With spring just around the corner, major payroll changes are looming for employers along with the threat of tighter enforcement and rising costs.

The areas we flagged in our recent Looking Ahead to 2026 webinar now need immediate attention. By acting ahead of the April deadline, you’ll have time to implement properly, test thoroughly and avoid a last-minute scramble to inform and engage your teams. Here's your compliance checklist.

The statutory sick pay change: April deadline

From April 2026, the three-day waiting period for statutory sick pay (SSP), and the lower earnings limit are removed. This means SSP starts from day one of absence and covers significantly more employees.

Action required now:

• Configure your payroll system to trigger SSP from day one.
• Update absence policies and employment contracts to reflect the new rules.
• Brief line managers and prepare employee communications.
• Test your system configuration before March.

The Fair Work Agency: launching April 2026

The Fair Work Agency launches in April 2026 with substantial enforcement powers across minimum wage, holiday pay, sick pay, agency workers and modern slavery. This new single enforcement body replaces the current fragmented system.

Their powers include:

• Financial penalties up to 200%.
• Six years' back liability for underpayments.
• Public naming of non-compliant employers.
• Personal liability for directors and managers.
• Direct tribunal claims on behalf of workers.

What this means for you:

• Run a 12-month audit of National Minimum Wage (NMW) and holiday pay compliance, particularly where salary sacrifice, unpaid working time, training periods or uniform costs are involved.
• Reconcile right to work checks against your entire payroll population.
• Validate holiday pay calculations for irregular hours and overtime.
• Document your processes, controls and decision-making trails.

April rate changes and compliance pressure

NMW and National Living Wage (NLW) increases take effect in April (21+: £12.71; 18–20 (NLW): £10.85; Under 18s and apprentices: £8.00), while tax and national insurance contribution (NIC) thresholds remain frozen until 2030–31. This combination increases the risk of salary sacrifice arrangements, pushing employees below legal minimums.

Before April, employers should ensure new rates and statutory payment thresholds are loaded and fully tested within payroll systems. Exception reporting should be run for employees close to the NMW after deductions, and all salary sacrifice schemes reviewed to confirm ongoing compliance. Manager guidance on statutory payments should also be updated to reflect the new rates and increased compliance risk.

Payrolling benefits in kind: should employers act now?

If you haven't already moved to voluntary payrolling of benefits in kind (BiKs), now is the time to revisit this decision. Payrolling benefits through the year offers real-time tax collection, eliminates P11D administration and improves accuracy. However, you must register with HMRC before the start of the tax year to payroll benefits from April 2026.

Consider whether payrolling BiKs would simplify year-end processes and improve employee understanding of how benefits are taxed. Also assess the system changes and communications required for successful implementation, bearing in mind that missing the HMRC registration deadline means waiting until the following tax year.

Please note, the annual P11db will still be due for the tax year 2026/27 if you move to voluntary payrolling of BiKs.

Managing rising employment costs more effectively

With employment costs rising, employers should focus on maximising legitimate efficiencies while minimising compliance surprises.

Maximise efficiencies:

• Use salary sacrifice for pensions where NMW (NLW from April 2026) constraints allow.
• Review underused statutory exemptions.
• Help employees claim entitled tax reliefs on business mileage and pension contributions.

Minimise surprises:

• Strengthen and document compliance processes with clear ownership.
• Prepare evidence and maintain audit trails for HMRC interactions.
• Remember that BiKs errors can result in effective costs exceeding 90% when tax, NIC, interest and penalties are combined – and HMRC can look back six years.

Gender pay gap reporting: preparing for the April submission deadline

For most private sector employers, the snapshot date is 5 April 2025, with reports due by 4 April 2026. This year, there’s increased scrutiny on both the accuracy of your data and the quality of your accompanying narrative. So, ensure your pay gap calculations are up to date and accurate, with a clear, honest narrative explaining any gaps and your action plan. This will not only ensure compliance but demonstrate your commitment to fairness and transparency.

Key risk areas requiring regular review

Common employment tax risks that need regular review include: BiKs and expenses, employer returns, termination payments, travel and subsistence, PAYE Settlement Agreements and globally mobile employees. Off-payroll working arrangements should be a particular focus.

For contractors and umbrella company arrangements, ensure your employment status determination process is current and documented, with periodic reviews and challenge mechanisms in place.

Strengthening payroll controls and governance

Accuracy and transparency reduce risk and build trust. Essential controls include monthly three-way reconciliation between HR, payroll and finance alongside variance reporting for significant pay changes. Additional safeguards include maker-checker approvals for sensitive changes such as bank details, rates and hours as well as clear, consistently labelled payslip templates. Service level agreements for payroll queries should also be published, supported by a fair overpayment recovery policy.

What this means for employers in 2026

Payroll errors in 2026 could quickly escalate to enforcement action, costly back payments and reputational damage. Employers can prevent most issues by focusing on compliance fundamentals and proactively managing risk.

We're here to help you navigate these changes and turn regulatory requirements into opportunities for stronger controls and smarter payroll management. If you have questions about any of the points raised, please reach out to Steve Sweetlove or your usual RSM contact.

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