Updates to UK payroll legislation for the 2026 tax year introduce changes that employers and payroll teams will need to address. The most significant developments are reforms to Statutory Sick Pay (SSP) alongside updates to the student loan deduction framework, including the introduction of Student Loan Plan 5.
The SSP reforms affect when payments are made, how they are calculated and who qualifies, while the student loan changes introduce a new default repayment plan for certain employees. Together, these updates require organisations to review payroll processes and absence management procedures, to ensure ongoing compliance.
From April 2026, key changes to SSP affect both eligibility and payment calculations. The main updates include:
SSP calculations should be carried out to four decimal places, with weekly amounts rounded up to the nearest whole penny. Daily rates are based on each employee’s individual entitlement.
The reforms also introduce delegated enforcement powers, expected to sit with the Fair Work Agency from April 2026. Mirroring provisions apply in Northern Ireland to ensure consistency across the UK.
As Callum McAndrew, our UK Payroll Operations Manager explains: "The most immediate impact for our customers will be increased payroll costs. Businesses that did not previously pay Statutory Sick Pay (SSP) for short‑term absences of one to three days will now incur additional costs. This also applies to part‑time or hourly paid employees who were not previously eligible for SSP and will now qualify from day one.
Even relatively small absences can quickly add up, particularly in industries with seasonal or operational pressures such as retail, agriculture and manufacturing.”
The removal of waiting days changes how SSP applies depending on when an absence begins. For absences starting on or after 6 April 2026, SSP is payable from the first qualifying day.
For absences that begin before this date, transitional rules apply. Under the previous system, employees served three waiting days before SSP was paid. Under the new rules, only the first waiting day is served if it falls before 6 April, with SSP becoming payable from the next qualifying day.
The reforms also affect employees with lower levels of earnings. Key changes include:
For example, an employee earning £135 per week would see SSP calculated at 80 percent, £108, under the new rules. Transitional protection ensures they continue to receive the full revised rate of £123.25 for the duration of their absence.
In addition to SSP reform, payroll teams should note changes to student loan deductions, particularly the introduction of Student Loan Plan 5.
Plan 5 applies to loans issued in England from August 2023, with repayments starting from April 2026. From this date, it also becomes the default plan where the correct loan type is unknown, due to its lower repayment threshold.
Current plan types are:
Employers should not change plan types unless instructed by HMRC via an SL1 notice. Starter checklists should also be updated to include Plan 5.
With the new tax year underway, employers should confirm all updates have been applied correctly. Employers should consider:
For further guidance on UK payroll compliance and legislative updates, including SSP reform and student loan deductions, visit our United Kingdom Global Insights on the activpayroll website.
For more information on how these changes may affect your payroll operations, complete our Contact Us form and a member of our expert team will be happy to provide personalised guidance and support.
As Callum emphasises: “At activpayroll, we are here to support our customers through these changes. Our payroll systems have already been updated in line with the new legislation. In addition, we can support accurate absence tracking for both SSP and Occupational Sick Pay (OSP), ensuring correct recording of sickness start dates, durations, and payments. This data can also be leveraged through our eReporting tools to provide valuable business insight and support informed decision‑making."