What’s in store for payroll teams in 2026

The government announced in its Budget significant changes that will affect businesses and their payroll teams. But there is more than Budget changes that payroll teams need to prepare for in 2026. 

From preparing for new reporting rules to adapting to a more mobile workforce, payroll teams will play a crucial role in helping employers remain compliant while supporting staff effectively. Here are four key developments to watch.

1. Payroll and benefits: Register before the end of the tax year

With the growing adoption of payrolling benefits, HMRC is continuing to encourage employers to include most benefits-in-kind directly through payroll rather than via P11D submissions.  

Businesses intending to payroll benefits for the first time will need to register with HMRC before the end of the tax year. This shift will streamline reporting in the long run, but in the short term it demands clearer communication between employers, HR teams, and payroll providers, particularly around benefit categories, data accuracy and software readiness. 

2. Statutory Sick Pay: Removal of waiting days

The government will, from April 2026, remove the current three-day waiting period before entitlement to Statutory Sick Pay (SSP) begins. This will likely increase costs for employers and will require payroll teams to adjust SSP calculations, revise sickness policies, and prepare for higher volumes of short-term absence claims. Accurate record-keeping and real-time reporting will become even more essential, especially for employers with larger or more dispersed workforces. 

3. National Minimum Wage: Increases from April 2026

The Chancellor confirmed that the National Living Wage (NLW) will rise by 4.1% to £12.71 per hour from its current rate of £12.21. The minimum wage for 18–20 year olds will increase to £10.85 from the current £10.00 rate, an increase of 8.5%. The minimum wage for under 18s and apprentices to £8.00 from the current rate of £7.55 amounting to nearly a 6% increase.

Employers will yet again need to find the money to fund these wage increases to stay compliant.

4. Other Budget measures announced

Income Tax and National Insurance thresholds will remain frozen, meaning more employees may be brought into higher tax bands over time as earnings increase. Pay rises and additional payments will be penalised via this method of taxation affecting those who may be pushed over the higher rate income threshold of £37,700 as a result.

The student loan repayment threshold for Plan 2 student loans will remain at £29,385 until the tax year 2029/30. It will see an increase in the contribution paid back to The Student Loan Company (SLC) over the next three tax years.

A change to plan for: Salary sacrifice cap

From April 2029, the National Insurance savings available through Salary Exchange will be limited to the first £2,000 per annum of exchanged salary. Any contributions exchanged above this amount will be subject to the relevant NIC charges.

While the cap reduces benefits over the £2,000 per annum, the benefits of Salary Exchange are not removed. For the regular pension-contributing worker contributing less than £2,000 per year, the benefits remain intact. To provide context, £2,000 per annum of contributions is equivalent to a 5% worker contribution on pensionable pay of £40,000 per year (£3,333.34 per month).

Potential changes for gig-economy workers

Ongoing scrutiny of gig-economy employment practices is likely to result in further changes to worker status rules. Possible reforms could widen statutory rights for individuals currently classified as contractors, extending entitlements such as holiday pay, pension contributions and minimum wage protections. A consultation on the proposals closed on 10 December, with the government expected to report in the Spring of 2026.

For payroll teams, any reclassification of workers would create complex onboarding, tax and reporting implications. Businesses may need proactive guidance to ensure they apply employment status tests correctly and avoid misclassification risks.

The growing trend of employees working overseas

As remote and hybrid work models mature, more employees are choosing to live temporarily overseas. This can present significant payroll challenges: overseas work can create unexpected tax liabilities, trigger social security obligations, and require dual payroll or shadow payroll arrangements.

Payroll teams and their providers will need to work closely with clients to assess risks early, clarify residency issues, and ensure the correct deductions and filings are made in each jurisdiction. Clear policies on international working will also become increasingly important. 

Our dedicated payroll team is on hand to help employers navigate – and stay ahead – of these changes. For more information contact us here.