The 2026/27 tax year brings some of the most significant changes to UK payroll and HR legislation, heavily driven by the new Employment Rights Act 2025.
Minimum Wage (Effective 1 April 2026)
From 1 April 2026, businesses must implement the annual increases to the National Minimum Wage (NMW) and National Living Wage (NLW):
- Aged 21 and over (National Living Wage): Increasing from £12.21 to £12.71 (+50p / 4.1%);
- Aged 18 to 20: Increasing from £10.00 to £10.85 (+85p / 8.5%);
- Aged 16 to 17: Increasing from £7.55 to £8.00 (+45p / 6%);
- Apprentice Rate: Increasing from £7.55 to £8.00 (+45p / 6%).
Common NMW errors
Some of the most common mistakes that reduce pay below minimum wage are:-
- Birthdays: Missed birthdays as employees turn 18 or 21 and move from one NMW rate to another;
- Salary Sacrifice: A salary sacrifice (such as a Cycle to work scheme) cannot reduce an employees pay below minimum wage;
- Overtime: If employees work beyond their contracted hours but are only paid for their scheduled shifts, they may not be receiving the correct minimum wage. For example, a restaurant worker who stays late to clean up after closing must be paid for that additional time;
- Uniforms and Equipment: If an employer requires employees to purchase a uniform or essential work equipment, these costs should not reduce the employees pay below the minimum wage;
- Training: Employees must be paid for any time spent attending mandatory training or induction sessions, even if these take place outside of normal working hours;
- Self-employed: Employers incorrectly classifying their employees, and registering them as self-employed instead of employees.
Statutory Sick Pay (Effective 6 April 2026)
Major reforms to SSP also come into effect this week, expanding eligibility to more employees:
- Day-One Right: The three “waiting days” have been abolished. SSP is now payable from the very first day of sickness absence;
- Lower Earnings Limit Removed: The previous earnings threshold (£125/week) has been scrapped. All employees, including lower-paid and part-time staff, now qualify for SSP;
- New Rate: The standard SSP rate increases from £118.75 to £123.25 per week, or 80% of the employee’s average weekly earnings – whichever is lower.
The Fair Work Agency (Launched 7 April 2026)
A new single enforcement body has been established by the government to consolidate regulatory powers and oversee employer compliance across several critical areas, including:
- National Minimum Wage (NMW),
- Holiday Pay calculations and entitlements (a new legal duty requires employers to retain accurate records relating to annual leave for six years);
- Statutory Sick Pay (SSP).
New Service Charge Rules (Expected October 2026)
Following the Employment (Allocation of Tips) Act, which came into force in October 2024 and imposes a legal obligation on employers to distribute 100% of service charge (including tips and gratuities) to employees, the the Employment Rights Act 2025 goes a step further by mandating how policies are created:
- Mandatory Consultation: Employers can no longer unilaterally write a tipping policy. Under the proposed rules, employers will legally be required to formally consult with employees (or their trade union/representatives) before publishing or changing a service charge policy;
- Three-Year Review Cycle: service charge policies cannot be “set and forget”. They must be formally reviewed and re-consulted at least once every three years;
- Non-Compliance Penalties: If an employer fails to consult properly, employees can take them to an Employment Tribunal, which can award compensation of up to £5,000 per affected worker.
