AI-Powered Payroll for UK Businesses (2026)
Payroll is one of the most automated business functions now. AI handles salary calculations, tax deductions, pension auto-enrolment, payslip generation, and HMRC submissions automatically. The old model of paying a bureau £15/employee/month for manual processing is being replaced by AI payroll that costs £3–5/employee and does a better job.
Penny's take
AI has automated payroll end-to-end. For businesses under 20 employees with standard payroll (monthly salaries, pension, PAYE), AI-powered payroll software handles everything for £3–5/employee/month. If you're paying a bureau £15/employee, you're paying human rates for work AI does automatically. Switch and save 60%.
From my notebook
“A restaurant with 15 staff was paying a payroll bureau £225/month. The bureau calculated wages and sent payslips — that's it. We deployed Xero Payroll with AI automation (£5/month add-on) that handled calculations, tax submissions, pension contributions, and payslips automatically. The switch took 2 hours. Annual saving: £2,640. Better accuracy, too — AI doesn't make calculation errors.”
“Self-service payroll software has reduced processing costs for UK SMEs by up to 65% compared to outsourced bureau services.”
— CIPP Payroll Benchmarking Report, 2024
What affects the cost — and can AI replace it?
- •Number of employees
- •Pay frequency (weekly vs monthly)
- •Pension auto-enrolment included
- •RTI submissions
- •AI self-service vs fully managed
What Penny says
Penny benchmarks your payroll costs and identifies whether AI-powered self-service software can replace your bureau. Most businesses on fully managed payroll can switch to AI-automated processing and save 40–60% — with better accuracy and real-time visibility.
Ask Penny about AI alternatives →Frequently asked questions
Can AI handle payroll for small businesses?
Yes. AI-powered payroll software (Xero Payroll, QuickBooks Payroll, Moneysoft) handles calculations, tax deductions, pension contributions, payslip generation, and HMRC submissions automatically. For 1–20 employees with standard payroll, AI self-service is sufficient.
When do I need a payroll bureau instead of AI software?
Consider a bureau if: you have complex payroll (variable hours, multiple pay rates, construction CIS), 50+ employees, or you simply don't want the responsibility. For standard monthly payroll under 20 employees, AI software does the same job at 60% lower cost.