Payroll compliance is one of those things that feels straightforward until it isn’t. The rules are detailed, they change regularly, and the cost of getting them wrong—financially and reputationally—adds up fast. For UK employers in 2026/27, there’s also a meaningful set of changes to work through, which makes this a particularly important year to have your processes in good shape.
This guide covers the key areas you need to stay on top of, from employee data and statutory payments to reporting obligations and data protection.
Keeping accurate employee data
Accurate employee records aren’t just good admin—they’re a legal requirement, and the foundation on which everything else in payroll sits. Personal details change: people move house, change their name, update their bank account. Keeping records current has to be an ongoing process, not something you look at once a year.
Beyond the basics, there’s a wider set of information you need to maintain for every person on your payroll. Each employee needs a recorded employment status and payroll ID. For anyone who isn’t a UK or Irish citizen, you’ll need to verify their right to work; Irish citizens can use their passport, while others need a government-issued share code, which can be confirmed at www.gov.uk.
You’ll also need to know which student loan plan each employee is on. There are five, all with different thresholds and deduction rates attached to each. For new starters, collect a P45 from their previous employer and run through the HMRC starter checklist, keeping the completed version for three tax years. For anyone leaving, confirm their final pay and issue a P45 without delay.
These rates were confirmed by the government following recommendations from the Low Pay Commission (LPC), the independent body that advises on minimum wage levels, and accepted in full by Chancellor Rachel Reeves as part of the Autumn Budget 2025.
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Pay and statutory payments
Getting pay right means understanding more than someone’s salary. Contract terms, overtime, holiday entitlement, and a range of statutory payments all need to be factored in—and several of the rates involved change on 6 April each year.
National Living Wage and National Minimum Wage
National Minimum Wage and National Living Wage rates are non-negotiable minimums, reviewed annually. Paying below the correct rate is one of the most visible compliance failures an employer can make. HMRC publishes a list of employers who get it wrong, and the reputational impact is significant in addition to any financial penalty.
Holiday pay
Holiday pay is a statutory entitlement, but the calculation isn’t always straightforward. For employees on fixed hours and a consistent salary, it’s simple: they receive their normal pay while on leave. But it gets more complex for workers on variable hours or shift patterns, or those who regularly earn commission, overtime, or other variable elements. For these employees, holiday pay must reflect their actual normal remuneration rather than just the base rate.
For workers in this category, holiday entitlement is calculated at 12.07% of hours worked in a given pay period, and employers can pay this on an accrual basis, (known as rolled-up holiday pay) provided it’s shown separately on the payslip and isn’t being used to avoid other statutory obligations. Across all workers, the statutory minimum is 5.6 weeks of paid leave per year. Getting the calculation wrong can lead to unlawful deduction of wages claims, so it’s worth reviewing how your payroll system handles this, particularly for anyone not on a standard contract.
Statutory Sick Pay (SSP)
The rules around SSP changed on 6 April 2026. It’s now payable from the very first day of sickness absence for all employees, regardless of what they earn. The rate is whichever is lower: £123.25 per week or 80% of average weekly earnings, payable for up to 28 weeks.
Statutory Maternity Pay (SMP)
Statutory Maternity Pay (SMP) is payable for up to 39 weeks. The first six weeks are paid at 90% of average weekly earnings, with the remaining 33 weeks at the lower of the standard weekly rate (£194.32 per week in 2026/27) or 90% of average weekly earnings. Employers can reclaim 92% of SMP from HMRC (or 103% if you qualify for Small Employers’ Relief).
Statutory Paternity, Adoption, and Parental Payments
Beyond maternity pay, there are several further statutory parental pay entitlements to manage:
- Statutory Paternity Pay (SPP) covers up to two weeks at the standard weekly rate of £194.32, subject to eligibility.
- Statutory Adoption Pay (SAP) mirrors SMP in structure: 90% of average weekly earnings for the first six weeks, then the standard rate of £194.32 per week for up to 33 weeks.
- Shared Parental Pay (ShPP) allows eligible parents to split up to 50 weeks of leave and up to 37 weeks of pay between them at £194.32 per week, with the employer responsible for verifying eligibility and handling the administration correctly.
- Statutory Parental Bereavement Pay (SPBP) provides two weeks at the standard rate of £194.32 per week for employees who lose a child under 18 or experience a stillbirth after 24 weeks of pregnancy.
Employee deductions
As well as paying your people, you’re responsible for calculating and passing on income tax, National Insurance (NI), student loan repayments, pension contributions, and any other applicable deductions. Each of these comes with its own rules.
For tax and NI, you need to be working from the correct bands, allowances, thresholds, and category letters for the current tax year. Salary sacrifice schemes need monitoring to make sure no one’s take-home falls below the National Minimum Wage. Pension contributions need to comply with both the employee’s agreement and auto-enrolment requirements. A good payroll system will handle most of this automatically, so if yours isn’t, it’s something to address!
IR35 and off-payroll working
If your organisation engages contractors or freelancers, it’s worth being clear on how IR35 applies. The off-payroll working rules are designed to make sure that people working in a way that resembles employment—but operating through a limited company—pay broadly the same tax as employees on the payroll.
For medium and large private sector organisations, the responsibility for assessing each contractor’s IR35 status sits with the employer. You’ll need to issue a Status Determination Statement (SDS) for each engagement. If a contractor is assessed as inside IR35, income tax and NI must be deducted before payment is made. Getting this wrong can result in significant back payments and penalties. HMRC’s Check Employment Status for Tax (CEST) tool is a reasonable starting point for assessments, though anything complicated is worth running past a specialist.
Payroll documents
Every employee is entitled to a payslip on or before payday. It must show gross pay, net pay, and a clear breakdown of every deduction applied. For hourly workers, the number of hours worked should also be included. Payslips can go out on paper or electronically, but they must go out on time without exception.
When an employee leaves, issue their P45 as soon as possible. It shows the tax they’ve paid in the current year along with their NI number and address, and their next employer will need it to get their payroll set up correctly.
Workplace pensions
Under auto-enrolment, every eligible employee must be enrolled into a qualifying workplace pension automatically. Eligibility applies to anyone aged between 22 and State Pension age earning above £10,000 per year. The minimum total contribution is 8% of qualifying earnings, split between at least 3% from the employer and 5% from the employee.
Qualifying earnings are calculated on the portion of salary falling between £6,240 and £50,270 per year, not on total pay. There are pending proposals to lower the enrolment age from 22 to 18 and remove the lower earnings limit, though these haven’t come into effect yet.
Reporting to HMRC
Every time you pay employees, you need to send a Full Payment Submission (FPS) to HMRC via your payroll software. If you haven’t paid anyone in a tax month, send an Employer Payment Summary (EPS) instead. You can also use the EPS to reclaim statutory payments, claim Employment Allowance, or report the Apprenticeship Levy. Make sure your payroll software is updated with the latest real-time information requirements for 2026/27 to stay compliant.
Organisations with 250 or more employees also need to report gender pay gap data annually. For a fixed snapshot date each year (31 March for public bodies, 5 April for everyone else), you’ll need to calculate and publish:
- The percentage of men and women in each hourly pay quarter
- Mean and median gender pay gaps for hourly pay and bonus pay
- The percentage of men and women receiving bonus pay
Record-keeping standards
Good record-keeping isn’t just tidy admin; it’s a legal requirement. HMRC can inspect your payroll records at any time, and if you can’t produce them, you can receive a costly fine.
To make things easier, we’ve broke down what records you need to keep and for how long.
| Record Type | Minimum Retention | Notes |
|---|---|---|
| Payroll records (pay, deductions, NI, tax) | 3 years after tax year end | Paper or digital—must be accessible for HMRC inspection |
| PAYE records (P45s, P60s, starter checklists) | 3 years after tax year end | Must be available on request |
| Pension contribution records | 6 years | Requirement under auto-enrolment regulations |
| Right to work documents | 2 years after employment ends | Original or certified copies |
| Expense and benefit records (P11D data) | 3 years after tax year end | Process will change post-April 2027 mandatory payrolling shift |
| Attachment of earnings orders | Duration of order + 3 years | Keep the original court order and all related correspondence |
UK GDPR and data protection
Payroll data is some of the most sensitive personal information an employer holds, and UK GDPR sets out clear rules about how it must be handled. This covers:
- Being informed that you’re collecting and processing their data,
- What the purpose is,
- How long you’ll keep their data,
- Who you might share it with.
This information should be provided at the point data is gathered.
Beyond that initial transparency, your people have ongoing rights. They can submit a Subject Access Request (SAR) to access any personal data you hold on to them and can ask for inaccurate information to be corrected. They can also request that you restrict how their data is used, and in some circumstances ask for it to be deleted altogether.
On the employer side, your obligations include processing data lawfully and with a clear purpose, collecting only what’s genuinely necessary, keeping it secure through appropriate technical and organisational measures, and having a clear plan for handling a data breach—including notifying both affected employees and the Information Commissioner’s Office (ICO) within the required timeframes.
The penalties for getting this wrong are substantial. GDPR fines can reach £17 million or 4% of annual global turnover, whichever is higher. The reputational damage to employee trust tends to be equally costly, too.
Get payroll compliance right every time with Cintra
Getting payroll compliance right isn’t about ticking boxes once a year. It’s about building consistent, reliable processes that hold up as your organisation grows and as rules change.
As the 2026 to 2027 tax year brings updates to statutory pay, record keeping, and upcoming changes like mandatory payrolling of benefits, the margin for error is getting smaller. Most compliance issues come from outdated systems, manual workarounds, and gaps between HR, payroll, and finance.
The good news is that payroll compliance doesn’t have to feel reactive or uncertain. With the right setup, it becomes part of your routine—something that runs consistently in the background, giving you confidence your people are paid correctly and your obligations are covered. And with Cintra, this is our bare minimum.
Payroll Legislation Guide
The facts, figures, thresholds and allowances for 2026/27 spanning tax, National Insurance, pensions, statutory payments and more.
