Why does payroll compliance matter more than ever?

Payroll used to be considered a basic admin task. In 2026, it has become far more important.

The ever-evolving world of compliance and shifting guidance from HMRC means the world of payroll is evolving rapidly.

With an estimated 445,000 UK employees paid below the legal minimum wage in 2025, the stakes for getting payroll right have never been higher.

Many payroll errors aren’t intentional, but a result of a technical issue.

The risk of technical errors means employers should have robust payroll systems in place to ensure workers are paid fairly and compliance is upheld.

Reporting of Benefits in Kind

The mandatory payrolling of Benefits in Kind (BIK) changes how compliance needs to be handled by employers.

P11D forms are being gradually phased out over the coming years, which means employers now need to process their BIK through monthly payroll.

This change shouldn’t be underestimated, as the gradual shift from P11D forms can impact multiple aspects of a business.

More data will need to be reported to break down each benefit passing through payroll, which requires robust systems for future BIK calculations.

To make things even more confusing, this change is staggered, so employers will need to payroll BIK while also completing P11D forms.

Automation proof payroll

While payroll software is becoming increasingly powerful, there still needs to be a competent professional operating them.

Software cannot interpret grey areas in legislation and internal company policies, understand nuances in contracts or answer employee queries about their pay.

As HMRC consistently changes guidance and regulation can’t be predicted, companies look to trained staff to make sure payroll remains in up to date.

Firms can’t sit back and let software steer their payroll – it needs to be actively managed to stay in line with regulation.

Changes to statutory sick pay

From April 2026, all employees qualify for Statutory Sick Pay (SSP), regardless of earnings or working schedules.

The first day of sickness entitles any employee to SSP, removing the previous three days wait.

While the maximum claim period remains 28 weeks, the weekly rate has increased to the lower of £123.25 or 80 per cent of average earnings.

These reforms aim to benefit part-time, seasonal and zero hours workers who previously might have felt the need to work when ill.

Strong payroll systems ensure accurate calculations and tax deductions that reflect SSP earnings.

Employers need to be aware of the impact of these changes, ensuring they pay from day one and don’t limit SSP to higher earners.

Protections against unfair dismissal

From January 2027, employees who have six months of continuous service will be immediately protected against unfair dismissal.

While employees currently need to work at a company for over two years to become protected, this change reduces the qualifying period significantly.

This means that unfair dismissals beyond the six-month threshold might be a basis for a compensation claim.

Where unfair dismissal compensation is currently the lower of £123,543 or 52 weeks’ pay, the monetary limit on tribunal compensation will be removed.

Payroll has become essential for avoiding these claims, as an incorrect start date of an employee might now result in an uncapped compensatory claim.

Changes to National Minimum Wage

The rising minimum wage floor might lead to accidental wage violations from employers.

These incremental changes might look small, but for employees earning the statutory minimum or just above, the risk of underpayment increases.

The regular changes mean payroll departments must stay alert and promptly update wages to avoid breaching the law.

As of April 2026, the National Living Wage (NLW) was raised from £12.21 to £12.71, along with increases to the hourly rates for 16-21 year olds and apprentices.

Let’s say a worker earned 20 pence per hour over the NLW but was charged fees for uniform and equipment. What might happen?

These deductions could, in some cases, push workers below the statutory minimum and result in a financial penalty from HMRC.

Getting payroll right: Speak to the professional payroll team at Prime Accountants

Speaking with an accountant can help your business stay payroll compliant.

We understand the rules are changing faster than it seems possible to keep track of, with many moving parts causing headaches for payroll departments.

Our accountants can help you wrap your head around regulation and make sure your employees are paid what they deserve, reducing the risk of compliance penalties.

Reach out to an accountant today and become proud of your payroll.