42% of UK Companies Now Use AI in Payroll

The UK is leading the way in AI adoption within payroll, with 42% of employers already using AI-powered agents or chatbots to support employee queries – nearly 12% ahead of the European average. New research from leading European HR solutions provider, SD Worx, shows this number is expected to rise, as British employers increasingly prioritise automation, efficiency, and employee experience in their payroll operations.

Year-on-year investment in generative AI has jumped from 14% in 2024 to 22% in 2025, reflecting a wider shift away from manual administration and towards more scalable, tech-driven solutions. Despite this progress, only 28% of employees currently report access to these tools, revealing a disconnect between implementation and practical usage.

This rise in AI adoption coincides with growing pressure to optimise payroll processes. 18% of UK employers now cite payroll optimisation as a top challenge — up from 13% the previous year. As a result, many organisations are stepping up broader investment in modern payroll systems, with 51% focusing on data security, 49% on adapting to changing labour legislation, and 44% on improving sustainability.

Self-service functionality is also on the rise, with 43% of employers now enabling staff to manage certain tasks for themselves, such as viewing payslips or booking annual leave, compared to 35% in 2024. From the employee side, 59% say they already handle a significant share of their HR admin through these tools. Early results show this approach is delivering clear benefits, with cost savings already reported by many companies embracing digital transformation.

Looking ahead, UK businesses are anticipating increased use of external payroll support. 

• 35% of companies currently partially outsource payroll, a figure projected to grow to 41% by 2028
• In-house software supported by external experts is expected to rise from 10% to 14% by 2028
• Traditional models appear to be in decline, with 22% of UK companies currently managing payroll entirely in-house using their own systems and staff, but this is expected to drop to 17%
• Use of SaaS payroll solutions is also projected to decline from 30% to 24% by 2028

Modernising payroll is paying off. Among UK businesses using their own software supported by external experts, 72% report significant cost savings. That figure stands at 60% for those fully outsourcing, and 53% for those partially outsourcing.

By comparison, only 27% of companies using SaaS models and 52% of those with fully in-house systems report notable savings.

SD Worx, the leading European HR service provider, assists smaller and larger organisations with their HR and payroll challenges. To keep a finger on the pulse of employers and employees, SD Worx regularly conducts in-depth surveys. The analysis of the most recent “HR & Payroll Pulse” provides organisations with valuable insights to focus and future-proof their HR and payroll strategy.

The survey was conducted in February 2025 in 16 European countries: Belgium, Croatia, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Poland, Romania, Serbia, Slovenia, Spain, Sweden and the United Kingdom by the SD Worx Research Institute. A total of 5,625 employers and 16,000 employees were surveyed. The results provide a representative picture of the labor market in each country.