The 2026 Budget may have been relatively quiet for HR and payroll on the surface, but look beyond the headline announcements and there’s plenty for employers to consider.
Changes to National Living Wage, mileage payments, pensions and employee share schemes sit alongside developments already moving quickly towards implementation, including mandatory payrolling of benefits and employment rights reform. And, as ever, much of the detail employers need sits beyond the Chancellor’s speech itself.
In this Budget analysis, Nick Clarke, Director of Product and Cybill Watkins, Product Legislation Manager unpack what matters for HR and payroll teams, what needs attention now and what organisations should be preparing for next.
Watch the full discussion for their practical take on the 2026 Budget and the changes already on the horizon.
Topics covered:
- [03:24] National Living Wage changes and what employers need to consider beyond the headline hourly rate
- [04:53] Business mileage and expense changes, including updated mileage rates and employee tax relief
- [07:53] What’s genuinely new for employers, from skilled worker sponsorship to employee share schemes and non-compete clauses
- [17:09] What employers should be thinking about now ahead of changes to pension salary sacrifice
- [18:31] Mandatory payrolling of benefits and the practical implications for payroll teams
- [23:23] Employment rights changes and why closer HR and payroll collaboration will matter
- [27:06] Three key takeaways for HR and payroll leaders
The Budget at a glance
One of the clearest messages from the discussion is that this isn’t simply about reacting to a single Budget.
Some changes are immediate. Others arrive in 2027, 2028 or 2029. And several measures affecting HR and payroll today actually have their roots in previous Budgets and legislation. That makes separating immediate action from longer-term preparation particularly important.
Here are some of the areas employers should have on their radar.
National Living Wage: look beyond the hourly rate
The National Living Wage for workers aged 21 and over is set to rise to £13.21 an hour, with increases also applying to the younger age bands.
For employers, however, compliance goes further than updating an hourly rate.
Salaried and unmeasured workers need to be considered too, alongside factors such as salary sacrifice, unpaid time and additional working hours. Employers will need to look at the complete pay picture, particularly where employees are already close to the minimum wage boundary.
The takeaway: use the increase as an opportunity to review pay arrangements in the round, rather than treating it as a simple rate change.
“It’s really important that employers look not only at hourly-paid workers, but at salaried workers too. Look at salary sacrifice, unpaid time and additional working hours. It’s the whole package. It’s not just that single hourly rate.”
– Cybill Watkins, Product Legislation Manager
Mileage and expenses: changes employers shouldn’t overlook
There are practical changes to business mileage too. From 6 April 2027, the approved rate for business mileage above 10,000 miles rises from 25p to 35p per mile, while the 55p rate below 10,000 miles becomes permanent.
There is also a change for employees claiming tax relief on genuine business expenses directly from HMRC. The previous £2,500 limit before self-assessment was required is being removed, making it possible for more employees to claim through the employment expenses process instead.
Payrolling benefits: preparation now matters
Arguably one of the biggest operational stories isn’t a brand-new Budget announcement at all.
Mandatory payrolling of benefits is approaching in phases. Company cars, vans and associated fuel, alongside employer-provided medical benefits such as private medical insurance, form the first phase. Other benefits follow from April 2028, while employers will also be able to payroll loans and accommodation voluntarily from April 2027.
For payroll, the biggest change could be the need for much more timely data.
A car change, for example, will need to reach payroll quickly rather than being dealt with after the tax year through a P11D. That means closer working between payroll, HR, finance, benefits teams and external providers, supported by clear ownership of data and processes.
Organisations should already be thinking about:
- mapping benefits and their tax treatment
- identifying who owns each source of data
- understanding how information gets into payroll
- testing scenarios such as mid-month and late-notified car changes
- agreeing responsibilities across teams
- preparing employee communications
There’s an important employee experience point here too. Moving from P11Ds to real-time taxation could generate questions about why take-home pay has changed, making clear communications and understandable pay information increasingly important.
Employment rights are an HR and payroll matter
The evolving employment rights landscape is another reminder of how closely HR and payroll now need to work.
Changes discussed in the video include statutory sick pay from the first day of absence, paternity leave and unpaid parental leave becoming day-one rights, and a formal six-year requirement for holiday records.
Further measures are also approaching. From January 2027, the qualifying period for unfair dismissal reduces from two years to six months, while later measures are expected to address areas including guaranteed hours for zero-hours workers, payments for shifts cancelled at short notice and day-one bereavement leave.
These aren’t changes that HR can manage in isolation. SSP, statutory leave, holiday pay and working patterns all depend on data and processes that cross HR and payroll. Guaranteed hours and cancelled shifts could create new pay elements and new data requirements too.
The practical priority is connected data, clear ownership and testing across both functions.
Salary sacrifice: 2029 is closer than it looks
Changes to pension salary sacrifice might not arrive until 2029, but the conversation makes a strong case for thinking about them much sooner.
The proposed £2,000 limit on pension contributions made through salary sacrifice has potential implications for pension scheme design, payroll configuration, benefits, employee communications, budgeting and forecasting.
With some of the detail still to come, this isn’t necessarily about making changes today. It’s about identifying the questions and dependencies early enough that employers are ready when the rules are finalised.
The details employers shouldn’t miss
As Cybill highlights in her comments, the speech is only part of the picture. Supporting documents can contain measures with direct implications for HR and payroll.
Among them are clarification that certain image rights payments will be treated as taxable employment income and that payments for cancelled shifts, when introduced, will be subject to tax and National Insurance.
There are also changes affecting employers using skilled worker sponsorship and employee share schemes, while a consultation on non-compete clauses is expected.
It reinforces a familiar lesson for payroll teams – the devil really is in the detail.
Treat the next phase as a data and governance programme. It’s not just a payroll configuration exercise. Payroll, HR, reward, finance and everybody else involved need to make sure responsibilities are clear and that it’s all working and feeding together.
– Nick Clarke, Director of Product Management
Budget headlines to organisational readiness
Perhaps the most useful way to look at this year’s Budget is not as a list of isolated legislative changes.
For HR and payroll leaders, the bigger task is understanding when each change matters, what data it depends on, who owns the response and how employees will experience it.
Organisations should distinguish between immediate action and future preparation, while treating the next phase of change as a broader data and governance programme, bringing together payroll, HR, reward and finance rather than seeing it purely as a payroll configuration exercise.
That feels like the real message from this year’s Budget: the headline may be quieter, but there is plenty happening underneath it, and preparation now will make the changes ahead much easier to navigate.
Be ready for What’s Next
The Budget is only part of the picture. With further legislative changes ahead, preparation now can make a real difference later.
Zellis helps HR and payroll teams stay on top of changing requirements while giving employees clearer information about their pay, reducing queries and supporting better financial wellbeing.
Discover how we can help your organisation navigate change with confidence.
