Employment Rights Act: Impacts for UK Payroll

Over the next 12–24 months, the UK employment landscape is undergoing some of its most significant changes in years due to the Employment Rights Act. . While much of the discussion understandably centres on employment law and HR processes, there is a less visible, but equally critical, impact on payroll operations.

From day‑one Statutory Sick Pay, to changes affecting zero‑hours workers and increased enforcement activity, payroll teams will be at the centre of making these reforms work in practice.

What’s changing and why Payroll matters

Several reforms under the Employment Rights Act will directly affect how employers calculate, process, and evidence pay:

• Statutory Sick Pay (SSP) becoming payable from day one of absence, with the removal of the Lower Earnings Limit
• Expanded family‑related leave entitlements, increasing complexity around statutory pay calculations
• New rights for zero‑hours and variable‑hours workers, relying on accurate tracking of working patterns
• Greater enforcement through the Fair Work Agency, placing payroll accuracy firmly under the spotlight

Even where employment policies are drafted elsewhere, payroll is where compliance is ultimately demonstrated.

Payroll is now a compliance‑critical function

Payroll can too often be viewed as a back‑office task. Something that “just runs” each month. That mindset is becoming increasingly risky.

As employment rights expand, payroll records are fast becoming the primary evidence used to assess whether an employer has met its obligations. Errors that were once inconvenient may now result in back‑payments, penalties, or regulatory scrutiny.

We see payroll having shifted from a transactional service to a core compliance function, particularly for businesses with:

• Variable or zero‑hours staff
• High employee turnover
• Regular statutory payment scenarios
• Limited in‑house payroll resource

Businesses that strengthen payroll processes now are far better placed to absorb change later.

Common Payroll pressure points

Following the Employment Rights Act rollout, we are already seeing recurring payroll‑specific issues, including:

• SSP being applied inconsistently due to outdated payroll settings
• Incomplete tracking of hours worked for casual or variable staff
• Manual payroll workarounds increasing the risk of error
• Uncertainty over whether payroll systems are configured for upcoming changes

These issues rarely surface until challenged and often during HMRC review or employee queries.

How we can help

Our role is to support employers on the payroll and PAYE compliance side, ensuring calculations, reporting, and records remain accurate and up to date.

Payroll systems will need to be updated to ensure SSP is calculated correctly, taking into account first-day entitlement and the removal of the Lower Earnings Limit. Employers may experience higher SSP costs and a wider pool of eligible workers. New processes may also be required to manage guaranteed hours obligations and compensation for cancelled or changed shifts, particularly around time tracking, payroll coding and maintaining clear audit trails. It will be equally important to accurately identify workers who move from zero-hours arrangements to guaranteed hours status.

We can assist with:

• Reviewing payroll setup ahead of legislative changes
• Ensuring SSP and statutory payments are applied correctly
• Supporting payroll processing for variable‑hours staff
• Ongoing payroll services to reduce compliance risk
• One‑off PAYE audits, including payroll and pension compliance

We can also work alongside your existing advisers where appropriate, focusing solely on payroll accuracy and reliability.

Speak to us about Payroll support

If you would like to review whether your payroll processes are ready for upcoming employment law changes, or simply want reassurance that everything is set up correctly, please contact James Alesbury, Payroll Director, to discuss further on 023 8046 1222 or email James Alesbury.

Early preparation can prevent costly issues later, and we are here to help ensure payroll is one less thing for you to worry about.