UK 2026 Payroll Update: NIC, National Living Wage, and Day 1 Rights

The UK's 2026 employment landscape has been reshaped by two parallel forces: the statutory rate and threshold updates that take effect each April, and the structural reforms introduced by the Employment Rights Act 2025. Together, they create one of the most consequential payroll compliance years for UK employers in recent memory. This guide brings together every material change — National Minimum Wage, National Insurance Contributions, Income Tax bands, and Day 1 Rights — in one complete reference.

1. Introduction: The "Plan to Make Work Pay"

The Employment Rights Act 2025 marks one of the most significant overhauls of UK labour protections in decades. Framed under the government's "Plan to Make Work Pay," the reform introduces a structural shift away from service-based qualifying periods and toward expanded Day 1 Rights. For Global HR Directors, UK Payroll Managers, and international companies with UK headcount, 2026 requires budget adjustments, payroll system reconfiguration, handbook revisions, and clear communication to managers — across wage rates, tax thresholds, and statutory leave entitlements simultaneously.

2. National Minimum and Living Wage: April 2026 Rates

The change

The National Living Wage (NLW) and National Minimum Wage (NMW) rates increased on 1 April 2026, following the Low Pay Commission's recommendations. All rates are published on the HMRC rates and thresholds for employers 2026–27 page.¹

What this means in practice

The NLW of £12.71/hour must apply from the first pay period after 1 April 2026 for all workers aged 21 and over. Employers who pay annual salaries that absorb all working time must verify that the effective hourly rate — across all hours worked, including any overtime or on-call time — does not fall below the new statutory floor. Non-compliance with the National Minimum Wage² carries penalties of up to 200% of the underpayment, public naming on HMRC's quarterly list, and personal liability for company directors.

3. National Insurance Contributions: New Rates and Thresholds 2026–27

Employer NIC — Class 1 secondary contributions

From 6 April 2026, the employer NIC rate increased from 13.8% to 15%, and the secondary threshold — the point at which employer NIC becomes payable — fell from £9,100/year to £5,000/year (£96/week, £417/month).¹ These two changes compound: employers pay a higher rate on a larger portion of salary. All thresholds are published on the HMRC employer rates and thresholds page.

Employee NIC — Class 1 primary contributions

Employee NIC rates and thresholds are unchanged in 2026–27. Employees pay 8% NIC on earnings between the primary threshold (£12,570/year, £242/week) and the upper earnings limit (£50,270/year, £967/week), and 2% on earnings above the UEL.¹

Employment Allowance

The Employment Allowance³ increased to £10,500 for 2026–27, up from £5,000 in 2025–26. The previous restriction excluding employers with a NIC bill above £100,000 has been removed, broadening eligibility. Eligible employers can use the allowance to reduce their annual employer NIC liability — confirm your eligibility and claim through your payroll software or HMRC's PAYE system.

4. Income Tax: Rates and Personal Allowance 2026–27

The change

Income tax rates and thresholds for the 2026–27 tax year (6 April 2026 to 5 April 2027) are unchanged from 2025–26.⁴ The personal allowance remains frozen at £12,570 — a position maintained since April 2021, scheduled to continue through at least April 2028. All current rates and thresholds are published on the GOV.UK Income Tax rates and Personal Allowances page.

5. Statutory Sick Pay: Day 1 Payability and New Calculation Model

The change

The Employment Rights Act 2025⁶ removes two longstanding SSP eligibility barriers from 6 April 2026. The current SSP rate and rules are published on the HMRC employer rates and thresholds page.¹

Removal of the 3 waiting days

Under previous rules, employees had to be sick for at least four consecutive qualifying days before SSP was payable — the first three ("waiting days") were unpaid. From April 2026, this structure is eliminated. SSP is payable from Day 1 of sickness absence.⁷

Removal of the Lower Earnings Limit and new calculation model

The requirement to earn at least £123/week to qualify for SSP is removed from April 2026 — extending eligibility to part-time workers, low-paid employees, and variable-hour staff. From 6 April 2026, SSP is calculated as the lower of 80% of average weekly earnings or the statutory flat rate of £123.25/week.⁷ This dual-calculation model increases payroll complexity and requires payroll systems to hold accurate average weekly earnings data for every employee.

6. Family Rights: Paternity and Parental Leave Day 1 Updates

Paternity leave: the leave vs. pay distinction

From April 2026, paternity leave⁸ becomes a Day 1 Right under the Employment Rights Act 2025. Employees can take leave from their first day of employment with no minimum service requirement. However, Statutory Paternity Pay (SPP) still requires 26 weeks of continuous service.⁹

Unpaid parental leave: now a Day 1 Right

Previously, employees needed one year of continuous service to qualify for unpaid parental leave.¹⁰ From April 2026, it becomes a Day 1 Right with no minimum service period, though notice requirements remain in place. Although unpaid, employers must manage scheduling, coverage, and operational planning — and can expect more frequent requests from newer employees as the service barrier has been removed.

Shared Parental Leave sequencing update

Under the updated framework, employees may now take paternity leave and/or receive SPP after a period of Shared Parental Leave or Shared Parental Pay.¹¹ This provides greater scheduling flexibility for families but adds tracking complexity for payroll teams monitoring leave sequencing and overlapping statutory payment entitlements.

7. Looking Ahead: Statutory Bereavement Leave (2027)

Beyond the April 2026 reforms, employers should prepare for the introduction of a broader statutory bereavement leave Day 1 Right, expected in 2027. While full regulations are still being finalised, the framework is expected to provide at least one week of unpaid leave for the loss of a close family member, explicit inclusion of pregnancy loss, and Day 1 eligibility from the first day of employment.

8. What This Means for Global Employers

Three simultaneous cost pressures

The 2026 changes create three distinct payroll cost pressures for UK employers in the same April cycle: the NLW increase (higher wage floor), the employer NIC rate and threshold changes (higher employer contribution on more salary), and SSP Day 1 payability (short absences now generate statutory cost). Finance teams should model all three against current UK headcount rather than addressing them separately.

Policy updates: redrafting for Day 1 Rights

Many existing UK employment handbooks reference service-based qualifying periods that are now outdated following April 2026. Under the Employment Rights Act 2025, policies must clearly distinguish between leave eligibility (Day 1 in many cases) and pay eligibility (which may still require a service period). Failure to update handbooks risks misleading employees, inconsistent manager decisions, and formal grievances.

Payroll systems: four updates required from April 2026

• —Apply NLW £12.71/hour for all eligible employees from 1 April 2026.¹
• —Update employer NIC to 15% with secondary threshold of £5,000/year (£96/week) from 6 April 2026.¹
• —Remove the 3-day SSP waiting rule and apply the new 80% vs £123.25/week dual calculation from 6 April 2026.⁷
• —Track 26-week service eligibility for SPP separately from the Day 1 paternity leave entitlement to avoid overpayment.⁹

9. Employer Action Checklist: 2026 UK Compliance