Payroll is one of the most predictable outgoings in any UK business, yet it’s also one of the most common reasons SMEs run into cashflow trouble.
For companies with 10–50 employees, payroll is rarely just “wages.” It includes:
- Employer National Insurance Contributions (NIC)
- Pension contributions
- Holiday and sick pay
- Bonuses, overtime, and staff turnover costs
Because payroll is fixed in timing but variable in size, it can easily clash with delayed customer payments or seasonal dips in revenue. The result? Even profitable SMEs can find themselves struggling to cover payday.
This guide explains exactly how payroll impacts your cashflow, why it’s such a challenge for SMEs with 10–50 staff, and, most importantly, what you can do to forecast and prepare.
The True Cost of Payroll Beyond Wages
For SMEs, the real cost of payroll goes far beyond wages. The hidden extras often catch business owners off guard.
Monthly cashflow items to include for 2025/26
| Component | Rate / Cost | Source | Notes |
|---|---|---|---|
| Employer NIC | 15% above £5,000 annual threshold | GOV.UK | Employer-funded |
| PAYE | Employee tax deduction | GOV.UK | Must be remitted monthly |
| Pensions | 3% employer minimum | GOV.UK | Auto-enrolment rules |
| Holiday accrual | 12.07% of pay | GOV.UK | 5.6 weeks statutory leave |
| Sick pay | £118.75/week | GOV.UK | Employer-funded |
For a 20-staff business, these extras can add 25–30% to total payroll cost.
💡 Heights Tip: For every £40,000 of wages, expect to pay £52,000–£53,000 once NIC, pensions, and holiday pay are included.
Learn more in our Payroll services for UK SMEs guide.
Why Payroll Creates Cashflow Pressure
Payroll comes with non-negotiable deadlines. HMRC expects PAYE and NIC on time; pension providers expect contributions; your team expects wages, no exceptions.
The three main pressures
- Payroll Deadlines vs Client Payments
PAYE & NIC: due by the 22nd of the following month.
Pensions: also by the 22nd.
Wages: fixed date (e.g. 28th each month).The issue? Many SMEs operate on 30–60 day client terms. A £25,000 invoice due next month can leave a gap now.
→ Read: How to build a 52-week rolling forecast - Seasonal & Industry Spikes
Retail peaks at Christmas, construction dips in winter, professional services pay bonuses at year-end.
These swings increase payroll strain. - Fixed Obligations, Variable Income
Payroll can’t wait; clients can. This mismatch is why payroll is the #1 cause of short-term cashflow stress.
Payroll Frequency: Weekly vs Monthly
| Frequency | Cashflow Impact | Admin Cost | Staff View | Risk |
| Weekly | Frequent outflows | High | Popular for hourly staff | No buffer if payments delayed |
| Fortnightly | 26 runs/year | Medium | Common in trades | Misaligned with client cycles |
| Monthly | 12 runs/year | Low | Standard in service sectors | One large outflow |
💡 Heights Tip: Align payroll just after your main client invoice dates to smooth outflows.
Forecasting Payroll in Your 52-Week Cashflow Plan
Payroll is predictable, but only if it’s modelled. Building it into your 52-week rolling forecast helps you spot gaps early.
Example:
A 25-staff SME pays £20,000 wages monthly. If a £30,000 invoice is overdue, the forecast highlights the cash gap weeks before payday.
Use your 52-week rolling forecast (free download) to model this.
Practical steps
- Map out payroll, PAYE, and NIC dates.
- Match client payment expectations.
- Flag overdue invoices.
- Keep 1–2 months of payroll in reserve.
More guidance: 20 practical cashflow tips for UK SMEs
Late Client Payments: The Payroll Domino Effect
Late payments remain the #1 short-term cashflow killer for UK SMEs (source: GOV.UK / FSB research).
Real-world example:
- Payroll: £20,000 due 28 April.
- Client invoices: £30,000 overdue by 3 weeks.
- Result: Overdraft use and supplier delays.
💡 Lesson: A healthy bank balance today doesn’t mean payroll is safe tomorrow.
Learn how to manage debtors in our Accounts Receivable & Credit Control guide.
Practical Steps to Avoid Payroll Crises
- Ring-Fence PAYE and NIC
Move these funds immediately after payroll.
→ Employer NIC changes (2025/26 update) - Automate Pension Payments
Set direct debits to avoid delays. - Build a Payroll Buffer
Keep 1–2 months of payroll in reserve. Even £10–20k buys breathing room. - Match Payroll to Cash Inflows
Pay staff after main clients settle invoices. - Use a Forecast, Not Guesswork
Track all costs using a 52-week forecast.
UK Payroll Cost Changes (2025/26)
| Area | 2024/25 | 2025/26 | Source |
| Employer NIC | 13.8% | 15% above £5k | GOV.UK |
| NLW (21+) | £11.44 | £12.21 | GOV.UK |
| SSP | £116.75 | £118.75 | GOV.UK |
| SPP/SMP | £184.03 | £187.18 | GOV.UK |
💡 Even minor statutory increases add thousands annually. Add them into your 52-week payroll forecast.
Case Example: Payroll in a 25-Staff SME
| Item | Amount | Timing |
| Wages | £20,000 | 28 April |
| NIC (15%) | £3,000 | 22 May |
| Pension (3%) | £600 | 22 May |
| Holiday accrual | £2,414 | Ongoing |
| Overtime/Sick | £1,000 | 28 April |
Total: £27,000 monthly obligation.
With £18,000 in the bank and £30,000 invoices overdue, payroll becomes unmanageable, unless forecasted in advance.
💡 Lesson: Profitability doesn’t protect cashflow. Forecasting does.
Statutory Payments SMEs Must Plan For (2025/26)
| Type | Rate | Duration | Eligibility |
| SSP | £118.75/week | Up to 28 weeks | Earnings ≥ £123/week |
| SMP | 90% AWE (6w) + £187.18 (33w) | 39 weeks | 26 weeks’ continuous work |
| SPP | £187.18/week | 2 weeks | 26 weeks’ continuous work |
💡 Note: SMP/SPP are reclaimable (92% or 103%), but cash leaves your account first.
See: Payroll services for UK SMEs for support on claims and submissions.
Conclusion: Payroll Doesn’t Have to Break Your Cashflow
Payroll is predictable — but only if you plan it. Wages, PAYE, NIC, and pensions are fixed; client payments aren’t.
By:
- Forecasting 52 weeks ahead,
- Building payroll reserves,
- Chasing overdue invoices early,
…you can turn payday from a panic point into a planned event.
👉 Download the 52-week rolling forecast (free)
👉 Or book a 20-minute planning call to build a payroll-ready cashflow plan for your business.
💡 Payroll will always be a big number, but with the right forecast, it never has to be a problem.
Payroll & Cashflow FAQs (UK SMEs 2025/26)
1. Why does payroll cause cashflow problems for SMEs?
Payroll is fixed, but client payments are variable. If invoices lag 30–60 days, payday can hit before cash arrives.
2. When are PAYE and NIC due?
By the 22nd of the following month (electronic) or 19th (post). Pensions follow the same rule.
3. What are the 2025/26 statutory pay rates?
SSP £118.75/week; SMP/SPP £187.18/week; thresholds from GOV.UK.
4. How do late clients affect payroll?
Late payments are the top reason SMEs dip into overdrafts. Use a 52-week forecast to model gaps.
5. Should payroll be weekly or monthly?
Monthly is standard and easier to predict. Align it with inflows.
6. How can I prevent payroll stress?
Ring-fence PAYE/NIC, automate pensions, hold a buffer, and use a forecast.
7. Can payroll costs be offset or reclaimed?
Yes: claim statutory pay reimbursements and use the Employment Allowance (£10,500, GOV.UK).