Payroll in 2025: Key employment law changes and how businesses can stay compliant

When setting up and running a small business, learning how to do payroll is often the most stressful part for employers. Ensuring all calculations are correct, submitting information to HMRC, and making sure staff get paid on payday can consume valuable time and resources. That’s why many small business owners are turning to payroll software to streamline the process, solve common issues, and free up their time to focus on growing their business.

What is payroll software?

Payroll software is an online platform that automates the process of calculating employees’ pay, filing tax returns, and paying staff within a business. It’s a modern alternative to the manual payroll process and is increasingly popular among small businesses that lack an in-house accounting team. The software integrates seamlessly with HMRC, syncing any changes in employee hours, salaries, or tax codes, ensuring your payroll is up to date.

Features of payroll software

Payroll software features vary, but good payroll software should be able to:

• Connect to HMRC automatically to sync any changes in employee hours, salaries, tax codes, etc.
• Calculate the correct wage or salary for each staff member.
• Deduct contributions for National Insurance, Income Tax, etc.
• Auto-enroll employees in a pension scheme.
• Send payroll data to HMRC each pay period.
• Create a payroll journal for a full payroll report.
• Generate and distribute employee pay slips automatically.

The more functions your payroll software includes, the easier it will be to manage payroll as an employer, reducing the stress of manual calculations and filings.

Employment law changes in 2025 and their impact on payroll

Several employment law changes are set to take effect in 2025, impacting payroll processing and compliance for small businesses. These include:

• Increased national minimum wage and living wage: Employers must ensure payroll software automatically updates wage calculations to reflect these changes.
• Enhanced worker rights for flexible and remote work: Payroll software must support varying work schedules, ensuring accurate pay calculations for hybrid and remote employees.
• Updates to holiday pay calculations: Changes to rolled-up holiday pay will require payroll software to accurately calculate entitlements for employees with irregular hours.
• Auto-enrolment pension expansion: More employees will qualify for auto-enrolment, increasing employer contributions and requiring payroll software to track eligibility and compliance.
• New reporting requirements for HMRC: Employers will face stricter real-time reporting obligations, making integrated payroll software essential for seamless tax and compliance reporting.

Do I need payroll software?

While payroll can be done manually or outsourced to an accountant, payroll software offers significant advantages, particularly for small business owners. Here’s why it might be a game-changer for your business:

Payroll software benefits

• Reduced errors: With payroll software handling all the calculations, the likelihood of mistakes on employee payslips is greatly reduced. This leads to fewer complaints from staff and helps foster a more positive and trusting workplace culture.
• Time-saving: Payroll software can complete calculations in seconds, saving you hours compared to manual processing. For example, a business with 10 employees could save up to 5 hours per pay period—time you can reinvest in your business.
• Cost-effective: Outsourcing payroll can be expensive, and errors with manual calculations can result in costly fines from HMRC. Payroll software offers flexible pricing structures, making it an affordable solution for small businesses.
• Secure system: Data protection regulations now make it impractical to store sensitive employee information in a physical format. Payroll software securely stores data in the cloud, with permissions to control who can access it.
• Stay compliant: Every business must report payments and deductions to HMRC by payday. Payroll software can automatically notify you of upcoming deadlines and send reminders to ensure compliance, reducing the risk of late filing penalties.
• Payroll software costs: For small business owners, pricing is often the key factor when deciding on payroll software. The three main pricing structures available are:
• A single upfront fee
• A fixed monthly fee
• A fee per employee, per month

The third option is especially popular with small and medium-sized businesses, as it allows the costs to scale with the company’s growth.

Payroll software for small businesses

Our payroll software is designed with UK small business needs in mind. It seamlessly integrates with our HR software, automatically updating any changes in pay and sending them directly to HMRC. All calculations and deductions are performed accurately, and payslips are securely stored in employee files for easy access. With payroll software, all you need to do is authorise payment—and you’re done!

Get ahead of 2025 payroll changes with SafeHR

With new employment laws coming into effect in 2025, it’s more important than ever to have a reliable payroll system in place. SafeHR’s payroll software is designed to keep small businesses compliant, efficient, and stress-free.