new software. For example, what do you use for accounting? Do you track hours via an app? Choose software that plays nicely with your existing systems to save time, minimise errors, and avoid headaches down the line.

4. Look at support and training

Will you be left to figure it out alone, or is help available? Look for software with robust onboarding, clear guides and FAQs, and responsive support by phone, email, or live chat.

5. Read reviews and case studies

Reviews are a great way to see how software performs in practice, not just what it promises on paper. Look for feedback from businesses with needs like yours. Have others in your industry found the software helpful? Did it save them time and reduce errors? And are there any negatives to be aware of?

6. Try before you buy

Many providers offer free trials or demos that give you a feel for the software before you commit. At MHR, we’ve created a version of our trusted People First software specifically for small businesses. You can explore it in your own time with our interactive demo, get instant pricing, and sign up whenever you’re ready, all with no sales call needed.

Tips for getting started

Moving to a digital system might feel like a big step, but it’s often simpler than you think. Follow these practical tips for getting it right the first time.

Start with the basics

You don’t have to switch everything all at once. Begin with payroll and employee records, as these will likely offer the biggest immediate benefit. Once you're comfortable, you can add extra features like performance reviews and recruitment tracking.

Clean up your data

There’s no better time for a spring clean of your data than when you’re introducing new software. Before you import anything into the system, make sure employee records are up to date and accurate. Also check you’re GDPR compliant, and that you’re not hanging on to old employee data you no longer need.

Train your team

Most modern HR and payroll software is easy to pick up as you go along, but it’s still worth spending some time with employees to show them the ropes. As well as giving you better results from your software, this will save you from fielding a stream of individual questions over the first few weeks.

Set up workflows

The best thing about HR and payroll software is that it simplifies the most gruelling processes. Take advantage by automating things like onboarding checklists, payslip distribution, and holiday approval straight away.

Stay on top of compliance

Non-compliance leaves you open to penalties and other risks. To protect your business, don’t forget to use the automatic legislation updates and deadline reminders in your software.

Common mistakes to avoid

It’s easy to fall into a few traps when choosing or setting up new software. Here’s what to watch out for:

• Not built for UK businesses: Pick a system that supports UK-specific requirements like RTI and auto-enrolment.
• Insecure data: Back up your data, and use strong passwords for sensitive employee information.
• Going too fast: Don’t overwhelm your team by turning on too many features at once.
• Leaving employees behind: Keep your team in the loop as you transition to a new system.
• Ignoring integration: Don’t overlook accounting or pension system integrations, as this can lead to time-consuming double data entry.

HR and payroll software for small businesses is a powerful tool that saves time, cuts errors, keeps you compliant, and helps your team stay happy and productive.

You don’t need to be a tech wizard or hire a consultant to get started with the latest tools. And with off-the-shelf software like People First, it’s easier than ever to make the switch.

So if you’ve had enough of HR and payroll taking up valuable work time, dive in with one of our interactive demos today.