If you employ anyone in 2026/27, payroll is more expensive and more involved than it was twelve months ago. The National Living Wage went up in April.
Statutory Sick Pay was overhauled, with day-one entitlement and the earnings threshold scrapped. The Fair Work Agency launched in April as a new enforcement body. And the employer National Insurance changes that came in last year – the 15% rate kicking in at £5,000 of salary – are now in their second full year of biting.
None of it is unmanageable, but small mistakes are getting more costly. This guide covers what employers need to know about running payroll in 2026/27: the rates, the rules, what’s changed, and where most employers slip up.
What Payroll Has to Do
Running payroll for even one employee means doing four things every pay period:
- Calculating gross pay, then deducting income tax, employee NI, pension contributions, student loan repayments and any other lawful deductions
- Paying the employee the right net amount on the right date
- Reporting the pay and deductions to HMRC through Real Time Information (RTI), on or before the day you pay
- Paying PAYE, employee NI and employer NI over to HMRC – usually monthly, though smaller PAYE bills may be payable quarterly
On top of that, you’ve got annual tasks: P60s for every employee at year end, P11Ds where there are taxable benefits, year-end reporting, and keeping records for at least three years. Get any of it wrong and the consequences range from underpaid employees and HMRC penalties through to public naming and shaming for minimum wage breaches.
For most small employers the answer is software – HMRC has a list of free and paid options – or outsourcing the whole thing to a payroll provider.
Setting Up Payroll for the First Time
If you’ve just hired your first employee, you need to be set up before their first payday. The order is straightforward:
- Register as an employer with HMRC: This gives you a PAYE reference and an Accounts Office reference. You can register online up to two months before your first payday, but no later. It usually takes around five working days.
- Choose payroll software: Cloud-based options like Xero Payroll, BrightPay, Sage and FreeAgent handle RTI submissions, pension contributions and statutory pay automatically. If you also need VAT or bookkeeping software, check whether the same package can handle MTD VAT as well as payroll RTI.
- Collect the employee’s details: Full legal name, address, date of birth, National Insurance number, bank details, and either a P45 from their previous job or a starter checklist if they don’t have one.
- Check their right to work in the UK: This is mandatory – record the check and keep evidence.
- Set up auto-enrolment: From the moment you take on your first eligible employee, you have legal duties under pensions auto-enrolment. More on this below.
Once you’re up and running, the same software will produce payslips (legally required on or before payday), file RTI submissions, and tell you what you owe HMRC each month.
The 2026/27 Numbers Employers Need to Know
These are the figures driving payroll calculations for 2026/27. The three tables below cover the minimum wage rates, the tax and NI thresholds, and the statutory pay rates.
Minimum Wage from 1 April 2026
The 21+ rate is up 4.1% on last year, with the 18-20 rate jumping 8.5% as part of the government’s plan to align the bands. A 37.5-hour-a-week worker on the National Living Wage now earns around £24,785 a year before tax.
| Worker Category | Hourly Rate |
|---|---|
| National Living Wage (21+) | £12.71 |
| 18 to 20 | £10.85 |
| 16 to 17 / Apprentice | £8.00 |
| Accommodation offset | £11.10 per day |
The apprentice rate applies to apprentices aged under 19, or aged 19 or over and in the first year of their apprenticeship. Other apprentices are entitled to the minimum wage rate for their age.
Tax and NI Thresholds for 2026/27
Most of these have been frozen since 2021 and are now confirmed frozen until April 2031.
The Secondary Threshold of £5,000 is the one that hits employers hardest – employer NI starts a long way below the point at which employees themselves pay any tax or NI.
| Threshold | Figure |
|---|---|
| Personal Allowance (income tax) | £12,570 |
| Basic rate (20%) | £12,571 – £50,270 |
| Higher rate (40%) | £50,271 – £125,140 |
| Additional rate (45%) | Above £125,140 |
| Employee NI Primary Threshold | £12,570 |
| Employee NI rate | 8% (PT to UEL), 2% above |
| Employer NI Secondary Threshold | £5,000 |
| Employer NI rate | 15% above £5,000 |
| Lower Earnings Limit | £6,708 (£129/week) |
| Employment Allowance (where eligible) | £10,500 |
Scottish taxpayers have different income tax bands and rates, although the UK-wide Personal Allowance is the same.
Statutory Pay Rates from 6 April 2026
Most statutory payment rates apply from 6 April 2026. The SMP rate applies from 5 April 2026.
| Payment | Weekly Rate |
|---|---|
| Statutory Sick Pay | £123.25, or 80% of average weekly earnings if lower |
| Statutory Maternity Pay (weeks 7-39) | £194.32, or 90% of AWE if lower |
| Statutory Adoption Pay (weeks 7-39) | £194.32, or 90% of AWE if lower (first 6 weeks at 90% of AWE) |
| Statutory Paternity / Shared Parental / Bereavement / Neonatal Care Pay | £194.32, or 90% of AWE if lower |
Employers can usually recover 92% of SMP, SPP, ShPP, SAP, SPBP and Statutory Neonatal Care Pay from HMRC, or 109% if their total Class 1 NIC bill for the previous tax year was £45,000 or lower. SSP cannot be recovered.
The SSP Changes Are the Biggest Shift This Year
If you only update one thing in your payroll process for 2026/27, make it Statutory Sick Pay. The Employment Rights Act 2025 brought in three structural changes from 6 April 2026.
Day-One Entitlement
SSP is now payable from the first full day of sickness absence, not the fourth. The old three “waiting days” rule is gone. That means more employees will trigger SSP, and they’ll trigger it earlier. For employers with high short-term absence rates, the cost goes up.
It’s worth noting that from 6 April 2026, Paternity Leave and Unpaid Parental Leave became day-one rights too – although Statutory Paternity Pay still has its separate qualifying conditions, including 26 weeks’ continuous employment.
The Earnings Threshold Is Gone
Employees previously earning under £125 a week (now £129) used to be excluded from SSP entirely. They’re now eligible. For employers with part-time, casual or variable-hours staff, this is a bigger deal than the headline rate change.
The 80% Rule for Low Earners
SSP is now the lower of £123.25 a week or 80% of the employee’s average weekly earnings. Most employees still get the flat £123.25 because it works out lower; very low earners now receive a proportionate amount instead of nothing.
What This Means in Practice
Your sickness absence policy needs updating to remove references to waiting days, and your payroll software needs to be running the new calculation. Most providers have already pushed updates out, but check.
There’s also a new Fair Work Agency that launched on 7 April 2026. It brings together existing state enforcement functions, including minimum wage enforcement, with holiday pay and statutory sick pay enforcement expected to be added in later stages.
So employers should expect more joined-up enforcement over time, especially as the FWA’s remit expands.
Employer NI: Still Painful
The April 2025 employer NI overhaul is now in its second year. The key points:
- 15% rate on every pound of salary above £5,000
- The Secondary Threshold (£5,000) is much lower than the Primary Threshold (£12,570), so employer NI bites well before the employee starts paying NI themselves
- The Employment Allowance covers up to £10,500 of employer NI for eligible businesses
The Employment Allowance Trap
The eligibility test is the catch. A company can’t claim the Employment Allowance if its only employee earning above the Secondary Threshold is also its only director. So sole-director limited companies typically can’t claim, even if they’re paying the director and themselves nothing else.
Where you have at least one other employee or director paid above £5,000, the allowance is usually available – and worth claiming, since it absorbs the employer NI on your first £70,000 or so of payroll cost above the threshold.
Our directors’ salary and dividends guide goes deeper on the Employment Allowance and how it shapes the optimal director salary in 2026/27.
Pensions Auto-Enrolment
If you employ anyone aged between 22 and State Pension age earning over £10,000 a year, you have to enrol them in a workplace pension and contribute towards it. The employee can opt out, but you have to enrol them first. The thresholds and contribution rates that drive this:
- Trigger threshold: £10,000 of qualifying earnings (£833 a month)
- Lower threshold for contributions: £6,240 a year
- Upper threshold: £50,270 a year
- Minimum employer contribution: 3% of qualifying earnings
- Minimum employee contribution: 5% of qualifying earnings (including tax relief)
The Pensions Regulator publishes the rules in detail and will issue penalties for non-compliance. Most modern payroll software handles enrolment, contributions and the regulator’s declaration of compliance automatically – but the legal duty sits with you, not the software provider.
One thing to flag: from April 2029, only the first £2,000 of employee pension contributions made through salary sacrifice each year will be exempt from NICs. Salary-sacrificed amounts above that will be subject to Class 1 employee and employer NICs.
Employer pension contributions outside salary sacrifice remain NIC-free. That’s a few years away, but worth knowing if you’re setting up a salary sacrifice arrangement now.
Where Most Employers Slip Up
A few common mistakes that turn up in HMRC enforcement cases:
- Paying below the minimum wage by accident: Deductions for uniforms, training costs or accommodation can drag effective hourly pay below the NMW. So can unpaid working time – arriving early to set up, staying late to cash up, mandatory training that isn’t paid for. HMRC regularly investigates minimum wage underpayments and can require arrears, penalties and public naming for serious breaches.
- Missing the rate change date: NMW rates change on 1 April. Statutory pay rates change on 6 April. They’re not the same date. Software usually handles this, but only if it’s set up correctly.
- Failing to recalculate when a worker has a birthday: A worker turning 21 moves from the 18-20 band to the NLW. A second-year apprentice over 19 moves to the standard rate for their age. Both are common audit findings.
- Late RTI submissions: Submissions are due on or before payday. Late filings trigger automatic penalties from £100 a month for small employers, rising for larger payrolls.
- Not claiming the Employment Allowance when eligible: It’s not automatic – you have to claim it through payroll each year, and many businesses simply forget.
What to Do Before the Year Starts
If you employ people, the run-up to a new tax year is the moment to check that your payroll set-up will handle what’s coming. The basics:
- Confirm all hourly rates are at or above the new NMW from 1 April 2026
- Update employment contracts where they reference specific pay rates that have changed
- Check your software is on the latest statutory pay rates from 6 April 2026
- Update your sickness absence policy to reflect day-one SSP
- Confirm you’re claiming the Employment Allowance if eligible
- Make sure pension contributions and thresholds are correctly set for the new year
For most employers, this is an hour’s work in March or early April. For employers with variable-hours staff, multiple pay grades, or workers near the NMW threshold, it’s worth more like a day – particularly the NMW audit.
How Double Point Can Help
Payroll is one of those areas where the work is straightforward when it’s done right and very expensive when it isn’t. With the SSP overhaul, the higher employer NI burden, and the new Fair Work Agency taking a more proactive line on enforcement, there’s less margin for error than there used to be.
At Double Point, our chartered accountants run payroll for businesses across the UK – from one-employee companies through to teams of fifty plus. We handle RTI submissions, statutory payments, auto-enrolment, year-end reporting and the new SSP rules so you don’t have to keep up with every change yourself. Book a free consultation and we’ll talk through what your payroll needs in 2026/27.