UK Payroll Explained: PAYE, National Insurance and Statutory Pay (2026/27 Guide)
If you employ anyone, even one person, you're responsible for running payroll correctly: calculating tax and National Insurance, paying HMRC on time, and meeting statutory pay obligations. Here's what every UK employer needs to know for 2026/27.
What is PAYE?
PAYE (Pay As You Earn) is HMRC's system for collecting Income Tax and National Insurance directly from employees' wages, before they're paid. As an employer, you're responsible for:
- Calculating and deducting the right amount of tax and NI from each employee's pay
- Paying employer National Insurance contributions on top
- Reporting payments to HMRC on or before each payday (Real Time Information, or RTI)
- Paying everything you owe to HMRC monthly (or quarterly for smaller employers)
National Insurance rates (2026/27)
Employee National Insurance
- Main rate: 8%, charged on earnings between the primary threshold (£242 a week) and the upper earnings limit (£967 a week)
- 2% on earnings above the upper earnings limit
Employer National Insurance
- Rate: 15%, charged on earnings above the secondary threshold of £5,000 a year (this dropped sharply from £9,100 in April 2025, meaning employers now pay NI on a much larger share of each employee's earnings than before)
If you'd like to compare this to how a sole trader is taxed on the same profit instead of running payroll, see our Self Assessment guide for the equivalent Class 4 National Insurance rates.
Employment Allowance
Eligible employers can reduce their employer NI bill by up to £10,500 a year, with no earnings cap, meaning even larger employers can claim it if they qualify. You must submit an Employer Payment Summary (EPS) to claim it, it isn't applied automatically.
National Living Wage and National Minimum Wage (from 1 April 2026)
| Age group | Rate per hour |
|---|---|
| 21 and over (National Living Wage) | £12.71 |
| 18 to 20 | £10.85 |
| 16 to 17 and apprentices | £8.00 |
The accommodation offset (the maximum an employer can charge for living accommodation before it affects minimum wage calculations) increased to £11.10 a day.
There are no exceptions to paying at least the applicable minimum rate, regardless of business size or sector.
Statutory sick pay and family-related pay (from 6 April 2026)
Statutory Sick Pay (SSP)
- New rate: £123.25 a week
- A significant change for 2026: SSP is now payable from the first day of sickness absence, rather than after a three-day waiting period as before
- The Lower Earnings Limit for SSP eligibility has been removed, meaning more employees now qualify
- SSP is paid at the lower of the flat weekly rate or 80% of average weekly earnings
Statutory family-related pay
Statutory Maternity Pay, Paternity Pay, Adoption Pay, Shared Parental Pay, Parental Bereavement Pay, and Neonatal Care Pay all increased to:
- £194.32 a week, or 90% of average weekly earnings if that's lower
For Statutory Maternity Pay and Adoption Pay specifically, the first 6 weeks are paid at 90% of average weekly earnings with no cap, before dropping to the standard weekly rate (or 90% of earnings, whichever is lower) for the remaining period.
The Lower Earnings Limit used to assess eligibility for these family-related payments rose to £129 a week.
PAYE payment deadlines
- Monthly: PAYE, employee and employer NI, and any student loan or CIS deductions are due by the 22nd of the following month if paying electronically (19th if paying by post)
- Quarterly: smaller employers (average monthly PAYE bill under £1,500) can arrange to pay quarterly instead of monthly
- Class 1A NI on benefits in kind: due by 22 July following the tax year (19 July if paying by post)
Late payment triggers penalties starting at a percentage of the unpaid amount, increasing the more consecutive months are late, plus daily interest on the outstanding balance.
Common payroll questions
Do I need to run payroll if I only employ one part-time person?
Generally yes, if you pay them above the Lower Earnings Limit or they have another job, you likely need to register as an employer and run PAYE, even for a single employee working a few hours a week.
What's the difference between the National Minimum Wage and the National Living Wage?
The National Living Wage is simply the name for the minimum wage rate that applies to workers aged 21 and over. Younger workers and apprentices are covered by the National Minimum Wage at lower rates.
Can I claim the Employment Allowance if I'm a sole director with no other employees?
No, if you're the only employee and also a director, you generally can't claim the Employment Allowance. It's designed for employers with more than one employee, or a director who isn't the sole employee earning above the secondary threshold.
What happens if I get an employee's tax code wrong?
HMRC will usually correct it through subsequent RTI submissions, but persistent errors can trigger PAYE compliance checks. Getting new employees set up correctly from day one (using their P45 or a starter checklist) avoids most of these issues entirely.
Do the new day-one SSP and paternity leave rights apply to everyone from April 2026?
The removal of the SSP waiting period and the shift to day-one paternity and unpaid parental leave rights apply broadly from April 2026, though Statutory Paternity Pay itself still requires 26 weeks of continuous service to qualify for the payment.
How Books & Returns helps
Payroll compliance changes every April, sometimes significantly, as this year's Employer NI, minimum wage, and statutory pay changes show. Getting it wrong risks underpaying staff, HMRC penalties, or both. We run monthly payroll, handle RTI submissions, keep you compliant with every rate change, and manage statutory pay calculations, so your team gets paid correctly and on time, every time.
This guide is for general information only and does not constitute tax or employment law advice. Payroll rules depend on your specific circumstances, always confirm your position with a qualified accountant or check current guidance at gov.uk before making decisions based on this content.