Will smaller employers be caught out by new payroll record requirements?
As of 6 April 2026, a new approach to payroll record-keeping has been imposed on UK businesses.
Worryingly, many were unaware of the change and some may be risking compliance issues if they are not swift in adopting the new approach.
To ensure that you do not face legal action, now is the time to understand the new rules and how they affect your business.
What has changed with payroll records?
Section 35 of the Employment Rights Act imposes new requirements for employers to keep records on pay and annual leave safer and more secure for longer than they were previously.
For all employees in your business, you should maintain records of:
- Annual leave entitlement, including statutory and any contractual enhancement
- Leave taken, including dates and duration
- Pay received for that leave
- Any carry-over or adjustments made during the leave year
The real challenge comes with part-year workers and those who work irregular hours.
Keeping detailed records with the exact dates and calculations will be vital for staying compliant, as the way that leave and pay are determined may be called into question.
How long should payroll records be kept?
While it is tempting to clear out old files from time to time, your payroll records will be skipping a fair few spring cleans.
Most payroll records will now need to be kept for at least six years.
PAYE, sickness and maternity leave records have a shorter obligation as they only need to be kept for three years, while right to work checks are only mandatory to keep for two years.
Even if the time has elapsed on some of the records you keep, it is still worth thinking twice before disposing of them.
Digital systems are more effective at archiving records than their physical predecessors, so having a robust archival system instead of hitting the delete button could save you a headache in the future.
What happens if I accidentally delete payroll records?
There are times when things go wrong and files get lost or deleted.
When this happens with payroll records, you will need to alert HMRC immediately to the situation.
While HMRC decides how to proceed, you should endeavour to recover as much information as possible using whatever records still exist.
It is now a criminal offence to not keep adequate payroll records and employers can face unlimited fines for breaching their duties.
Even if your records were stolen, the responsibility still falls to you, as adequate security should have been in place and provisions made to avoid the loss of data.
Being up front with HMRC about any issues and working to rectify them as best as you can may make them take a more lenient approach to your case, even if they do not fully let you off the hook.
The changes to payroll records are to be overseen by the Fair Work Agency (FWA), which was established on 7 April 2026 and will be responsible for keeping businesses in line.
The full enforcement timeline hasn’t been announced yet, so there may still be time to straighten everything out.
We can help you with your payroll so that you can relax in the knowledge that your records are well looked after.
There are many issues that can arise with payroll, so trusting our expert team can let you focus on running your business.
Dropping the ball here can lead to unhappy employees and an angry HMRC.
Smaller employers can particularly struggle with payroll, as their time is often already stretched thin between multiple tasks.
We are fully across all the changes to payroll, allowing you to stay fully compliant.
