Payroll software: Top features to look for in 2025

Payroll changes happen more than you might think.

Your clients’ employees can have flexible working arrangements, and this can impact how their pay is calculated. New tax rates come into place, and this needs to be reflected in payroll reports. Pension schemes, benefits, and various other factors all influence payroll, too.

Modern day accounting practices need to have a payroll software system in place that fits the changing work and tax landscape, to make sure every pay run goes smoothly.

In this guide, we look at the factors you need to consider when choosing payroll software in 2025. Learn about changing workforce expectations, compliance, and digital innovation that impacts payroll system selection.

5 trends shaping payroll software in 2025

What is payroll software going to look like in 2025? And, which trends should you look out for? Consider the following when you choose your next payroll software system.

1. Cloud-based payroll systems

Software tied to a desktop computer is restrictive. After all, you can only use it on one device.

Cloud-based payroll software offers an alternative, enabling any user with the right permissions to complete payroll tasks from any device. So, if some of your team work remotely, they can still get payroll tasks done. Clients can also use the system from wherever they’re based, updating timesheets for you and responding to information requests.

Plus, modern cloud-based payroll systems have automatic updates, which means the system is aligned with new regulations. In recent years, payroll administrators have had to adapt to rapidly changing legislation, so utilising cloud-based accounting software can help remove the stress of manual updates..

With cloud-based software, you don’t need to fork out for costly user licenses either. Xero payroll software gives you unlimited users, so you can share responsibility and delegate tasks to your whole team. With our new Payroll Manager exclusively available to Xero Partners, you’ll have a single dashboard to view and manage payroll tasks.

2. AI and automation in payroll processing

More and more software and devices are being launched with built-in AI features.

And, when it comes to payroll software, built-in AI and automation can help you improve accuracy and make processes more efficient. This means you can take care of payroll tasks quickly and easily, without sacrificing quality.

These advanced payroll systems offer features such as automated calculations for pay and deductions, so the right money goes to staff and HMRC. Some also come with fraud detection features that filter through data and surface anomalies.

You can also get payroll software that connects to your accounting system, which can save you time with things like automated journal entries for pay run data. And, with accounting and payroll information stored in the same system, it’s easily accessible and searchable.

With Xero payroll software, you get automated calculations for pay and deductions, automatic updates in line with new regulations, and automatic journal posting. Real Time Information (RTI) submissions are also automated and sent to HMRC after every pay run – so no more manual reporting.

3. Real-time payroll processing and digital payments

Traditionally, there’s a last-minute rush to get information about employees’ working hours before payday, so the right calculations can be made and everyone gets paid on time.

With real-time payroll processing, data is pulled through by your software during the month, and pay and deductions are calculated and updated all the time. This makes it easier to process payroll, since you already have the right information available.

You also gain access to accurate payroll data throughout the month – you and your clients can see payroll information at any time. And now, modern payroll software lets businesses connect bank accounts and pay employees in a matter of clicks.

With Xero’s payroll software system, data is pulled through in real-time and your client’s employee timesheets go straight into Xero payroll. And, employees can be paid using a BACS or faster payments file.

4. Payroll data security and compliance management

It’s not just payroll systems that are becoming more intelligent.

Cyberattacks and data breaches are growing in volume and complexity. The same tools and features that make payroll software effective – like artificial intelligence – are being used by cybercriminals to outwit unsuspecting businesses.

Now more than ever, managing payroll data securely is imperative. Payroll software needs multiple layers of security to keep criminals out and prevent breaches. Encryption, two-factor authentication, and customisable permissions can all help keep information in the right hands.

Practices and businesses also face the challenge of complying with payroll legislation. Annual updates to pay and rates of tax, plus broader changes to reporting requirements mean compliance is a constant effort and frequent adjustments are necessary.

Software that’s automatically updated in line with regulations simplifies compliance and makes it easier to follow industry standards. It also means you and your clients don’t need to switch software when a major legislative change comes into place.

With Xero payroll software, tax information is automatically updated where required – including increasing tax codes and carrying authorised ones over, saving you the admin. Income tax rates and thresholds are automatically updated for the new tax year, too.

5. Mobile payroll applications and employee self-service

Payroll tasks like managing leave requests, updating timesheets, and handing out payslips, no longer need to be taken care of by you or your clients.

The rise in mobile payroll applications that let staff self-serve means teams get transparency over their working schedules and practices and businesses get less admin to take care of.

Today, employees can submit their timesheets and leave requests via self-service apps, as well as manage their payslips and see how much annual leave they have. Not only does this save employers time sending updates, it gives teams more control of their time.

With Xero payroll software, your clients can give their teams access to Xero Me, a complete self-serve app for employees. Here, they can handle everything from timesheets and payslips to annual leave and expense claims. This saves your clients time chasing up staff and means getting timesheets in is simple and efficient.

How advanced payroll software addresses today’s biggest challenges

Advanced payroll software aligns with the five trends above, to help your practices and clients tackle some of the most pressing workforce challenges.

Rising workforce expectations

Over the past few years, how we work and what employees want from work have changed.

The gig economy and the number of freelancers has grown, and businesses have an opportunity to make use of more flexible talent. The increase in flexible talent suggests that businesses aren’t just paying employees, but also contracted workers for short-term and ongoing projects.

Full-time employees are also choosing flexibility, opting for work-from-home or work-from-anywhere models where available. This means payroll could look very different for the same businesses from month to month, with fluctuations in employed and contracted talent.

That’s why it’s becoming more important for practices and businesses to have flexible payroll software that can handle various working patterns that reflect the variety of employment types and preferences.

Allowing teams to self-serve, and opting for software that lets you customise working patterns will help clients keep up with new workforce expectations. This also gives teams transparency and control, putting leave options firmly in their hands – or, more specifically, their pockets.

Increasing complexity of compliance and security

Businesses are required, by law, to keep payroll records for a minimum of three years from the end of the tax year they relate to. Businesses are also required to use software to make RTI submissions.

Other compliance obligations include ensuring employees pay the right amount of tax and National Insurance, get the National Minimum Wage, and are auto-enrolled on a pension scheme. Safe to say, there are plenty of requirements and standards to meet.

This comes at a time when it’s not just legislation that’s complex – cybersecurity risks are, too. Modern payroll systems are well-equipped to adapt to regulation and keep data safe. Using cloud-based software, information is stored centrally and safely, protected by layers of security. And, some providers automatically update software in line with regulations to reduce the risk of non-compliance.

For example, Xero’s payroll system has automatic updates, so you always have the tools to meet new legislative requirements. Income tax rates and National Insurance thresholds are updated automatically, too.

Efficiency and cost savings

Without modern software, payroll processing is a time-consuming and admin-intensive task. Advanced payroll systems can spare you and your clients time by automating processes and reducing errors. Instead, teams can spend their time on strategic and revenue-generating tasks, instead of being trapped by hours of admin.

For example, modern payroll software automates RTI submissions, so that pay run information in the system is automatically sent to HMRC. This means you don’t need to compile submissions manually, and they’ll contain accurate and complete information.

Pay and deduction calculations can also be automated by software, so instead of spending time on complex maths, you can speed up payroll processing for clients and help them make the right payments.

With Xero’s advanced payroll software, you can automate pay and deductions plus RTI submissions, so you have more time to work closely with clients. By reducing the admin, you can focus on supporting clients with other workforce challenges.

Why Xero is a leading choice for payroll software in 2025

Xero shrinks payroll admin for practices and clients, automating HMRC reporting and calculations to ensure compliance.

Here are just some of the ways Xero’s payroll system makes the process run smoothly:

• Cloud-based and AI driven: Payroll information is stored centrally in Xero. Your practice team and clients need only sign in to use Xero’s payroll software from anywhere. Xero uses AI purposefully; to make practice and business lives easier. AI and automation features – such as automatic updates, RTI submissions, and tax code updates save you time, improve accuracy, and mean your team is free to focus on clients.
• Comprehensive security and compliance tools: Xero payroll software has multiple layers of protection, including encryption and two-factor authentication. Plus, you can set customisable levels of access and assign permissions to your staff and clients. Combined with automatic updates in line with regulations, keeping payroll compliant and secure is simple.
• Mobile and employee self-serve capabilities: Payroll tasks can be delegated easily, thanks to Xero’s employee self-serve app, Xero Me. Staff can track their leave, submit requests and timesheets, and manage their payslips. They can even support the expense reimbursement process by uploading receipts. With everyone contributing to payroll admin, the workload is much less overwhelming, more transparent, and smooth.

Future-proof your payroll with the right tools

Modern payroll software isn’t just for compliance tasks – it’s for making pay runs and everything in between happens smoothly.

Cloud-based software lets you manage payroll in real-time, automates admin, aligns with regulations and security best practices, and gives you and your clients the tools to manage payroll effectively.

We’re always improving Xero, with automated updates in line with regulation, so our payroll system is always fit for your team now and in the future. By aligning with the trends in this guide, Xero gives you the right tools to support every type of client and their workforce.