Payroll Services in the United Kingdom

Employer secondary Class 1 National Insurance is 15% of earnings above the Secondary Threshold of £5,000 a year – £96 a week or £417 a month – for 2026/27. There is no upper limit. The rate and the threshold were both set by the National Insurance Contributions (Secondary Class 1 Contributions) Act 2025 with effect from 6 April 2025, which took the rate from 13.8% to 15% and cut the threshold from £9,100 to £5,000 in a single step. On the employee side the primary rate is 8% between the Primary Threshold of £12,570 and the Upper Earnings Limit of £50,270, then 2% above it. The Lower Earnings Limit rose to £129 a week – £6,708 a year – by S.I. 2026/231, and it is the only Class 1 limit that moved for 2026/27; the Primary Threshold and Upper Earnings Limit are frozen, along with the income tax thresholds, to 5 April 2031 following the three-year extension at Autumn Budget 2025.

The commercial consequence of the April 2025 change is not the headline rate – it is the threshold, and it fell hardest on low-paid and part-time employment. On a £15,000 salary, employer National Insurance went from £814 to £1,500, an increase of 84%. On £30,000 it rose 30%, and on £50,000 it rose 20%. That is a regressive shape, and it is the single most useful fact for an employer deciding where in its cost base to add headcount, or for a parent company comparing the United Kingdom with Ireland or the Netherlands for a customer-service or warehouse operation. Nobody publishes that comparison, and it is not intuitive from the rates alone.

The absence of a ceiling is the other structural point, and it cuts the other way. Employer National Insurance is 15% of the marginal pound at £30,000 and 15% of the marginal pound at £300,000, so the effective rate climbs steadily toward 15% and never falls back – 10% at £15,000, 12.5% at £30,000, 13.5% at £50,000, 14.25% at £100,000, 14.5% at £150,000. Most of Europe caps somewhere. The United Kingdom does not, which means senior hires cost proportionately more here than the headline rate comparison suggests, and junior hires cost proportionately less.

Three relief structures sit on top, and they are worth knowing because they are easy to miss in payroll configuration. Employees under 21, apprentices under 25 and Armed Forces veterans in their first year of civilian employment attract a 0% employer rate up to £967 a week – category letters M, H and V respectively – and the veterans relief was extended through 2027/28 by S.I. 2026/231. Freeport and Investment Zone employees attract 0% up to £481 a week. Class 1A on benefits in kind and Class 1B on PAYE Settlement Agreements both track the secondary rate, so both are 15% for 2026/27. And one that catches people out: Class 1A on termination awards above £30,000 is due in real time through the payroll on the date of payment and reported on the Full Payment Submission – not deferred to the P11D(b) in July.

Employment Allowance is £10,500 a year per employer, offset against secondary Class 1 National Insurance, and the £100,000 eligibility cap has been gone since April 2025 – section 3 of the National Insurance Contributions (Secondary Class 1 Contributions) Act 2025 removed the restriction, so an employer of any size may now claim. That is a genuine change in position and a lot of larger employers have not revisited it.

Two things about it are commonly misunderstood. It is not a year-end credit: it is applied against employer National Insurance as the liability arises, month by month, first come first served. At 15% above a £5,000 threshold, £10,500 covers about £70,000 of earnings above the threshold, so a mid-sized employer exhausts the entire allowance in month one or month two and then faces full liability for the remaining ten. A finance director who spreads £875 a month across the year gets an unpleasant variance in month three. And the claim is made on the Employer Payment Summary and does not roll forward automatically in every payroll product – some require a fresh claim each tax year and simply stop claiming on 6 April without saying so. The single-director exclusion is also still live: a company with one director cannot claim if that director is the only employee liable for secondary Class 1. Two directors both paid above £5,000 is fine; one director plus one employee paid below the threshold is not. With the size cap gone there is no longer anything to catch a wrong claim except HMRC compliance activity, which goes back four years.

Auto-enrolment is unchanged and frozen for 2026/27. The earnings trigger stays at £10,000, the qualifying earnings band at £6,240 to £50,270, and minimum contributions at 8% total of qualifying earnings with at least 3% from the employer – the Department for Work and Pensions confirmed on 18 December 2025 that it would maintain the existing threshold values. Note what has not happened: the Pensions (Extension of Automatic Enrolment) Act 2023 gives the Secretary of State power to lower the age threshold from 22 to 18 and to remove the lower limit of the qualifying earnings band so contributions run from the first pound, but no implementing regulations have been made and neither change is in force. Because contributions are charged on the band rather than on gross pay, the employer’s 3% is worth about 2.4% of a £50,000 salary and about 1.3% of a £100,000 one – a very different shape from Ireland’s first-pound calculation. Re-enrolment falls due every three years, within a six-month window around the anniversary, one date for all staff, and re-declaration of compliance is mandatory even if nobody needed re-enrolling.

The Apprenticeship Levy is 0.5% of the pay bill with a £15,000 annual allowance, so in practice only employers with a pay bill above £3 million pay it. It is calculated cumulatively month by month against £1,250 of allowance a month, which self-corrects across the year for a fluctuating pay bill, and it is reported on the Employer Payment Summary. The levy was reformed and rebranded as the Growth and Skills Levy from April 2026, but the reform is to what the funds may be spent on: for payroll purposes the 0.5%, the £15,000 allowance and the £3 million pay bill threshold are all unchanged, and nothing about the calculation or the EPS reporting moves. Connected companies must agree both the £15,000 levy allowance split and the single £10,500 Employment Allowance claim at the start of the tax year, and it is fixed for that year: a group that restructures in July cannot re-cut either until 6 April.

The Statutory Sick Pay reforms commenced on 6 April 2026 and they are structural, not a rate change. Sections 10 to 13 of the Employment Rights Act 2025, brought into force by S.I. 2026/373, removed the three waiting days and removed the Lower Earnings Limit qualifying condition. SSP is now payable from the first qualifying day of incapacity, to every eligible employee regardless of what they earn – around 1.3 million low-paid employees who previously received nothing now qualify. The flat weekly rate is £123.25, set by the Social Security Benefits Up-rating Order 2026, and the amount payable is the lower of that flat rate or 80% of the employee’s average weekly earnings. Government estimates the cost to employers at roughly £450 million a year, about £15 per employee.

The operational problem is the earnings-linked half. The crossover is £154.05 a week, because 80% of £154.05 is £123.24. Above roughly that figure the flat rate applies and SSP is the same for everyone; below it, SSP is a percentage and therefore different for every employee and every absence. Payroll now needs an average weekly earnings calculation for a population it historically never calculated one for – AWE was only ever computed to test eligibility against the Lower Earnings Limit. Any system that stored a boolean eligible or not eligible flag rather than a retained AWE figure will either fail or quietly default to the flat rate and overpay.

Then there is the transitional cohort, which is the part almost nothing covers. Regulation 4 of S.I. 2026/373 protects employees with average weekly earnings between £125 and £154.05 who were already receiving SSP before 6 April 2026: they keep the £123.25 flat rate rather than dropping to 80% of AWE, and that protection persists until they return to work or exhaust the 28 weeks. So through 2026/27 an employer can have two employees on identical earnings receiving different SSP, with the difference determined by a start date months in the past. Manual override flags on individual records are the only reliable way to hold it, and they are exactly what gets wiped by a mid-year software migration.

The asymmetry is the trap that costs real money. SSP no longer has a Lower Earnings Limit test, but Statutory Maternity, Paternity, Shared Parental, Adoption, Parental Bereavement and Neonatal Care Pay all still do – the Lower Earnings Limit is still £129 a week for family-leave purposes, alongside 26 weeks’ continuous service. A payroll team that removed the LEL check globally in April 2026 will have paid statutory maternity pay to employees who do not qualify, and SMP overpayments are not recoverable from HMRC. On recovery generally: small employers reclaim 100% of family-related statutory payments plus 9% NIC compensation, up from 8.5% for 2026/27, and everyone else reclaims 92%. Small Employers’ Relief is tested on total gross Class 1 National Insurance, employer plus employee, in the last complete tax year before the qualifying week, against a £45,000 threshold that has never moved – and because employer National Insurance jumped in April 2025, a wave of employers crossed £45,000 with no change in headcount and moved from 100% recovery plus compensation to 92%. SSP itself is not recoverable at all; the Percentage Threshold Scheme was abolished in 2014 and the 2026 reforms did not reinstate anything.

The Employment Rights Act 2025 received Royal Assent in December 2025 and is being commenced in tranches through to 2027. Getting the unfair dismissal position right matters more than anything else on this page, because the widely repeated version is wrong. From 1 January 2027 the qualifying period for ordinary unfair dismissal falls from two years to six months, and the cap on the compensatory award – currently £123,543 or 52 weeks’ pay, whichever is lower – is abolished entirely on the same date. The qualifying period for written reasons for dismissal also drops to six months, and it is removed altogether for dismissals related to spent convictions. Commentary from the Bill stage described a day-one right to claim unfair dismissal with a statutory probationary period and a light-touch dismissal process. None of that was enacted. Government guidance is explicit that the Act does not change existing day-one protections, which is a different statement: dismissals for automatically unfair reasons – whistleblowing, trade union activity, asserting a statutory right, pregnancy – were and remain day-one rights. The commencing instrument is S.I. 2026/559, and the transitional rule keys off the effective date of termination, so a dismissal effective on 31 December 2026 is on the old two-year test. Great Britain only; Northern Ireland is excluded because unfair dismissal is devolved there.

What is already in force is substantial. On 6 April 2026: the SSP reforms; day-one paternity leave and day-one unpaid parental leave, though the 26-week service condition for statutory paternity pay is unchanged, so an employee with two weeks’ service can take the leave unpaid; bereaved partner’s paternity leave of up to 52 weeks; the collective redundancy protective award doubled from 90 to 180 days’ pay; strengthened whistleblowing protection for reports of sexual harassment; and the six-year holiday record duty under section 35. The Fair Work Agency was established on 7 April 2026, absorbing HMRC’s National Minimum Wage enforcement team, the Employment Agency Standards Inspectorate and the Gangmasters and Labour Abuse Authority, with power to investigate and issue civil penalties. On 1 October 2026 the employment tribunal claim time limit extended from three months to six across Great Britain, with breach of contract claims in Scotland following on 9 November 2026. And on 30 October 2026 employers acquired a duty to take all reasonable steps to prevent sexual harassment and a duty to prevent third-party harassment.

What is still coming, and the dates as published. 1 January 2027: the unfair dismissal change, the abolition of the compensatory award cap, and fire and rehire protections making dismissal for refusing a contractual variation automatically unfair. Spring 2027: mandatory gender equality and menopause action plans for employers with 250 or more employees, voluntary since April 2026. 2027, not before April: Fair Work Agency enforcement of statutory holiday pay – the first time holiday pay has been state-enforced. Also 2027: bereavement leave including pregnancy loss, flexible working reform, collective redundancy threshold changes, regulations voiding non-disclosure agreements so far as they prevent disclosure of harassment or discrimination, and employment-rights regulation of umbrella companies. The guaranteed hours package – a right to guaranteed hours reflecting hours actually worked, reasonable notice of shifts, and payment for shifts cancelled or curtailed at short notice – is placed in 2027 but expressly marked timing pending consultation; the consultation on the reference period closed on 25 August 2026 and the reference period is still undecided. There is no commencement date, and any page that gives one is guessing.

On holiday and working time the mechanics are stable but the enforcement is not. Statutory entitlement is 5.6 weeks, capped at 28 days, split into four weeks that must be paid at normal remuneration – including regularly paid overtime and task-linked commission – and 1.6 weeks that may be paid at basic pay. Variable-hours pay uses a 52-week reference period. Rolled-up holiday pay at 12.07% is available for irregular-hours and part-year workers only, and it must be a separately itemised payslip line: folded into gross pay it neither discharges the Working Time Regulations duty nor creates a record adequate to show it was met. Used for salaried staff it is simply unlawful. Combine that with the new six-year record duty, the criminal offence under regulation 29 and Fair Work Agency enforcement from 2027, and holiday pay stops being a private tribunal risk and becomes a state-enforced compliance obligation with a criminal backstop.

Real Time Information has two submissions and no return. A Full Payment Submission goes to HMRC on or before the contractual payment date for every payment of earnings, carrying pay, tax, National Insurance, student loans, statutory payments, starters, leavers and payroll IDs. An Employer Payment Summary reports what reduces the amount due – statutory payment recovery and NIC compensation, the Employment Allowance claim, Apprenticeship Levy, CIS deductions suffered – and is due by the 19th of the following tax month. An EPS is required even for a month with no payments, or HMRC raises a specified charge on estimated figures. Payment of PAYE and National Insurance is due by the 22nd electronically or the 19th by post. There is no P32 return: the P32 survives only as a software-generated reconciliation report, and it should be reconciled against the PAYE liabilities and payments screen in the Business Tax Account every month, because that is where a duplicate submission or a lost Employment Allowance claim shows up. Late filing penalties run from £100 to £400 a month by scheme size, with the first failure in a year unpenalised and a three-day easement; late payment penalties escalate from 1% to 4% by number of defaults, with a further 5% at six months and again at twelve.

Benefits in kind are where the most widely repeated error currently sits. Mandatory payrolling was announced for April 2026 and deferred to April 2027, and it is now phased: cars, car fuel, vans, van fuel and employer-provided medical benefits from 6 April 2027; most other benefits from 6 April 2028; employment-related loans and living accommodation remaining voluntary permanently. For 2026/27 payrolling is still voluntary, the registration window for the year closed on 5 April 2026, and an employer who did not register must file P11Ds and a P11D(b) by 6 July 2027 with Class 1A payable by 22 July. Registration for voluntary payrolling in 2027/28 opened in November 2026. Any guide telling you payrolling is mandatory now is a year out of date.

Off-payroll working is unchanged for April 2026. Where a worker provides services through an intermediary to a medium or large private-sector client or any public authority, the client determines status and issues a Status Determination Statement, and the deemed employer operates PAYE on the fee and pays employer National Insurance and Apprenticeship Levy on top. Two points cause most of the errors. Deemed employers do not deduct student loan or postgraduate loan repayments – the individual settles those through Self Assessment – and this is a very common payroll mistake. And the small client exemption uses the Companies Act definition, whose thresholds were uprated for financial years beginning on or after 6 April 2025, which expands the pool of clients counting as small and shifts the IR35 burden back to contractors for more engagements, flowing through with the usual lag from the two-consecutive-years test. CEST was last amended on 30 April 2025, returns an inconclusive result in a material proportion of cases and does not test mutuality of obligation, so a CEST print-out on its own is a weak defence.

The umbrella company change did commence, on 6 April 2026, and it is a tax measure rather than an employment-rights one. Where a worker is supplied through an umbrella company, responsibility for ensuring PAYE is operated correctly moved from the umbrella to the recruitment agency – specifically the agency holding the contract with the end client, the one highest in the chain – or, where there is no agency, to the end client. HMRC can recover any underpayment from them. The umbrella remains the employer and must still operate PAYE, and must supply the agency or client with the information needed to check it. It applies to all new and existing supply chains for payments made on or after 6 April 2026, and it does not apply where the off-payroll working, managed service company or salaried member rules already do. A separate employment-rights measure bringing umbrellas within the definition of an employment business is scheduled for 2027; the two should not be conflated. Finally, on termination payments: the £30,000 exemption covers statutory redundancy pay and genuine ex-gratia severance, but unpaid wages, accrued holiday, bonuses, restrictive covenant payments and payment in lieu of notice are always fully taxable and Class 1 NICable, and Post-Employment Notice Pay is calculated by formula and treated as earnings with no access to the exemption. Employer Class 1A at 15% is due on the excess above £30,000, in real time, on the FPS.