Statutory sick pay reform in 2026: Payroll Compliance for Employers

Are your payroll processes compliant with the new statutory sick pay rules from 6 April 2026?

The statutory sick pay changes and wider SSP reforms coming into force from 6 April 2026, are set to bring significant payroll compliance implications for employers, payroll teams and HR professionals across the UK. As employment legislation continues to evolve, businesses will need to ensure their payroll processes, sickness procedures and workforce policies remain aligned with the new requirements.

For many employers, SSP reforms will extend beyond routine payroll administration. The changes are likely to affect statutory sick pay processing, sickness absence management, payroll compliance and employer cost planning. Businesses that prepare early will be in a stronger position to reduce operational disruption, maintain payroll accuracy and support employees effectively.

At Rayner Essex, our payroll specialists continue to monitor developments surrounding statutory sick pay reform. We work with employers to and keep you up to date to ensure payroll processes remain compliant.

What are the statutory sick pay changes coming into force in 2026?

The statutory sick pay reforms linked to the Employment Rights Bill will significantly change how employers process SSP through payroll from 6 April 2026.

The changes are designed to widen SSP eligibility and increase support for employees with lower or variable earnings. However, they are also likely to increase payroll administration requirements and employer compliance responsibilities.

Removal of waiting days

Historically, employees were required to be absent from work due to sickness for four or more consecutive days before statutory sick pay became payable. The first three days of absence were treated as waiting days where no SSP was due. SSP payments would commence from the fourth qualifying day.

From 6 April 2026, SSP will become payable from the first day of sickness absence as the new rules take effect. This means employees may become entitled to SSP for single-day absences. This will potentially increase both absence processing and employment costs for employers.

For payroll teams, this is likely to create additional payroll administration, particularly for businesses with larger workforces, shift workers or higher levels of short-term absence.

Removal of the Lower Earnings Limit

Under the current rules, employees were required to earn at or above the Lower Earnings Limit to qualify for statutory sick pay.

From 6 April 2026, the Lower Earnings Limit will be removed as part of the SSP qualifying criteria. This means employees who were previously ineligible for SSP due to lower earnings may become entitled to statutory sick pay during periods of sickness absence.

This change will have a significant impact on employers with part-time workers, casual workers and employees with variable income patterns.

SSP payable rates and payroll calculation changes

The reforms will also introduce changes to how statutory sick pay is calculated through payroll. Statutory sick pay will be payable at the lower of:

– 80% of an employee’s average weekly earnings
– flat weekly SSP rate of £123.25

The proposed approach is intended to create a fairer system for employees with lower or variable incomes, while maintaining a consistent statutory framework for employers.

For example, if an employee’s average weekly earnings are £100, SSP would be paid at £80 per week because 80% of their earnings falls below the flat rate of SSP.

If another employee earns £250 per week, 80% of their average weekly earnings would equal £200. However, because this exceeds the flat rate of SSP, it would instead be capped at £123.25 per week.

Payroll systems and payroll processes will need to be reviewed, revised and updated to ensure absences are captured and SSP is processed and paid at the correct rate according to the new rules.

Illustrations of how the SSP changes could affect employers

The following examples demonstrate how the proposed statutory sick pay reforms coming into force from 6 April 2026 could affect SSP eligibility, payroll processing and employer costs across different absence scenarios.

Scenario A: Removal of waiting days

An employee has average weekly earnings of £220 per week and works Monday to Friday.

Scenario B: Removal of the Lower Earnings Limit and based on 80% AWE

An employee has average weekly earnings of £100 per week and works Monday to Friday.

Scenario C: Removal of waiting days

An employee has average weekly earnings of £575 per week and works Monday to Thursday.

Transitional arrangements will also apply where sickness absence spans the rule change period or where employees have linked periods of sickness absence. These provisions are designed to help prevent employees being adversely affected financially during the transition to the new SSP framework.

Implications for employers

The statutory sick pay reforms will have a direct impact on employer costs, payroll administration and internal absence management processes. Government estimates suggest the changes could increase employer SSP costs by around £450 million per year across UK businesses.

However, beyond the financial impact, many employers are likely to face practical operational challenges as payroll systems and internal procedures adapt to the new rules.

Key considerations for employers may include:

– updating payroll systems to reflect day one SSP entitlement and revised earnings-linked calculations
– reviewing sickness absence procedures to ensure policies reflect the new rules
– increasing guidance and awareness for managers responsible for sickness reporting
– maintaining accurate sickness absence records from day one of absence
– reviewing payroll controls to ensure SSP is processed correctly
– assessing the wider impact on payroll administration and workforce costs

Businesses with larger workforces, shift workers or more complex payroll arrangements may experience additional payroll processing demands as the reforms take effect.

Many employers may also need to review employment contracts, staff handbooks and sickness absence policies where SSP entitlements are referenced to ensure documentation remains accurate.

How the statutory sick pay changes could affect employers

Around 1.3 million lower-paid employees currently receive no statutory sick pay when they are unable to work due to illness. Many more employees also lose income during short-term absences because of the current SSP three waiting days requirement.

The reforms will widen SSP eligibility significantly, particularly for part-time workers, lower-paid employees and workers with variable income patterns.

The removal of waiting days means employees may no longer face the same financial impact from short-term sickness absence, helping reduce pressure to attend work while unwell.

As SSP becomes more closely linked to employee earnings rather than solely a flat amount, the reforms may also provide workers with a clearer and more predictable understanding of the pay they could receive during sickness absence periods.

Payroll compliance and operational readiness

Payroll compliance remains a critical area of employer responsibility, particularly as HMRC scrutiny around payroll accuracy and employee entitlements continues to increase.

The SSP changes will require many businesses to revisit payroll controls, internal payroll processes and compliance procedures. Employers should also consider how statutory sick pay interacts with wider employment obligations, including contractual sick pay arrangements, holiday accrual and employee record keeping.

Businesses that fail to prepare adequately could expose themselves to payroll errors, employee disputes or wider compliance risks.

The growing importance of payroll governance

As payroll legislation becomes increasingly complex, businesses are placing greater emphasis on payroll governance, compliance assurance and risk management.

Accurate statutory sick pay processing forms part of a broader employer compliance framework that also includes PAYE reporting, benefits in kind, pensions and employer tax obligations.

A proactive payroll strategy can help businesses strengthen compliance, improve operational efficiency and reduce the likelihood of HMRC enquiries or payroll disputes.

Employers may also benefit from reviewing our wider Employer Tax Services and recent guidance on whether employee benefits are taxable as payroll compliance obligations continue to evolve.  Our tax specialists work closely with employers across a wide range of sectors to strengthen payroll compliance and provide practical guidance tailored to employer needs.

How Rayner Essex can support employers

At Rayner Essex Payroll Services, we support employers with compliant payroll processing, payroll reporting and practical payroll advisory services tailored to changing legislation and workforce requirements.

Whether you require outsourced payroll support, payroll compliance advice or guidance on wider employer obligations, our team can help you navigate the changing payroll landscape effectively.

To explore the full range of support available across payroll, employer tax and business advisory services, visit our Payroll Services, Employer Tax Services and Business Services pages.

If you have any questions or would like to better understand how the statutory sick pay reforms could affect your business, payroll processes or workforce costs, please speak to your usual payroll contact at Rayner Essex.