For small and medium-sized businesses, April 2026 is one of the most payroll-intensive months in recent memory. Three significant changes have landed at once: Statutory Sick Pay now applies from day one of illness with no lower earnings floor, the National Living and Minimum Wages have risen across every age band, and April 2026 marks the final opportunity to switch voluntarily to the simpler payrolling-of-benefits system before it becomes mandatory in April 2027.
Each of these changes costs money. Taken together, they represent a meaningful increase in the employment cost of every person on your payroll — and a compliance risk if your policies, contracts, and payroll software have not been updated to reflect them.
At CoreAcc Accountants, we manage payroll for businesses across Hertfordshire and North London ranging from sole-director companies to much larger entities. This guide explains every change in plain terms, with worked examples to help you understand the real impact on your wage bill, and answers to the questions we are hearing most often from clients right now.
Disclaimer: This article is for general information only and does not constitute legal or professional advice. Specific advice should always be sought for your individual circumstances.
1. The End of Waiting Days: Statutory Sick Pay from Day One
The most far-reaching payroll change of April 2026 is the reform of Statutory Sick Pay (SSP) under the Employment Rights Act 2025. From 6 April 2026, the three-day "waiting period" — the three unpaid days at the start of any period of sickness — has been abolished entirely.
What has changed
Previously, SSP was only payable from the fourth qualifying day of sickness. An employee off sick for three days or fewer received nothing from their employer unless the employer chose to pay contractual sick pay. That waiting period acted as a natural brake on SSP costs and, critics argued, an incentive for unwell employees to come into work.
From 6 April 2026:
- SSP is payable from the first qualifying day of sickness, with no waiting period
- The Lower Earnings Limit (LEL) has been removed as an eligibility threshold for SSP. Previously, employees earning below £129 per week did not qualify for SSP at all. That threshold is now gone — every employee qualifies regardless of their earnings or hours
- A new 80% rule applies to lower-paid employees: SSP is calculated as the lower of the standard weekly rate (£123.25) or 80% of the employee's average weekly earnings. This means a part-time employee earning £100 per week receives SSP of £80 per week rather than the full £123.25
What SSP does not cover
It is worth being clear about what has not changed. SSP remains the minimum — employers can choose to pay more through contractual sick pay. Employees must still be off sick for at least one full qualifying day. Self-employed individuals remain outside the SSP framework. And SSP is still only payable for up to 28 weeks in any period of incapacity.
The change also does not reinstate the old Small Employers' Relief, which previously allowed smaller businesses to reclaim SSP from HMRC. That scheme ended in 2014 and has not been brought back. SSP remains a cost borne entirely by the employer.
Worked Example 1: The Real Cost of Day-One SSP for a Small Retail Business
Horizon Interiors is a small independent homeware shop in Hertfordshire with eight employees: three full-time and five part-time. In the 2025/26 tax year, the business had 14 short-term sickness absences across the team. Of these, nine lasted three days or fewer and therefore triggered no SSP liability under the old rules.
Under the old rules (2025/26):
Under the new rules (2026/27 — Day-One SSP):
The change nearly doubles Horizon's SSP bill — from £924 to £1,368 — for the same level of absence. For a business with a higher-turnover workforce or a high number of part-time staff, the increase will be proportionally greater. This is before accounting for the five previously ineligible part-time employees who now also qualify.
2. National Minimum and Living Wage Increases: The Pay Compression Problem
The National Living Wage (NLW) and National Minimum Wage (NMW) rates rose again from 6 April 2026. For many SMEs — particularly in retail, hospitality, care, and cleaning — these are not just compliance figures: they are the foundation on which the entire wage structure of the business is built.
The new rates from 6 April 2026
Why pay compression matters
Pay compression is the narrowing gap between what your lowest-paid and more experienced staff earn. When minimum wage rates rise by 8.5% for 18-to-20-year-olds but only 4.1% for those aged 21 and over, a business that previously paid a differential of £2.21 per hour between a school leaver and an experienced member of staff now has a differential of just £1.86 per hour.
If this differential is not consciously managed, you risk:
- Experienced employees feeling undervalued when they see new starters on near-identical pay
- A flattening of incentive to take on more responsibility or progress
- Informal pay grievances that escalate into formal disputes
The correct response is a structured pay review — not just lifting everyone at the bottom, but consciously maintaining meaningful differentials throughout the pay spine.
Worked Example 2: Annual Wage Bill Increase for a Small Hospitality Business
Maple & Fig is a café in Hertfordshire with twelve employees working the following hours and ages:
Annual wage bill increase:
For a café generating £350,000 in annual turnover, an additional £9,890 in employment costs represents approximately 2.8% of revenue — a material figure for a business typically operating on thin margins.
3. Salary Sacrifice and the NMW Trap
A subtler but equally important compliance issue arising from the April 2026 wage increases is the interaction between salary sacrifice schemes and minimum wage rules.
Salary sacrifice arrangements — where an employee agrees to give up a portion of their gross pay in exchange for a non-cash benefit such as pension contributions, a cycle-to-work scheme, childcare vouchers, or an electric vehicle — are calculated on the basis of the employee's notional salary before the sacrifice. HMRC's rule is clear: after the sacrifice, the employee's remaining cash pay must not fall below the National Minimum or Living Wage for the hours they work.
When minimum wage rates rise mid-year, existing salary sacrifice agreements that were compliant in 2025/26 can become non-compliant in 2026/27 without anyone noticing.
Worked Example 3: The Salary Sacrifice NMW Compliance Check
Sophie is 22 years old and works full-time (40 hours per week) at a garden centre. She participates in a salary sacrifice cycle-to-work scheme, reducing her gross pay by £50 per month.
Before April 2026:
- Hourly rate: £12.21 (NLW)
- Annual gross pay: £25,396.80
- Annual salary sacrifice: £600
- Net pay after sacrifice: £24,796.80
- Effective hourly rate after sacrifice: £24,796.80 ÷ 2,080 hours = £11.92/hr
- NLW is £12.21 → Non-compliant even before April 2026 (should have been caught)
After April 2026:
- New NLW: £12.71/hr
- Minimum annual pay: £12.71 × 2,080 = £26,436.80
- Current gross after sacrifice: £24,796.80
- Shortfall: £1,640 per year — a potentially serious compliance breach
This example illustrates why a wage bill review at each April uplift should include a line-by-line check of every employee in a salary sacrifice arrangement. HMRC can and does impose penalties of up to 200% of the underpayment for minimum wage non-compliance, plus public naming.
4. Benefits in Kind: The Final Voluntary Year Before Mandatory Payrolling
From April 2027, the payrolling of benefits in kind becomes mandatory for virtually all employers. April 2026 is the final tax year in which the old system — reporting benefits annually on a P11D form after the year end — remains available.
What payrolling benefits means
Under the traditional P11D system, you declare each employee's benefits (company car, private health insurance, gym membership, and so on) on a paper or online form submitted to HMRC by 6 July after the tax year ends. HMRC then adjusts each employee's tax code to collect the tax owed — often meaning the employee pays tax on last year's benefit through next year's paycheck, creating a perpetual lag.
Under payrolling, the taxable value of each benefit is added to the employee's pay each month and the tax is collected through PAYE in real time. For employees, this means no tax code adjustments and no year-end surprises. For employers, it means no P11D filing — but it requires your payroll software to handle benefit calculations and your payroll process to capture benefit values each month.
What you need to do if you have not already switched
If you did not register to payroll your benefits before 6 April 2026, you are committed to the P11D process for the 2026/27 tax year. Your P11D forms for 2025/26 benefits are due to HMRC by 6 July 2026 and Class 1A National Insurance on those benefits is due by 19 July 2026 (22 July if paying electronically).
For the 2027/28 tax year (the first mandatory year), you will need to have your payroll software configured and your benefit values flowing into payroll by April 2027. We strongly recommend beginning the transition process no later than January 2027 to allow time for software configuration and HMRC registration.
Worked Example 4: P11D vs. Payrolling — What Changes for an Employee
James is a sales manager whose employer provides him with a company car (taxable benefit value £5,200 per year) and private health insurance (taxable benefit value £800 per year). His total benefits are £6,000 per year. He is a 40% higher rate taxpayer.
Under the P11D system (current for 2026/27):
Under payrolling (from April 2027):
For James, payrolling produces a cleaner and more transparent outcome. For the employer, the annual P11D filing disappears — but the monthly payroll process becomes slightly more complex as benefit values must be captured and entered each month.
5. The 2026/27 Statutory Rates at a Glance
6. The RTI Hours Reporting U-Turn
There is one positive development from April 2026 worth noting. HMRC had proposed requiring employers to report the exact number of hours worked by each employee in every Real Time Information (RTI) submission. Following widespread concern from small business groups about the administrative burden — particularly for employers with flexible, zero-hours, or variable-shift workforces — this requirement has been scrapped.
You can continue to report hours using the existing "normal hours" bands (up to 15.99 hours, 16 to 29.99 hours, 30 hours or more, and other). This removes a potentially significant data collection and payroll software burden that many smaller businesses were not prepared for.
How to Audit Your Payroll Before It Costs You
The changes above create several specific compliance risks that are easy to miss in a busy business. The following checklist covers the key items every employer should work through before or immediately after April 2026.
Sick pay
- Update your employee handbook and any written sick pay policies to remove any reference to three waiting days
- Identify all employees previously ineligible for SSP due to low earnings — they now qualify
- Check that your payroll software calculates SSP using the 80% rule for lower earners, not a flat £123.25 for all
Wages and pay compression
- Confirm every employee's hourly rate meets the applicable NMW or NLW rate from 6 April 2026
- Run a pay differential analysis to identify where compression has narrowed gaps unacceptably
- Schedule a pay review for staff earning just above minimum wage who may feel the benefit of the uplift without formally being entitled to it
Salary sacrifice
- For every employee in a salary sacrifice arrangement, calculate their post-sacrifice hourly rate and compare it to the applicable NMW/NLW
- Where there is a shortfall, either increase gross pay or reduce the sacrifice amount
Benefits in kind
- If you did not register for payrolling before 6 April 2026, prepare your P11D forms for the 2025/26 tax year (due 6 July 2026)
- Begin scoping your payrolling transition for April 2027 now — don't leave it until March
Frequently Asked Questions
When did the Day-One SSP rule come into effect?
The removal of SSP waiting days came into effect on 6 April 2026 under the Employment Rights Act 2025. Any period of sickness beginning on or after that date is subject to the new rules — SSP is payable from the first qualifying day. Sickness periods that began before 6 April 2026 and continue past that date follow the rules in place at the start of the absence.
Which employees now qualify for SSP?
From 6 April 2026, the Lower Earnings Limit (LEL) has been removed as an SSP eligibility threshold. Previously, employees earning less than £129 per week were excluded from SSP entirely. Now, every employee qualifies, regardless of earnings or hours worked, as long as they meet the other qualifying conditions: they must be classed as an employee (not self-employed), they must have been sick for at least one qualifying day, and they must notify you of their sickness within the required timeframe set out in their contract.
How is SSP calculated under the new 80% rule?
For employees earning more than the standard SSP rate of £123.25 per week, SSP remains at £123.25 per week (the flat rate). For employees whose average weekly earnings are below £154.07 per week (i.e. 80% of their earnings would be less than £123.25), SSP is calculated at 80% of their average weekly earnings instead. Average weekly earnings are calculated using the eight weeks of pay immediately before the absence begins.
Can I still reclaim SSP from HMRC?
No. The Small Employers' Relief scheme that previously allowed qualifying businesses to reclaim SSP from HMRC was abolished in 2014 and has not been reinstated. SSP is entirely an employer cost. There are no proposals currently to change this.
What is pay compression and why should I care?
Pay compression is the narrowing of the pay gap between your lowest-paid employees and those earning slightly more. When minimum wage rates rise faster for younger workers (8.5% for 18-to-20-year-olds in April 2026) than for older workers (4.1% for over-21s), employees who previously earned meaningfully more than the minimum may find themselves only a few pence per hour ahead of new starters. This can damage morale, increase turnover, and lead to pay grievances. The solution is a proactive pay review that maintains meaningful differentials, not just a mechanical uplift of those at the legal floor.
What happens if I accidentally pay someone below the National Minimum Wage?
National Minimum Wage non-compliance — even accidental — is a serious matter. HMRC can require you to repay the underpaid wages to affected employees, impose a financial penalty of up to 200% of the total underpayment (capped at £20,000 per worker), and publicly name your business as a minimum wage non-complier on the government's naming and shaming register. The most common cause of accidental NMW breaches is salary sacrifice arrangements pushing post-sacrifice pay below the minimum. A payroll audit at every April uplift is the surest way to avoid it.
Can salary sacrifice push my employees below the National Minimum Wage?
Yes, and this is a genuine risk that catches employers off guard every April. Salary sacrifice reduces an employee's gross pay in exchange for a benefit such as pension contributions, a cycle-to-work voucher, or an electric vehicle. HMRC's rule is that post-sacrifice cash pay must not fall below the applicable NMW or NLW for the hours worked. With every April uplift, arrangements that were previously compliant can tip into non-compliance if the sacrifice is not reviewed. Carry out a post-sacrifice hourly rate check for every employee in a scheme at the start of each tax year.
Do I need to file P11D forms for the 2025/26 tax year?
Yes. P11D forms for benefits provided in the 2025/26 tax year (6 April 2025 to 5 April 2026) must be submitted to HMRC by 6 July 2026. The Class 1A National Insurance charge on those benefits (currently 13.8%) must be paid to HMRC by 19 July 2026 (or 22 July if paying electronically). Employers who successfully registered to payroll their benefits for 2025/26 do not need to file P11Ds for those payrolled benefits, but must still report any unregistered benefits on a P11D.
I missed the deadline to register for payrolling benefits for 2026/27. What should I do?
If you did not register with HMRC before 6 April 2026, you cannot payroll benefits for the 2026/27 tax year. You will need to file P11D forms as normal for 2026/27 (due July 2027). You should, however, begin preparing your transition to mandatory payrolling for the 2027/28 tax year now. This involves ensuring your payroll software supports benefit payrolling, registering with HMRC's payrolling benefits service, and setting up processes to capture the value of each benefit each month before your payroll run. CoreAcc can manage this transition for you.
Is payrolling benefits the same as removing P11Ds?
Broadly yes, but with nuances. Once you payroll a benefit, you no longer need to report it on a P11D — the tax is collected through PAYE in real time instead. However, Class 1A National Insurance on benefits is still calculated and reported on a P11D(b) form due each July, even when benefits are payrolled. So the P11D form for individual employees disappears, but the employer-level Class 1A reporting and payment obligation remains.
What is the Employment Allowance and can my business claim it?
The Employment Allowance allows eligible employers to reduce their Employer National Insurance liability by up to £10,500 per tax year. From April 2025, the allowance was raised to £10,500 and the restriction that prevented large employers from claiming was removed — any employer with an employer NI liability in the previous tax year can now claim, regardless of size, as long as at least one other person is employed who is not a director. Importantly, companies where the sole employee is also the sole director remain excluded. If you have at least one non-director employee, ensure you are claiming the allowance — it is not automatic and must be indicated in your payroll software or directly with HMRC.
Do I need to report exact hours worked in RTI submissions from April 2026?
No. HMRC proposed requiring employers to report the exact number of hours worked by each employee in every Real Time Information submission, which would have created a significant burden for businesses with variable or zero-hours workforces. Following consultation, HMRC scrapped this requirement. You can continue to report hours using the existing four bands: up to 15.99 hours per week, 16 to 29.99 hours, 30 or more hours, and "other" (used for directors, where hours are not fixed). No changes to your payroll software or data collection process are needed for RTI hours reporting.
What is the best way to manage the cumulative cost of the April 2026 changes?
The honest answer is that for labour-intensive businesses, the April 2026 changes represent a genuine increase in the cost of employment that cannot be fully mitigated. However, the following measures can reduce the net impact: claim the Employment Allowance if you are eligible; ensure your payroll software is calculating SSP under the new rules to avoid overpaying; carry out a full salary sacrifice compliance check to avoid NMW penalties; and begin the payrolling transition early to avoid the administrative burden of a last-minute switch in March 2027. A payroll cost projection modelling the full-year impact of each change — which CoreAcc can prepare — gives you the clearest picture for budgeting and pricing decisions.
What CoreAcc Accountants Can Help You With
Managing payroll compliantly across multiple legislative changes is one of the most time-consuming compliance burdens a small business faces. At CoreAcc Accountants, we offer:
- Full managed payroll: Monthly processing, RTI submissions, pension auto-enrolment, and statutory payment calculations — handled for you so you can focus on the business
- SSP and NMW audits: A line-by-line review of your payroll to identify any non-compliance risks before HMRC does
- Salary sacrifice compliance checks: Ensuring every sacrifice arrangement remains above the NMW threshold following the April 2026 uplifts
- Benefits in kind transition: Preparing your P11D forms for 2025/26, and managing your payrolling registration and software setup for the mandatory 2027/28 transition
- Payroll cost projections: Modelling the full-year impact of the April 2026 changes on your wage bill, Employer NI, and SSP exposure to support your budgeting and pricing decisions
Get in Touch
Whether you are running your first payroll or managing a team of fifty, the April 2026 changes require action now. Don't wait for a compliance error or an HMRC enquiry to focus your attention.
Contact CoreAcc Accountants today for a confidential conversation about your payroll and employment cost position.
CoreAcc Accountants is an ACCA-accredited firm of Chartered Certified Accountants based in Borehamwood, Hertfordshire. This article was last reviewed in January 2026 and reflects legislation in force for the 2026/27 tax year. It does not constitute legal or professional advice.
