The new tax year is set to bring some of the most significant changes to Statutory Sick Pay (SSP) in over a decade. From April 2026, the way employers manage and pay SSP will shift, with the introduction of day-one entitlement and a move towards more inclusive eligibility rules. While the new SSP rate for 2026/27 has not yet been confirmed, businesses should begin preparing now to make sure they are ready for the transition.

SSP Payable from Day One

Currently, SSP is only paid from the fourth qualifying day of absence, meaning employees receive no pay for the first three days they are off sick. From 6 April 2026, this will change. Employees will become entitled to SSP from the very first day of sickness absence, removing the traditional “waiting days” entirely.

The government’s aim is to make sick pay fairer and to ensure employees are not left without income during the initial days of illness. For employers, however, this will mean additional costs and a need to update internal systems, payroll processes, and policies. Businesses that rely heavily on casual or short-term workers may feel the impact most, as even short absences will now carry a financial cost

Removing the Lower Earnings Limit

Another major change under discussion is the removal of the Lower Earnings Limit. At present, employees must earn a minimum weekly amount to qualify for SSP. If this threshold is abolished, SSP will become accessible to all employees regardless of how much they earn.

This change would be particularly beneficial for low-paid and part-time staff who currently miss out on SSP. However, it will also widen the scope of employer responsibility, increasing the number of people eligible to receive statutory sick pay. Payroll systems and HR procedures will need to adapt to handle this broader coverage.

Preparing for Financial and Administrative Impact

While the aim of these reforms is fairness, the financial and administrative impact on businesses will be noticeable. The combination of day-one pay and wider eligibility will naturally increase SSP costs. Employers should begin reviewing their budgets, forecasting how these changes may affect overall wage expenditure, especially in sectors where sickness absence levels are traditionally higher.

Contract wording will also need careful attention. If your employment contracts specify that no pay is due for the first three days of absence, this will need updating to reflect the new statutory requirements. Similarly, if you offer enhanced sick pay, review whether your policy remains appropriate once SSP begins from day one.

Strengthening Absence Management

With costs likely to rise, effective absence management will become even more important. Employers should ensure that all absences are accurately recorded, including dates, reasons, and supporting documentation. Consistent record keeping not only supports compliance but also helps identify patterns or issues that may require intervention.

Return-to-work meetings are a valuable part of this process. They provide an opportunity to check on an employee’s wellbeing, clarify any adjustments needed for their return, and spot recurring themes that may point to underlying causes of absence.

Regular analysis of absence data can also reveal important trends, such as departments with higher sickness levels or employees with frequent short-term absences. This insight allows employers to take proactive steps to reduce absence, such as improving working conditions, reviewing workloads, or introducing wellbeing initiatives.

What Employers Should Do Now

Even though the new SSP rate has not yet been announced, the core reforms are confirmed, and preparation should start early. Employers should:

• Review their payroll systems to ensure they can handle SSP payments from day one.
• Check that contract and policy wording reflects the upcoming changes.
• Brief managers and HR teams on the new rules to ensure consistency in how absences are handled.
• Start forecasting potential cost increases linked to wider SSP eligibility.

The key is not to wait until April to act. Businesses that plan ahead will find the transition far smoother, with fewer last-minute changes and a clearer understanding of how the new rules affect their workforce.

Staying Ahead of Compliance

Keeping up with employment law changes is essential for compliance and employee trust. The new SSP reforms highlight the need for clear processes, accurate data, and well-informed teams. Employers who invest time in preparation now will be better placed to manage both the financial and operational aspects of these changes.

April 2026 will bring a new landscape for sick pay, one that’s fairer for employees but more demanding for employers. By staying informed, reviewing policies in advance, and ensuring payroll systems are ready, businesses can meet their obligations with confidence and continue to support their teams effectively.

When an employee leaves a business, settlement discussions can quickly become complex, especially when it comes to taxation. One of the most misunderstood areas of employment termination payments is PENP, or Post Employment Notice Pay.

Since 2018, HMRC has tightened the rules to ensure that payments covering notice periods are always subject to tax and national insurance. Yet many employers still assume that as long as a payment forms part of a settlement agreement, it falls within the £30,000 tax free allowance. Unfortunately, that is rarely the case.

What is PENP and Why Does It Matter?

PENP stands for Post Employment Notice Pay, which is the amount of pay an employee would have received had they worked their full notice period. Even if the employment ends immediately or by mutual agreement, HMRC treats that notional pay as taxable income.

Put simply, if an employee is paid in lieu of notice, that payment must be taxed. If they leave without working their notice, the equivalent value must still be calculated and taxed. PENP ensures that notice pay is taxed consistently, preventing it from being disguised as a non taxable termination payment.

How to Calculate PENP

To work out how much of a termination payment counts as PENP, employers must use a statutory formula:

(BP × D) ÷ P – T

Where:

• BP is the employee’s basic pay before termination (usually monthly salary)
• D is the number of unserved notice days
• P is the number of days in the last pay period
• T is any taxable termination payments already made

This gives you the amount that should be taxed as employment income.

For example, if an employee’s monthly salary (BP) is £3,000, their pay period (P) is 30 days, and they have 15 unserved notice days (D), then:

PENP = (3,000 × 15) ÷ 30 = £1,500 taxable.

If part of the termination payment has already been taxed (T), this is deducted from the PENP total.

Other Tax Considerations for Employers

It is not just PENP that needs attention when managing termination payments. Employers should also remember:

• Notice pay is always taxable, even within a settlement
• Payments for ongoing obligations such as confidentiality or non compete clauses are also taxable and subject to national insurance
• The first £30,000 of compensation for loss of employment can be paid tax free, but only once PENP and other taxable elements are removed
• Employer national insurance applies to payments above £30,000, though employees do not pay NI on settlement sums
• Disability related payments can be tax free if they relate solely to a recognised injury or condition preventing the employee from working
• Compensation for injury to feelings, such as in discrimination cases, can also be tax free, provided it is properly documented

Common Mistakes and How to Avoid Them

Misunderstanding PENP can lead to costly errors. If employers fail to apply the correct calculation, HMRC may later determine that part of the payment should have been taxed, leaving the employer liable for unpaid tax, NI, and possible penalties.

The safest approach is to check the tax treatment of each element in a settlement agreement and clearly set out what each payment represents. A well drafted agreement protects both the business and the employee from future disputes or unexpected liabilities.

The Takeaway for Employers

The rules around termination payments can appear complicated, but the principle is clear. Anything that substitutes for notice pay is taxable. The £30,000 exemption only applies once PENP and other taxable elements are excluded.

By understanding and correctly applying the PENP calculation, employers can settle matters confidently, remain compliant, and avoid unpleasant surprises later on.

If you need support with settlement agreement drafting, handling, or PENP calculations, get in touch with ECHR for expert guidance and practical advice.

Every business, no matter how positive its culture, will face employee concerns from time to time. How those concerns are managed can make the difference between a quick resolution and a costly, time-consuming dispute. Handling grievances well protects both your people and your business – but getting it wrong is easier than many employers realise.

Why Grievances Matter

A grievance is an employee’s way of raising a problem or complaint about their work, their manager, or their working environment. It could involve treatment from a colleague, a disagreement about duties, or something as serious as harassment or discrimination. The way you respond sets the tone for how employees view your fairness, professionalism, and commitment to their wellbeing.

Ignoring or mishandling grievances can lead to a breakdown of trust, low morale, or even legal claims. By contrast, following a fair, consistent process can turn a tense situation into an opportunity to learn and strengthen your workplace culture.

Common Mistakes Employers Make

1. Ignoring issues or delaying action

Many grievances start small. Left unchecked, they grow. Delays can make employees feel unheard and escalate what might have been resolved with an early conversation. Always acknowledge concerns promptly and explain the next steps.

2. Failing to follow your own procedure

A grievance policy is only effective if it’s actually followed. Skipping stages, such as investigations or meetings, can leave you open to challenge later. It’s essential to apply your process consistently, even if you think the issue is straightforward.

3. Poor documentation

In any grievance case, clear notes and written correspondence are your best protection. Without records of what was discussed, agreed, and decided, it becomes difficult to show that the process was fair and reasonable.

4. Lack of impartiality

Investigations and meetings must be handled by someone who can remain neutral. In smaller businesses, this can be challenging, but fairness and objectivity are vital. Where possible, involve someone not directly connected to the issue.

5. Treating grievances as a nuisance

When employees feel dismissed or punished for raising concerns, it damages trust and may lead to further complaints. A well-handled grievance shows your team that their voice matters and that your business takes issues seriously.

Handling Grievances the Right Way

The best way to manage grievances is to be proactive. Encourage open communication so employees feel comfortable raising issues early. If a formal complaint is made, follow your written policy step by step: acknowledge receipt, investigate thoroughly, hold a meeting, confirm the outcome in writing, and allow an appeal if needed.

Clarity, consistency, and compassion are the cornerstones of a fair process. Even if an employee doesn’t agree with the outcome, they’re far more likely to respect it when they’ve been listened to and treated fairly.

Support from HR Chest

Grievances can be sensitive, but you don’t have to navigate them alone. HR Chest offers practical tools to help you manage every stage confidently, including grievance policy templates, investigation checklists, and letters you can adapt for your business.

With the right guidance, what starts as a challenge can become a moment of positive change for your organisation.

Explore Grievance Policies and Guides on HR Chest

Good documentation often feels like one of those administrative tasks that can wait. Policies, contracts, and records are easily pushed to the bottom of the list when you’re busy running a business. But failing to keep your paperwork up to date can quietly cost far more than you realise – not just in time and money, but in trust, compliance, and reputation.

When “It’ll Do” Becomes a Risk

Many small businesses start with basic templates or borrowed documents, promising themselves they’ll review them later. But as the team grows and legislation changes, those old documents quickly become outdated. A missing clause here or an unclear process there can create confusion, disputes, and even legal exposure.

Poor documentation doesn’t just mean missing files. It can also mean policies that no longer reflect how the business operates, unsigned contracts, outdated job descriptions, or incomplete absence and grievance records. When something goes wrong – a disciplinary issue, a pay dispute, or a tribunal claim – these gaps can make it difficult to defend your decisions or demonstrate that you acted fairly.

The Financial and Cultural Cost

The most obvious cost is financial. Legal advice, tribunal claims, and settlements can run into thousands of pounds, and much of that risk can be reduced simply by having accurate, consistent documentation in place. But the hidden costs go deeper.

When policies are unclear, employees start relying on assumptions rather than facts. Managers make inconsistent decisions. Trust erodes. Productivity drops. And instead of focusing on business growth, valuable time is spent firefighting issues that could have been avoided with a clear paper trail.

Turning Documentation into a Business Strength

Good documentation isn’t just a compliance tool; it’s a foundation for good culture. Clear, accessible policies give employees confidence in how things are done. They set expectations, guide behaviour, and make sure everyone is treated consistently and fairly. For employers, they create clarity and peace of mind – especially when things get complicated.

Regular reviews of contracts, handbooks, and procedures can transform how your business operates. They show professionalism, protect your reputation, and save you from the reactive scramble that so often follows when paperwork isn’t in order.

Support from HR Chest

If you’re unsure where to start, HR Chest can help. You’ll find a full library of ready-to-use HR templates, policies, and guides – from employment contracts and handbooks to grievance, absence, and performance management documents. Each one is written by HR experts and designed to keep your business compliant, consistent, and confident.

Don’t wait until there’s a problem to check your paperwork. Take a proactive step today and make your documentation one of your business’s greatest strengths.

Explore Policies and Templates on HR Chest