Do Small Businesses Need HR Software?
The Sales Pitch vs Reality
HR software companies will tell you that every business with employees needs their platform. The reality is more nuanced.
You might need HR software if you have:
- 10+ employees (complexity increases)
- High staff turnover (lots of onboarding/offboarding)
- Multiple locations or remote workers
- Complex leave policies
- Compliance requirements
- Someone spending hours on HR admin
You probably don't need dedicated HR software if you have:
- Under 10 employees
- Low turnover
- Simple employment arrangements
- Someone who can manage with basic tools
What HR Software Actually Does
Core functions:
- Store employee records
- Manage holiday/leave requests
- Track sickness absence
- Onboarding document collection
- Basic reporting (headcount, absence rates)
Advanced functions:
- Performance reviews
- Goal tracking
- Training management
- Recruitment/applicant tracking
- Benefits administration
- Payroll integration
The Manual Alternative
What Works Without Software
For small teams (under 10), you can manage with:
Personnel files: Physical or digital folders per employee with contracts, documents, emergency contacts.
Shared calendar: Track holidays using Google Calendar or Outlook. Not elegant but functional.
Spreadsheet: Employee list, holiday entitlements, sick days taken.
Email: Holiday requests via email with calendar invites.
When Manual Breaks Down
Signs you need something better:
- Holiday tracking errors (double bookings, wrong balances)
- Compliance concerns (missing documents, audit worries)
- Time spent on admin is excessive
- Employees frustrated with processes
- Manager can't see who's off when
- Growing past 10-15 employees
HR Software Options
BreatheHR
What it is: UK-focused HR software for SMEs.
Pricing:
- Starter: £13/month (1-10 employees, core HR)
- Growing: £23/month (1-50 employees, +performance)
- Scaling: Custom (50+ employees)
Pros:
- UK-designed for UK employment law
- Simple, clean interface
- Good for HR basics
- Affordable starting point
- Solid holiday/absence management
- Document storage included
Cons:
- Features can feel basic
- Reporting could be deeper
- Limited customisation
- Mobile app is basic
- Recruitment features limited
Best for: UK small businesses wanting straightforward HR management without complexity.
CharlieHR
What it is: Modern HR platform aimed at startups and small businesses.
Pricing:
- Essentials: £4/employee/month (minimum 5 employees)
- Standard: £6/employee/month
- Premium: £8/employee/month
Pros:
- Modern, user-friendly interface
- Good onboarding flows
- Perks management
- Employee engagement features
- Nice mobile experience
- Per-employee pricing (scales)
Cons:
- Minimum 5 employees
- Gets expensive as you grow
- Some features feel startup-y
- Less established than alternatives
- May outgrow it
Best for: Startups, modern companies, those valuing user experience.
Sage HR
What it is: HR module from established Sage brand.
Pricing:
- Core HR: £4/employee/month
- Full suite: £5.50/employee/month
- Add-ons: Recruitment, shifts, etc.
Pros:
- Trusted Sage brand
- Good range of modules
- Integrates with Sage payroll
- Reasonable per-employee pricing
- Mobile app included
- International capabilities
Cons:
- Interface can feel corporate
- Sage ecosystem can be complex
- Support mixed reviews
- Some features feel dated
- Configuration not always intuitive
Best for: Businesses already using Sage products, those wanting trusted brand.
Personio
What it is: European HR platform for growing businesses.
Pricing:
- Essential: From €2.88/employee/month
- Professional: Custom pricing
- Enterprise: Custom pricing
Pros:
- Comprehensive feature set
- Good for growth (scales well)
- Strong recruitment module
- European data residency
- Modern platform
- Good integrations
Cons:
- More complex than simpler tools
- Higher minimum viable cost
- May be overkill for small teams
- Implementation takes time
- Less UK-specific than BreatheHR
Best for: Growing businesses expecting to scale, those with recruitment needs.
Notion / Google Workspace
What it is: DIY HR using general productivity tools.
Pricing:
- Notion: Free-£8/user/month
- Google Workspace: £4.60/user/month (already have for email?)
Pros:
- No additional software cost
- Completely customisable
- Tools you already use
- Good for tiny teams
- Simple to start
Cons:
- No HR-specific features
- Manual processes
- No compliance support
- Doesn't scale
- Audit trail weak
- Time-consuming to maintain
Best for: Very small teams (under 5), testing what you need before buying proper HR software.
Quick Comparison
| Platform | Starting Price | Best For | UK-Focused | Mobile |
|---|---|---|---|---|
| BreatheHR | £13/month | UK SMEs | Yes | Basic |
| CharlieHR | £4/employee | Startups | Yes | Good |
| Sage HR | £4/employee | Sage users | Partial | Good |
| Personio | €2.88/employee | Growing | EU | Good |
| DIY (Notion) | £0-8 | Tiny teams | N/A | N/A |
What Features Actually Matter?
Essential (If You Buy HR Software)
Employee Database
- Store personal details securely
- Emergency contacts
- Employment information
- Document storage (contracts, etc.)
Leave Management
- Holiday requests and approvals
- Automatic entitlement calculation
- Calendar visibility
- Different leave types (sick, parental, etc.)
Absence Tracking
- Sick day recording
- Patterns and trends
- Return-to-work process
Basic Reporting
- Headcount
- Absence rates
- Holiday balances
Nice to Have
Onboarding
- New starter checklists
- Document collection
- Task assignment
Self-Service
- Employees update their own details
- Request leave without emailing
- View their records
Document Management
- Store policies
- Track acknowledgements
- Version control
Usually Overkill for Small Business
Advanced Performance Management
- 360 reviews
- Complex goal frameworks
- Competency matrices
Succession Planning
- Unless you're larger/more mature
Learning Management
- Unless significant training needs
Complex Workforce Planning
- More relevant to larger organisations
Common HR Software Mistakes
Mistake 1: Buying Too Early
Purchasing HR software for 3 employees when a spreadsheet would work fine for another year.
Better: Wait until manual processes cause real problems. Your needs will be clearer.
Mistake 2: Buying Too Much
Enterprise features for a 15-person company. Recruitment modules when you hire once a year.
Better: Start basic. Add modules when you actually need them.
Mistake 3: Forgetting Payroll
HR and payroll are often separate systems. Integration matters.
Consider: Does your HR software talk to your payroll? Or are you entering data twice?
Mistake 4: No Champion
Buying software without someone responsible for implementation and ongoing management.
Reality: Someone needs to own it, keep data current, train people, and ensure it's used.
Mistake 5: Ignoring Employee Experience
Choosing based on admin features, ignoring that employees need to use it too.
Better: Consider the employee self-service experience. They'll use it more than HR will.
Mistake 6: Security Afterthought
HR data is sensitive—personal details, salaries, health information.
Check: GDPR compliance, data security, who can access what, audit trails.
HR Compliance Basics
What You Must Do (UK)
Keep records:
- Employee personal details
- Contract information
- Working hours (if relevant for minimum wage)
- Holiday taken and accrued
- Sick absence
- Statutory payments made
Retain documents:
- Employment contracts
- Right to work evidence
- Payroll records (3 years minimum)
- Health and safety records
- P45s and P60s
HR software helps by: Storing this securely, making it findable, creating audit trails.
What HR Software Won't Do
- Write your employment contracts
- Give legal advice
- Handle complex tribunal situations
- Replace HR expertise for difficult issues
- Guarantee compliance
For complex HR matters, you still need professional advice (HR consultant, employment lawyer).
Making the Decision
Under 10 Employees
Start with: Spreadsheet + shared calendar.
Consider HR software when: Manual tracking fails, compliance concerns, significant time spent on admin.
If you want software: BreatheHR Starter or CharlieHR Essentials.
10-25 Employees
Probably time for: Basic HR software.
Good options: BreatheHR Growing, CharlieHR Standard, Sage HR Core.
Key needs: Leave management, employee records, basic reporting.
25-50 Employees
Definitely need: Proper HR software.
Consider: BreatheHR, CharlieHR, Sage HR, or Personio.
Also think about: Payroll integration, performance reviews, recruitment (if hiring regularly).
50+ Employees
Need: More comprehensive HRIS.
Consider: Personio, Sage People, or platforms designed to scale.
Likely also need: Dedicated HR person/team, not just software.
Alternatives to Full HR Software
Payroll Software with HR Features
Many payroll systems include basic HR features:
- Moorepay: Payroll + basic HR
- BrightPay: Payroll + employee records
- Xero Payroll + Gusto: Limited HR
If payroll is your main need, check what HR features come with it.
Outsourced HR + Software
HR consultancies often provide software as part of their service:
- Software access included
- Expert support available
- Best of both worlds
- More expensive but less risk
Consider if you lack HR expertise internally.
The Bottom Line
HR software is genuinely useful once you have enough employees to justify it—typically 10+. Below that, you're buying something you don't need.
For most small UK businesses:
Under 10 employees: Manual processes or very basic tools.
10-30 employees: BreatheHR or CharlieHR—both are affordable, UK-focused, and handle the basics well.
Growing/scaling: Consider Personio or Sage HR as you need more capability.
The key is matching complexity to your actual needs. HR software should save time and reduce risk—not create another system nobody uses.
Start simple. Add features when you need them. And remember: software doesn't replace HR judgment for difficult people situations.
