COMPLIANCE
The only constant in payroll? Change
Steve Sweetlove, Pay and People Partner and Leigh Black, Client Experience Manager, RSM UK, reflect on the year that was 2025 for pay professionals and consider what’s coming in 2026 and beyond
A s 2025 draws to a close, pay professionals across the UK are reflecting on another busy year marked by significant legislative and operational changes. From rising employer costs to expanded employee entitlements, the payroll landscape has evolved, demanding agility, compliance and strategic foresight. Looking ahead to 2026, further reforms are on the horizon, with pay teams preparing for new statutory obligations, system updates and evolving workforce expectations.
introducing a new entitlement for working parents. It provides up to 12 weeks of leave and pay for parents whose babies require neonatal care, defined as a hospital stay of seven consecutive days or more within the first 28 days of life. All employees now have a day-one entitlement to leave, while those with at least 26 weeks’ service and sufficient earnings qualify for statutory neonatal care pay. This leave must be taken within 68 weeks of birth and is in addition to existing statutory leave entitlements. Pay teams must ensure systems can track eligibility, calculate entitlements accurately and support communication with affected employees. Payrolling benefits in kind (BiKs): a shift in the timeline Originally slated for April 2026, HM Revenue and Customs (HMRC) has postponed the mandatory payrolling of BiKs to April 2027. This gives employers more time to prepare for a major shift in how benefits are reported and taxed. New guidance relating to this has recently been published, here: https://ow.ly/u0e550XyCAu. Under the new regime, all taxable benefits (except for accommodation and employment-related loans) must be processed through payroll. This change will largely eliminate the need for P11D and P11D(b) forms, as real time information submissions will include new fields specifically for benefit data. Additionally, class 1A NICs will be paid in real time via payroll, streamlining reporting and payment processes. The first year of implementation
(2027/28) will see a ‘light touch’ enforcement approach, with full penalties commencing in 2028/29. Pay teams should be reviewing benefit offerings, updating systems and preparing employee communications. 2026: payroll in the spotlight – preparing for legislative change While the Employment Rights Bill is often discussed in human resources (HR) circles, its impact on payroll operations is equally significant. The reforms coming into effect from April and October 2026 will require payroll teams to update systems, processes and policies to remain compliant and support employees. Key changes for payroll 1. Statutory sick pay (SSP) reform From April 2026, SSP will become a day- one entitlement, removing the current three-day waiting period. The lower earnings limit will also be abolished, meaning all employees, regardless of income, will qualify. SSP will be calculated as the lower of 80% of normal weekly earnings or the standard SSP rate. Pay teams must update systems to reflect these changes and prepare for increased SSP liabilities, as SSP remains non-recoverable from HMRC. 2. Protective awards in redundancy The maximum period for protective awards in collective redundancy cases will double from 90 to 180 days’ pay per employee. Payroll must manage extended pay liabilities and ensure accurate calculations. 3. Tipping law reform In sectors like hospitality, new regulations
2025: A year of major payroll shifts
National Insurance contributions (NICs) overhaul One of the most impactful changes in 2025 was the increase in employer class 1 NIC rates from 13.8% to 15%, alongside a reduction in the secondary threshold from £9,100 to £5,000. This meant employers began paying NICs on a larger portion of earnings, increasing payroll costs and prompting many to reassess remuneration strategies. Employment allowance expansion To offset rising NIC costs, the employment allowance was increased from £5,000 to £10,500. The previous restriction preventing employers with NIC liabilities over £100,000 from claiming the allowance was removed, broadening access for businesses. Neonatal care leave and pay: a new day-one right From 6 April 2025, the Neonatal Care (Leave and Pay) Act 2023 came into force,
| Professional in Payroll, Pensions and Reward | December 2025 - January 2026 | Issue 116 26
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