Employment Rights Bill: What it means for payroll

These changes are designed to create a fairer and safer workplace, but they also make things more complicated for businesses, particularly for payroll teams who have to handle the implementation.

Many organisations grapple with payroll accuracy, with our own research revealing a staggering 89% of companies encounter payroll mistakes at least once a year. With major legislative changes looming, the risk of non-compliance, and the associated penalties, is set to intensify.

In this blog, I will dissect the key changes introduced by the Employment Rights Bill, exploring their direct impact on payroll processes and outlining the crucial steps your organisation must take to prepare. 

Key changes in the Employment Rights Bill

The Employment Rights Bill has been on the horizon for more than a year now. While it is still making its way through parliament, itis nearing the final stage. Though the bill has moved back and forth between the House of Commons and the House of Lords, its core components are becoming clearer. 

In July of this year the government published their intended road map for implementation of the Employment Rights Bill. The measures contained in the bill will be introduced in phases, with the first changes expected from April of next year which include:

Statutory sick pay (SSP) reforms

One of the most immediate and impactful changes involves Statutory Sick Pay. From April, the government plans to implement two key reforms:

1. Removal of waiting days: Currently, employees are not entitled to SSP for the first three qualifying days of sickness. The bill will abolish this rule, making SSP payable from day one of an employee's absence.
2. Abolition of the Lower Earnings Limit (LEL): The requirement for an employee to earn above the Lower Earnings Limit to qualify for SSP will be removed. This extends sick pay rights to a significant number of lower-paid and part-time workers who were previously ineligible. This move will also introduce a new rate of pay of 80% of average weekly earnings which will apply for low earners.

Day one entitlement to paternity and parental leave

The bill will introduce a right to both paternity and parental leave from the very first day of employment. This is a significant shift from the current system, which often requires a minimum period of service. This change aims to provide greater support and flexibility for new parents from the moment they join a company.

A new compliance agency

To ensure these new rules are followed the Fair Work Agency will be established, centralising responsibility for enforcement of employment rights, including National Minimum Wage. This agency will have the power to conduct audits and issue fines and penalties to non-compliant employers. This signals a move towards closer scrutiny of adherence to employment law, making it more critical than ever for businesses to get their processes right.

Future roadmap

Some of the headline measures from the Employment Rights Bill are not planned to be introduced until 2027. These include

• Changes to zero hour contracts that will require employers to offer fixed term contracts based on the hours worked in a set reference period
• Gender pay gap and menopause action plans
• Day 1 protection from unfair dismissal
• Bereavement leave

What does this mean for your payroll team?

These legislative changes will create significant new administrative responsibilities, and payroll teams will be at the forefront of implementing them. The impact will be felt across several key areas of the payroll function.

System and process updates

The SSP reforms will have a direct and heavy impact on payroll software and processes. Systems must be reconfigured to calculate sick pay from day one and accommodate the removal of the LEL. This isn't a simple switch; it requires careful updates to ensure calculations are accurate and compliant from the moment the new rules take effect. With payroll teams already spending, on average, a day a week on admin-heavy processes, this additional layer of complexity could cause issues.

Managing flexible workers

For organisations that rely on zero-hour or variable-hour contracts, the new legislation will demand a complete review of how these employees are managed. Payroll teams will need to work closely with HR to track hours, manage contract changes, and ensure communications with employees meet the new statutory requirements. This will necessitate better integration with workforce management systems and more sophisticated data analytics to manage workforce changes effectively.

Increased compliance burden

With the formation of a new compliance agency and the threat of fines, the pressure on payroll teams to ensure 100% accuracy will intensify. Payroll managers will need to go beyond processing tasks and take on a stronger role in ensuring compliance. This requires a deep understanding of the new legislation, robust auditing procedures, and the ability to provide detailed analytics to prove compliance.

How to prepare for the Employment Rights Bill

With major changes on the horizon, the time to prepare is now. Waiting until the legislation is fully passed will leave you scrambling to catch up. Here are three steps your organisation should take now.

1. Audit your current systems and processes

Start by conducting a thorough audit of your existing payroll software and processes. Are they fit for purpose? Can your system be easily configured to handle the upcoming SSP changes? Identify any gaps or weaknesses now so you have time to address them. This is also an opportune moment to review your reliance on manual, admin-heavy tasks and explore how automation could build greater resilience into your payroll function.

2. Seek specialist payroll expertise

Navigating the complexities of payroll legislation, is a serious task, and making a mistake can be costly. Consult specialist payroll advisors who truly grasp the intricacies and won't just interpret the legislation; they'll help you operationalise it within your payroll function. Considering outsourcing your payroll entirely? Now's the time to explore how a trusted partner can offload this burden, bringing specialised knowledge and robust systems to the table, and ensuring your business remains compliant without needing an in-house expert.

3. Stay informed with training and updates 

Keep up to date on legislative changes through regular training and awareness efforts. Provide ongoing learning opportunities and clear, accessible internal documentation. Staying informed and prepared is the best way to navigate changes smoothly.

Navigate the future of payroll with confidence

The Employment Rights Bill represents a significant step forward for UK workers, but it also presents a considerable challenge for employers. The organisations that will navigate this change successfully are those that prepare now, investing in their people, processes and technology.

At MHR, we're closely monitoring every development to ensure our technology and services are ready. To help your organisation prepare, we're sharing our insights through events like PayFest and Payroll's the future - our 2025/26 payroll research report.

Discover how MHR can help your organisation stay ahead of legislative change and empower your payroll team. Explore our payroll solutions and resources in our knowledge hub.