How to Do Payroll Yourself: 7 DIY Steps to Pay Your Employees

If you run a small business in the UK, you can usually do payroll yourself. The trade-off is that you need a reliable process: register as an employer before your first payday, collect the right starter information, run payroll accurately, send your Full Payment Submission (FPS) on time, and pay HMRC what you owe each month.

For very small teams, doing payroll in-house can be cheaper than outsourcing. But it only works well if your payroll is still fairly simple. Once you are dealing with variable hours, statutory pay, pension enrolment, student loan deductions or multiple pay runs, the admin builds up quickly.

This guide explains the seven practical steps for running payroll yourself, the main 2026/27 tax-year figures you need to know, when outsourcing payroll starts to make more sense, and which free or paid tools can help you stay compliant without adding unnecessary cost.

What Changes for Payroll in the 2026/27 Tax Year?

If you are doing payroll yourself this year, the most useful thing is to work from the current tax-year figures rather than relying on last year’s settings or old spreadsheet templates.

For the 2026/27 tax year, key payroll figures include:

• Personal allowance/PAYE threshold: £12,570 a year, £1,048 a month, or £242 a week
• Employee National Insurance: 8% between the primary threshold and upper earnings limit, then 2% above that
• Employer National Insurance: 15% above the secondary threshold
• Secondary threshold: £5,000 a year, £417 a month, or £96 a week
• Employment Allowance: Eligible employers can reduce their annual employer NIC bill by up to £10,500
• Statutory sick pay: £123.25 a week or 80% of average weekly earnings, whichever is lower
• Statutory maternity, paternity, adoption, shared parental, parental bereavement and neonatal care pay: £194.32 a week or 90% of average weekly earnings, whichever is lower, after the higher initial SMP period where relevant

There are also some 2026 minimum wage rates worth checking:

• Age 21 and over: £12.71 an hour
• Age 18 to 20: £10.85 an hour
• Age 16 to 17: £8.00 an hour
• Apprentice rate: £8.00 an hour

If you run payroll manually, these are exactly the figures that can go wrong when an old template has not been updated. That is one of the clearest arguments for using payroll software instead of spreadsheets, once your team starts to grow.

How To Do Payroll Yourself in 7 Steps

Doing payroll yourself is mainly about building a repeatable routine. Before your first pay run, make sure you have:

• Your employer PAYE reference from HMRC
• A payroll tool that can handle RTI submissions
• Starter information for every employee
• A pay schedule and payday
• A process for pensions, payslips and payroll record-keeping

Step 1: Register as an employer with HMRC

You need to register as an employer before your first payday. HMRC will then issue your employer PAYE reference number, which links your payroll submissions and payments to your business.

You cannot register more than two months before you start paying people, so do not leave this until the last minute. If you need to pay someone before your PAYE reference arrives, you can still run payroll and store the submission data, then send a late FPS once the reference is in place.

What to do here:

• Register as an employer on GOV.UK
• Set up PAYE Online access
• Store your PAYE reference somewhere easy to access
• Decide which payroll software you will use before the first pay run

Step 2: Collect the right employee details

Accurate starter information makes payroll much easier. Get it wrong at the start, and you will spend later pay runs fixing tax codes, bank details, and employee records.

For each employee, collect:

• Full name, address and date of birth
• National Insurance number
• Bank details for payment
• Start date
• P45, if they have one
• HMRC starter checklist details if they do not have a P45
• Salary or hourly rate, plus contracted hours if relevant

You should also confirm whether the employee will be paid monthly, weekly or on another schedule, and whether they are eligible for a workplace pension.

Step 3: Set your pay schedule and payroll calendar

Payroll gets easier when your deadlines are fixed in advance. Pick a pay frequency that fits your cash flow and how your team works, then build a payroll calendar around it.

Most small businesses choose one of these:

• Weekly: Useful for hourly or shift-based work, but more admin-heavy
• Fortnightly: A middle ground if weekly feels too frequent
• Four-weekly: Common in some sectors, but it needs clear communication because it is not the same as monthly payroll
• Monthly: Usually the simplest option for office-based teams and salaried staff

Once you choose a schedule, fix:

• The payday
• The cut-off date for timesheets and overtime
• Who approves hours and bonuses
• When the FPS will be submitted
• When HMRC will be paid

For most employers, HMRC payment is due by the 22nd of the month if you pay electronically, or the 19th if you pay by post.

Step 4: Classify pay correctly

Before you calculate wages, decide exactly what kind of pay each person is receiving. This is where you turn employment terms into payroll instructions.

You will usually need to identify:

• Salaried staff: Paid a fixed amount each pay period
• Hourly staff: Paid according to hours worked
• Overtime, commission or bonus payments
• Statutory payments, such as sick pay or parental pay where relevant
• Any salary sacrifice arrangements or pension deductions
• Student loan or postgraduate loan deductions if HMRC tells you to apply them

In 2026/27, student loan thresholds vary by plan, so this is another area where payroll software is safer than manual calculations.

Step 5: Calculate gross pay

Gross pay is the employee’s total pay before deductions. In a DIY payroll process, this is where accuracy really matters.

A simple way to approach it is:

• For salaried staff, divide annual salary across the number of pay periods in the year
• For hourly staff, multiply hours worked by the hourly rate
• Check the hourly rate still complies with the current minimum wage band
• Add overtime, bonuses, commission or other taxable pay as needed
• Separate any non-regular items so you can sense-check them before payroll is finalised

If you are running payroll manually or in a spreadsheet, always review anything that looks unusual before moving on. One incorrect overtime figure or duplicate bonus can flow through tax, pensions and net pay.

Step 6: Apply deductions and report payroll to HMRC

Once gross pay is correct, you can work out deductions and employer costs. In the UK, this usually means:

• Income Tax based on the employee’s tax code
• Employee National Insurance
• Employer National Insurance
• Workplace pension contributions, where applicable
• Student or postgraduate loan deductions, if relevant
• Other agreed deductions, such as attachment orders or salary sacrifice arrangements

After payroll is calculated, you need to report it to HMRC using Real Time Information (RTI). For most pay runs, that means sending an FPS on or before payday. If you need to recover statutory payments, claim Employment Allowance or tell HMRC that no employees were paid in a tax month, you may also need to send an EPS by the 19th of the following tax month.

If you are a new employer, automatic enrolment duties begin when your first member of staff starts work, so payroll and pensions need to line up from the start.

Step 7: Pay employees, issue payslips and keep records

The final step is the one employees notice most — paying them correctly and on time. In practice, that means three jobs, not one:

• Send net pay to employees, usually by bank transfer or BACS
• Issue payslips on or before payday
• Store payroll records properly after each run

HMRC says you need to keep payroll records for three years from the end of the tax year they relate to. Good record-keeping makes year-end reporting, corrections and HMRC queries much easier.

A simple monthly checklist can prevent most mistakes:

• Check starters and leavers
• Confirm hours, overtime and variable pay
• Run payroll calculations
• Review deductions and net pay
• Submit FPS
• Issue payslips
• Pay employees and HMRC
• File records for that pay period

Payroll Tools That Make DIY Payroll Easier

The right tool depends on how complex your payroll is. For a tiny team with straightforward pay, a free option may be enough. For anything more complicated, paid payroll software will usually save time and reduce the risk of errors.

Free payroll options

HMRC Basic PAYE Tools

Basic PAYE Tools is HMRC’s free payroll software. It is designed for employers with fewer than 10 employees and can calculate deductions and send RTI submissions to HMRC.

For the 2026/27 tax year, HMRC says you should update to version 26.0 from 6 April 2026.

It is a good fit if:

• You have a very small team
• Your payroll is fairly simple
• You want a free way to stay RTI-compliant

It is less suitable if you expect rapid growth, need deeper reporting or want payroll tied closely to HR and accounting workflows.

Spreadsheets and calculators

Spreadsheets can still help with payroll planning, checking figures and keeping internal logs. But they are best used as a support tool, not the core system, because they do not handle RTI filing on their own and are easier to break with manual edits.

Paid payroll software

Paid software is usually worth it once payroll stops being simple. A good payroll platform can automate calculations, handle RTI filing, produce payslips, and support pensions, statutory pay and reporting.

Useful options include:

• QuickBooks Payroll for businesses that want payroll linked to bookkeeping — read our QuickBooks Payroll pricing guide
• Sage Payroll for established UK businesses that want a familiar finance stack — see our Sage Payroll pricing guide

• IRIS Payroll if you want a well-known payroll specialist with entry-level and more advanced options — see our IRIS Payroll review
• ADP Payroll if you need a more scalable platform for more complex payroll — read our ADP Payroll review

If you want a broader shortlist, start with our guide to the best payroll software for small businesses.

Cloud payroll software

Cloud payroll tools are often the easiest option for businesses that want access from different locations, automatic updates and less dependence on one device.

You may prefer cloud software if:

• More than one person needs access to payroll
• You work remotely or across sites
• You want updates, backups and filing tools handled for you

You can compare more options in our guide to cloud-based payroll solutions.

When Doing Payroll Yourself Stops Making Sense

DIY payroll is usually best for small, stable teams. Once your payroll becomes more complex, software or outsourced support is often the better value option.

You should think about upgrading if:

• You are running payroll for more than a handful of employees
• You have frequent starters, leavers or irregular hours
• You need to manage statutory pay regularly
• You want payroll, HR and accounting data to work together
• You are spending too much time checking calculations and fixing errors

At that point, the question is not just cost. It is whether payroll is taking time away from work that actually grows the business.