The Employment Rights Act is set to significantly change the way that employees are treated in the workplace.
While a lot of the changes are focused on the legality of contracts and workplace culture, some will undoubtedly impact the way that payroll is managed.
As some of these changes are set to take place in April 2026, it is worth businesses understanding what is coming and how to stay compliant.
The two biggest changes centre on revisions to Statutory Sick Pay (SSP) and the gender pay gap.
How is SSP changing?
Currently, SSP is awarded after a three-day waiting period and only to employees who earn above the Lower Earnings Limit (LEL).
This typically allows employers plenty of time to adjust necessary payroll records when it is appropriate to do so.
However, in April, both the waiting period and the LEL will be scrapped.
The new SSP will be awarded from the first day of sickness and nearly every employee will be eligible for it.
This will include previously overlooked employees, like those who work part-time or earn a lower wage.
The way in which SSP is calculated is also getting an update.
SSP will be paid at the lower of either:
- 80 per cent of the employee’s average weekly earnings
- The prevailing SSP flat rate set by the government
The 2026 calculations of SSP are designed to better reflect the earnings of an employee while still maintaining the statutory minimum.
What are businesses expected to do about the gender pay gap?
From 2027, it will be mandatory to have a plan in place to tackle the gender pay gap.
The official window for creating a voluntary plan is April 2026, so it may be worth businesses considering what action they should be taking.
Importantly, business owners may reflexively recoil at the mention of the gender pay gap, believing their business is free from it already.
This is likely predicated on the colloquial understanding of the term, which is that men will earn more money for the same job when compared to equally skilled and qualified women counterparts.
However, according to the Office for National Statistics, the UK Government define the gender pay gap as “the difference between median hourly earnings (excluding overtime) of men and women, as a proportion of men's median hourly earnings (excluding overtime).”
The latest data centres on April 2025, where it was determined that the “median hourly earnings (excluding overtime) were £20.27 for men and £18.87 for women. The resulting gender pay gap for employees was 6.9 per cent.”
As the Government’s definition is more challenging, it will be necessary to conduct a thorough review of payroll records to assess the scale of the issue.
The gender pay gap is generally wider for older employees and tends to grow over time.
This is likely due to the subtle effects of maternity leave, wherein even if direct discrimination does not occur, a person’s absence from the office may result in them being overlooked for promotion or pay rises.
The best way to determine whether this is happening in your workplace is to review your payroll records over the years and note how and when pay rises occurred.
It is best to get started on this sooner rather than later, as these issues can be deeply rooted and may need time to properly address.
What impact is the Employment Rights Act set to have on payroll?
It is apparent that the impact on payroll is two-fold.
One is the addition of new compliance and administrative tasks that mean businesses need a more dynamic approach to payroll.
The other impact is the way in which payroll records will become a vital tool for showing legal compliance.
In both cases, it is best to seek the support of experts who can help you to assess your current payroll practices and ensure you meet the new standards.
If it is necessary to reconsider payment strategies, we can help you to understand the effect this will have on your wider finances so that any additional costs can be effectively managed.
Tackling the Employment Rights Act head-on is a good way to signal to employees that you value the role they play in making your business a success.
