Are you prepared for payroll changes in the 2026/27 tax year?

As we approach the 2026/27 tax year, payroll professionals and business owners must be ready for significant changes that could impact employment costs, compliance and employee benefits. 

From revised statutory sick pay rules to new leave entitlements and updated wage rates, staying on top of these updates and having the right payroll provider is essential. 

Key payroll changes 

1. National Minimum Wage increases

From 1 April 2026, the National Living Wage (NLW) will rise to £12.71 per hour for workers aged 21 and above. The rate for workers aged 18 to 20 will increase to £10.85 per hour, while those under 18 and apprentices will receive £8.00 per hour. 

These increases will significantly affect businesses, particularly those in retail and hospitality, which employ large numbers of younger workers. 

Payroll systems need to be updated in time to reflect the new rates, and any salary sacrifice schemes in place should be reviewed to ensure they do not inadvertently lower an employee’s pay below the required minimum. It may also be necessary to review existing employee contracts and agreements to guarantee compliance with the revised wage thresholds. 

2. Statutory Sick Pay reforms

One of the most significant changes for the 2026/27 tax year is the overhaul of Statutory Sick Pay (SSP). From 6 April 2026, Periods of Incapacity to Work (PIW) have been removed, meaning SSP is now payable from day one of sickness absence, removing the previous three waiting days. 

The qualifying earnings requirement has also changed. Employees no longer need to earn at or above the Lower Earnings Limit (£6,708 per year) to receive SSP at the flat rate. Instead, 80% of the employee’s Average Weekly Earnings (AWE) is calculated, and the lower of that figure or the flat rate of £123.25 per week is used as the weekly SSP rate. 

Employers should also be aware of transitional rules applying to Periods of Incapacity that began before 6 April 2026 and extend into the 2026/27 tax year. 

Payroll systems must be updated to apply these new SSP rules correctly from the start of the new tax year, and HR policies should be reviewed to reflect the day-one entitlement. 

3. Statutory Parental Bereavement Pay – Northern Ireland expansion

Statutory Parental Bereavement Pay and Leave has been extended to include Northern Ireland from 2026/27, with day-one entitlement for both pay and leave. Additionally, a new Statutory Miscarriage Pay and Leave right has been introduced for Northern Ireland only. 

Employers with employees in Northern Ireland must ensure their payroll systems and HR policies are updated to reflect these new entitlements. Clear communication with affected employees about their rights under this expanded policy will also be essential. 

4. Small Employers Relief – increased compensation rate

From 2026/27, the additional compensation rate for Small Employers Relief increases from 8.5% to 9%. This means qualifying small employers — those whose Class 1 NI bill in the last complete tax year was £45,000 or less — can now reclaim 109% of Statutory Maternity, Paternity, Adoption, Shared Parental, Parental Bereavement and Neonatal Care Pay from HMRC. 

Eligible businesses should ensure they are claiming this relief to offset the cost of statutory payments, and payroll software should be configured to apply the updated rate correctly. 

5. New Student Loan Plan 5 threshold

A new Student Loan Plan Type 5 comes into effect for 2026/27 with an annual repayment threshold of £25,000. Deductions are made at the standard 9% rate on earnings above this threshold. Employers should ensure payroll systems are set up to correctly identify and deduct student loan repayments for employees on Plan 5.