If you’re running a business with a handful of employees, most payroll software on the market is built for someone else. Per-employee pricing that stacks up. Features designed for an HR department. Onboarding flows for businesses with fifty people and a dedicated admin.
The payroll task at micro-business scale is usually simple. Same people every month, mostly consistent pay, straightforward deductions. The software doesn’t need to be complex — it needs to be reliable, HMRC-compliant, and not expensive.
Which features do you need?
The requirements don’t shrink much at small team sizes: RTI submissions to HMRC, PAYE and NI calculations, payslip generation, statutory pay calculations (SSP, SMP, SPP when needed), and auto-enrolment management if any of your employees qualify for a workplace pension.
What you probably don’t need: an employee self-service portal, time tracking integration, multi-department reporting, or anything marketed as an “HR suite.” Those features cost money and they’re solving problems you don’t have yet.
The practical question is whether to use a free tool or pay a modest amount for something with more features and support. At one to five employees, free options are genuinely viable — the decision usually comes down to payslip generation, auto-enrolment, and whether you want phone support when something goes wrong.
HMRC basic PAYE tools
Free, government-provided, handles RTI submissions and PAYE/NI calculations correctly. The gaps that matter at micro-business scale: it doesn’t generate payslips (you’ll produce those separately), and it doesn’t manage auto-enrolment. For a business with one employee on a fixed monthly salary, those gaps are manageable. As your team grows or gets more complex, they start to cost you time.
The interface hasn’t changed much in years. It works, but it won’t explain itself — expect to spend time with HMRC’s supporting guidance if it’s your first time.
Shape Payroll
Free for up to three employees, and the clearest upgrade from HMRC’s own tool for a micro-business. Shape includes payslips and auto-enrolment on the free plan — both things Basic PAYE Tools skips. The interface is modern, the pay run flow is straightforward, and it sends reminders when submissions are due. For a first-time employer taking on one or two staff members, it’s the easiest starting point available.
The three-employee limit won’t be a problem for a stable micro-business. If you’re planning to grow, though, it’s a ceiling worth factoring in.
Employment Hero
The free option with no employee cap. Employment Hero handles RTI, payslips, auto-enrolment, and PAYE/NI calculations. It’s more fully featured than Shape, which means the interface is more involved — more screens, more configuration to get through initially. The auto-enrolment handling is notably good for a free product: it assesses employees, communicates with NEST and other pension providers, and manages contributions without requiring you to drive the process manually.
If you expect to hire beyond three employees and want to stay on a free plan, Employment Hero is the one to use.
Moneysoft Payroll Manager
When the free tools feel constraining, or you want paid support behind you, Moneysoft offers the most value at micro-business scale. Around £72 a year for unlimited employees — no monthly fees, no per-head charges. It covers RTI, statutory payments, payslips, year-end reporting, and auto-enrolment.
It’s a Windows desktop application, tied to the machine it’s installed on. The interface is functional, not polished. For a business running one pay run a month from a single office computer, neither of those is a real problem. For anyone who needs cloud access or works across multiple locations, it is.
1. Sage Payroll Essentials
The standard cloud option from the UK’s dominant business software brand. At around £20/month for up to ten employees (standard rate, before introductory discounts), it’s hard to justify purely for payroll at one to five employees when free alternatives do most of the same things. Where it makes sense is if you’re already on Sage Accounting — the integration removes reconciliation work — or if you’re willing to pay for the reassurance of Sage’s support infrastructure.
Worth noting: Sage’s introductory offers can be substantial. The standard rate is what you’ll pay in year two.
A few things to watch at this scale
Auto-enrolment catches more micro-businesses than people expect. Any employee earning over £10,000 a year aged between 22 and state pension age must be auto-enrolled in a workplace pension. At one or two employees it’s easy to assume it doesn’t apply — then one of them crosses the threshold and it does. Check before you choose a tool that doesn’t handle it.
Watch per-employee pricing. Two employees at £4/head looks fine; five employees at £4/head plus a base fee adds up faster than the headline rate suggests. Price at the team size you’re aiming for, not the one you have today.
For one to three employees, start with Shape Payroll. Free, includes payslips and auto-enrolment, and takes considerably less setup than Employment Hero. If you’re planning to hire past three people and want to stay on a free tool, use Employment Hero instead.
For three to five employees and beyond: Employment Hero free or Moneysoft’s annual licence. The choice mostly comes down to whether cloud access matters and whether £72/year is worth paying for a more comprehensive feature set and included support.
The full comparison across the market is in our guide to the best payroll software for UK small businesses. For everything free in more detail, see the free payroll software guide. Pricing comparison across paid tools is in the cheapest payroll software roundup.
