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.

Payroll optimisation a growing priority

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 enable staff to manage tasks such as viewing payslips or booking 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.

Payroll outsourcing and hybrid models expected to rise

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

AI and external expertise deliver cost savings

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.

“Payroll outsourcing is becoming increasingly important in a rapidly changing world. Thanks to technological innovations such as AI and cloud software from specialised developers, payroll is not only becoming more low-priced and more accurate, but also more transparent, user-friendly and personalised. Modern payroll solutions are scalable and meet the desire of employers to have the most accurate information at all times. But employees also get instant access to their payroll information and can get answers to all their payroll and HR questions 24/7 through smart technology,” concludes Andrea Eschle, Chief Product Officer at SD Worx.