UK payroll in 2026 will be shaped by higher employer costs, steady but constrained pay awards, and rapidly advancing payroll technology. Employers will need to balance tighter budgets with expectations for real‑time, accurate pay and stronger compliance, making robust systems and expert support more important than ever.
UK payroll in 2026 will be shaped by rising employer costs, tighter labour market dynamics, and rapidly maturing payroll technology. For Riddingtons’ clients, this is not a year for “business as usual” – it is a year to tighten processes, upgrade systems, and lean on specialist support to stay compliant and competitive.
From the 2025–26 tax year onwards, employers are dealing with higher National Insurance costs and lower thresholds, which together increase the overall payroll bill. The employer Class 1 NIC rate is moving higher, and the point at which employers start paying NICs on employee earnings has been reduced, which means more of each salary attracts contributions.
Although the Employment Allowance has been increased and restrictions on which businesses can claim have been relaxed, this relief will not fully offset the cost increases for many organisations. At the same time, statutory payments such as sick pay, maternity, paternity and shared parental pay are all edging up, which adds further pressure to payroll budgets over the course of the year.
By 2026, AI and automation will be embedded in day‑to‑day payroll operations rather than treated as experimental add‑ons. Tools that automatically flag anomalies, missing data, unexpected deductions or out‑of‑pattern overtime will help payroll teams catch issues before the run is finalised, reducing the risk of underpayments, overpayments and costly re‑runs.
AI is also increasingly used to interpret new tax and employment regulations and help update payroll rules and calculations. For Riddingtons’ clients, the winning formula is likely to be a blend of smart automation for high‑volume checks and experienced humans for complex judgement calls, disputes and nuanced compliance decisions.
Real‑time payroll processing and on‑demand pay are expected to gain traction in 2026, particularly in sectors with variable hours and high turnover such as retail, hospitality, social care and logistics. Real‑time capabilities allow employers to reflect overtime, bonuses, tax code changes and adjustments more quickly and accurately, increasing trust in the payslip.
On‑demand or earned‑wage access models – where employees can draw down part of their already‑earned pay before the official payday – are likely to feature more in conversations around retention and financial wellbeing. This creates new demands on payroll and finance: tighter controls, more robust reconciliations, and a greater need for integrated systems and expert oversight.
Cloud‑based payroll platforms are fast becoming the default choice, with 2026 buyers expecting secure, accessible systems that integrate cleanly with HR, time and attendance, and accounting tools. Businesses increasingly want a single source of truth for employee data that reduces rekeying, manual imports and spreadsheet workarounds.
For growing SMEs and multi‑site employers, integration is now a strategic requirement rather than a “nice to have”. A joined‑up stack improves accuracy, speeds up reporting and management information, and frees internal teams to focus on workforce planning, analytics and employee experience instead of transactional admin.
The employment law pipeline into 2026 points towards a heavier compliance agenda for HR and payroll. Measures connected to fire‑and‑rehire practices, protections for “two‑tier” workforces in public procurement, and reforms around fair distribution of tips are either in force or in view. Employers also face evolving duties to prevent workplace harassment and to evidence fair, transparent treatment of their people.
Looking ahead, there is continued discussion around tighter oversight of umbrella companies and further strengthening of flexible working rights. Organisations that rely on contractors, agency workers or complex hybrid and flexible arrangements will need clear governance around pay calculations, holiday pay, and status, with payroll playing a central role in evidencing compliance.
Pay budgets for 2026 are expected to remain positive but more constrained than in the high‑inflation years immediately following the pandemic. Many surveys point to typical pay awards clustering around the 3% range, with more awards drifting into the 2–3% band and fewer sitting at 4% or higher.
However, headline figures can be misleading. Where the National Living Wage rises faster than average, a significant portion of the pay budget must be directed to the lowest‑paid employees, leaving less room for increases across the rest of the workforce. Employers therefore face a balancing act between affordability, internal equity and external competitiveness in a labour market that is cooler, but still tight for key skills.
Environmental, social and governance (ESG) priorities are increasingly being linked to how organisations design and operate their pay practices. By 2026, more employers are expected to focus on fair pay, transparency and “ethical payroll”, with clear communication on deductions, benefits and reward structures.
This trend is especially visible in sectors using large numbers of lower‑paid or casual workers, where public, investor and regulator scrutiny is more intense. Payroll functions – and the providers that support them – are expected to provide robust, auditable data on pay equity, gender and ethnicity pay differences, and compliance with working time and minimum wage rules.
For Riddingtons’ clients, these trends point towards a year of refining and strengthening payroll rather than patching it up at the last minute. The organisations best placed to thrive in 2026 will:
Riddingtons is well positioned to help employers navigate these shifts – from interpreting the latest rules and optimising payroll structures, to implementing efficient processes and providing the accurate, timely data leaders need to make confident decisions in 2026 and beyond.
