18 | TECHNICAL
Ensuring payroll compliance in times of great change
Mike Loydon, Global and UK Payroll Services Leader and Emily Webster, Director, Employment Solutions, PwC, consider the vast array of changes the pay industries are currently adjusting to and the steps pay professionals can take to ensure, and move beyond, compliance
A gainst a backdrop of accelerating workforce regulatory change, payroll leaders face mounting pressure to stay ahead. In a six-part series, PwC’s Workforce, Legal and Payroll Specialists will unpack the key challenges and opportunities shaping payroll today. In this instalment, we examine what the Autumn Budget 2025, the Employment Rights Act (ERA), adjustments to the Flexible Working Act and the European Union (EU) Pay Transparency Directive mean for payroll operations. We also share practical steps to take to manage change and mitigate risk. Taken together, these regulatory changes present significant challenges, including integration with updated human resources (HR) processes, increased administrative burden and ensuring that payroll data and systems are fit for the future.
Implications for payroll 1. Strong processes will need to be
Implications for payroll 1. Payroll teams must review and test holiday pay and SSP calculations for compliance prior to external reviews. Holiday pay rules are complex, and SSP calculations will change from April 2026, so there’s lots for payroll professionals to get their heads around. 2. SSP changes from April 2026 include payment from day one of sickness absence and there’ll be no requirement to earn a certain amount in order to qualify for SSP. Teams should fully understand and test the operational and cost impacts of this, and maintain ongoing governance to ensure compliance. The ERA Just before Christmas, the Employment Rights Act (ERA) had just received Royal Assent. The Department for Business and Trade released an Employment Rights Bill roadmap, which lays out the key reforms and confirms they’ll be introduced in phases, starting from April 2026 and continuing into 2027. Key provisions and their potential implementation dates are shown in the table on the next page: Implications for payroll 1. Payroll software needs to be updated to comply with new SSP rules and must accurately process requests to ensure compliance.. 2. The FWA’s enforcement powers increase the need for accurate payroll processing and calculations, and strong auditing procedures. 3. Employers that offer zero-hours contracts
implemented to manage salary sacrifice and ensure continuing compliance, particularly during periods of statutory leave. Remember also that a salary sacrifice arrangement can’t reduce somebody’s pay below NMW rates. 2. Consideration will need to be given to the longer-term process changes required to ensure NIC relief is capped at £2,000 in salary-sacrificed pension contributions per employee, per year. (At the time of writing, we’re yet to understand full details of how this will be administered, but payroll teams will need to be clear on the operational requirements and ensure controls and processes are aligned to ensure this is managed in a compliant way.) 3. Payroll teams must implement checks with every request for participation in a salary sacrifice scheme and in each pay period to prevent pay from falling below NMW, as breaches can result in penalties of up to 200% of underpayments and public naming of non-compliant employers. 4. With increased Government investment in NMW enforcement as part of the ‘Promote, Prevent and Respond’ strategy, payroll can expect more reviews and greater responsibility in risk management. The Fair Work Agency (FWA) The enforcement of NMW is set to continue into the new year. From April 2026, it will be under the remit of the FWA, which has extended powers to also enforce compliance with holiday pay and statutory sick pay (SSP) requirements.
Budget 2025 The Budget, held in November 2025,
included key announcements relevant to payroll, including confirmation that, although salary sacrifice for pensions will continue, there’ll be a restriction to National Insurance contributions (NICs) relief from April 2029. In the short term, and before the restriction is introduced, employees are expected to continue to take up salary sacrifice (and some may actually want to increase pension contributions or to sacrifice bonuses, where possible). This will allow them (and the employer) to benefit from NI savings. It was also announced that national minimum wage (NMW) rates will increase from April 2026, with the national living wage increasing to £12.71.
must implement new processes for calculating guaranteed hours and
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