Key payroll legislation in the UK for employers 

Compliance and staying up to date with what seem like ever-changing regulations is one of the biggest challenges faced by HR and payroll teams in the UK. Even for some of the largest companies in the UK, it can be easy for things to slip through the net. Leaving businesses at risk of facing hefty fines, court cases and even criminal investigations.  

In this article we give some insight into UK payroll legislation you must know to stay compliant.  

Download our guide about your payroll processes and responsibilities

A list of payroll-related laws  

While there is not one single law in the UK covering payroll processes, there are several individual laws employees must be aware of. From laws covering minimum wage to tax requirements, below is a handy list your business can refer to:  

National Minimum Wage/Living Wage  

The National Minimum Wage and Living Wage set the minimum amount an employee can be paid in the UK.  

While rates change every year and differ depending on age and also for apprentices, all businesses are legally required to comply with the National Minimum Wage Act. Penalties issued by HMRC for National Minimum wage Act 1998 for non-compliance were approximately £4.2m for businesses in the UK, for 750 businesses. 

PAYE & National Insurance contributions  

National Insurance contributions are a required contribution that all businesses must pay if they employ employees. These are paid on top of your employee wages and must be deducted from their pay.  

HMRC have a system known as PAYE to collect these contributions as well as income tax payments made by your business.  

You are legally required to register yourself as an employer with HMRC and report payments and deductions. Payroll software is used by businesses to streamline and automate this process.  

More on National Insurance can be found in our guide, ‘What is employer National Insurance and why do you need to pay it?’.  

Pensions Act 2008 and the Pensions Act 2014 

Both Acts introduce key laws regarding state and workplace pensions. One of the most relevant for employers being the introduction of automatic enrolment for eligible employees onto a workplace pension scheme.  

Employers, under the Pensions Act 2008, are required to automatically enrol employees, if eligible, onto their workplace pension scheme and make contributions. The Pensions Act 2014 made further amendments to pension laws including a switch to the Bereavement Support Payment. Replacing previous bereavement benefits and simplifying the payment structure.  

Statutory payments  

In the UK there are statutory payments built into law which employees are legally entitled to under different circumstances.  

These include:  

• Statutory Sick Pay (SSP) 

• Statutory Maternity Pay (SMP) 

• Statutory Paternity Pay (SPP) 

• Statutory Adoption Pay (SAP) 

• Statutory Neonatal Care Pay 

• Shared Parental Pay (ShPP) 

• Parental Bereavement Pay 

These payments typically support employees through different life events such as becoming a parent or falling sick. As an employer you a responsible for making these payments and ensuring they are accurately recorded. All statutory payments are subject to tax and NICs.  

Immigration, Asylum and Nationality Act 2006 

Right to work checks are a compulsory element of the hiring process. For candidates who do not possess British citizenship a right to work check is required to ensure they have all legal documentation to be employed in the UK.  

The Immigration, Asylum and Nationality Act 2006 govern this process. The Act introduced a civil penalty for employers who hire workers illegally, with fines reaching up to £45,000 per illegal worker. Employers therefore have a legal obligation to ensure all employees are legally approved to work in the UK, documenting these records.  

Record keeping requirements  

As with most processes within your business, documentation is essential for payroll. Payroll record keeping is an element of payroll management that keeps your business compliant.  

For any business paying employees keeping records secure is a legal obligation set by the HMRC. Accurate records will prepare your business for inspections and will help you avoid financial penalties.  

Keeping your payroll records safe is easier than ever with a secure payroll software like BrightHR Payroll. Book a free payroll demo today for a guided tour of our all-in-one payroll solution.

Who governs payroll processes in the UK?  

HMRC are the governing body overseeing many payroll processes.  On top of the main functions of collecting tax and administering payments, they act as a law enforcement agency. Enforcing the National Minimum Wage but also investigating offences such as tax fraud and money laundering. HMRC therefore have the power to conduct criminal investigations into business which fail to comply.  

They can: 

• Place warrants and orders onto businesses  

• Make arrests  

• Search premises and suspects  

• Recover criminal assets  

More on this can be found here:

A 2025/26 payroll checklist for employers: 

Following the necessary steps when setting up payroll and keeping your documentation up to date will help you stay compliant with HMRC regulations and payroll laws. This checklist gives you a good starting point:  

Employer setup: 

• Register with HMRC as an employer  

• Source your Employer Reference Number (ERN) – issued by HMRC  

• Setup a payroll software to submit RTI to HMRC  

Employee onboarding and right to work checks:  

• Verify right to work documents before onboarding process  

• Ensure salary and payroll details are explained in their new contract  

• Collect employee details 

• Request P45 from previous employer or new starter checklist  

• Inform HMRC of new employee  

• Set them up as an employee on your payroll software with correct tax code  

• Request employee bank details to pay them on time  

Pension enrolment 

• Check employee eligibility for pension enrolment  

• Make at least the minimum contributions to your pension scheme  

• Manage requests from employees to join or leave the pension scheme and accurately record who is currently enrolled  

• Review your re-enrolment duties every 3 years  

• Ensure compliance with the pensions regulator, they are the governing body for pensions compliance. Failure to comply can lead to £14k fine being issued. 

• Declaration of compliance needs to be submitted by the employer (or payroll bureau acting on behalf of clients) 

Calculations and deductions  

• Accurately calculate gross pay  

• Deduct payments including income tax and national insurance contributions  

• Calculate and handle payments such as bonuses and overtime payments. 

• Submit FPS and EPS  

• Comply with National Minimum Wage and National Living Wage rates  

• Check age ranges, for example adjust your calculations if an employee is turning 21 

• Rates change on the 1st of April every year, so be sure to keep this in mind  

• Accurately calculate statutory payments such as SSP and maternity pay to ensure employees receive their entitled amount  

If applicable: 

• Ensure correct taxation of company benefits (cars, medical, etc.). 

• Apply salary sacrifice rules correctly (especially for pensions, childcare, EV schemes). 

• Ensure benefits are reflected in payroll if using payrolling benefits. 

• Distribute payslips to employees and keep accurate records  

Financial year-end duties  

• Prepare for annual payroll roll-over 

• Provide P60s to all staff before 31st May  

• Report on benefits and expenses  

• Update payroll software ahead of new tax year  

GDPR & Data Retention 

Payroll involves sensitive data, so you need to be sure to:

• Securely store payroll, RTW and pension records 

• Keep PAYE records during the current tax year and for 6 years after the tax year 

• Use secure methods for sending payslips