The 2026 “People Cost Crunch” – Budget Now or Watch Your Margins Disappear
What The Budget And Law Changes Mean For Your Business - Four months to act before April 2026 costs hit your bottom line
If you employ people in the UK, April 2026 is going to reshape your cost base — whether you prepare for it or not.
April 2026 is now the single biggest pressure point for UK employers in over a decade.
Not because of one change, but because of
a perfect storm of wage increases, tax freezes, SSP reforms and new employment law obligations landing simultaneously. All when businesses were already struggling with the increased costs during 2025.
The Autumn Budget confirmed what many business owners already suspected – your people costs are going up again, and unless you plan early, those increases will hit margins fast.
Below is a clear, pragmatic overview of what’s changing and what you should do now.
1. The Budget: What Actually Matters for Employers
Plenty of headlines. Only a few truly impact your business.
Frozen income tax thresholds to 2030/31
The Chancellor extended the freeze on personal tax thresholds for another three years.
This means more of your employees will drift into higher tax bands without a real rise in living standards.
Impact on your business
- Pay increases feel less generous to employees
- More pressure on salaries as people try to keep up with the tax drag
- Knock-on impact on retention and reward expectations
Employer National Insurance stays at 15%
There were no new NI increases, but the increase in 2025 combined with wage inflation means your NIC bill will continue to rise.
Minimum wage increases from April 2026
The next round of increases include:
- National Living Wage (21+): £12.71/hour (4.1% rise)
- 18–20 rate: £10.85/hour (8.5% rise)
These increases disproportionately affect those that employ younger workers (think hospitality, retail, leisure and childcare). All sectors that can’t easily pass costs to customers.
Pension salary sacrifice capped from April 2029
Salary sacrifice is a popular way for employers and staff to keep more of what they earn. Rather than taking their full salary in cash, employees could swap part of it - before National Insurance - for a benefit. Most commonly, that benefit is a pension contribution. This saved both employer and employee National Insurance contributions.
From April 2029 there will be a £2,000 annual cap on NI-efficient pension sacrifice. It won’t bite immediately, but it will affect reward strategy and higher earners.
Although the cap doesn’t apply until 2029, any employer who uses salary sacrifice heavily should begin reviewing reward design during 2026 to avoid future disruption.
2. SSP Reform in April 2026 – The Quiet Change That Will Cost You the Most
This is the reform most SMEs are not preparing for - and the one most likely to disrupt budgets.
From April 2026:
- The three-day waiting period is removed
- The lower earnings limit disappears
- More people qualify and you pay from day one
- The weekly SSP rate rises again
A simple worked example:
A part-time worker earning £80 per week currently receives £0 for a short period of sickness.
From April 2026:
- SSP is payable from day one
- At £64 per day (pro-rated), a typical three-day absence costs:
£192 - Today, the same absence costs: £0
Multiply this across a year, and across a whole workforce, and the jump becomes obvious.
Why this matters
- Short absences get significantly more expensive
- More workers become eligible
- Poor attendance management will now hit the bottom line quickly
- Businesses with lots of part-time or lower-paid staff feel this most
This is where the greatest financial risk sits for SMEs. Not in the headlines, but in the day-to-day patterns of absence.
If you need to strengthen your absence processes ahead of April 2026, my SSP & Absence Management e-learning gives your managers the clarity and confidence they need. If you’d like to find out more send me a DM.
3. Employment Rights Bill - 2026–27 Legal Changes
The Employment Rights Bill is still doing its “ping-pong” through Parliament, but several key directions of travel are now clear. Alongside the Budget, employers must prepare for the next wave of legal changes:
- Faster access to unfair dismissal – the qualifying period is expected to drop from two years to six months. This is an improvement on day one rights but it still has a significant implication on how you manage your people, particularly new joiners. A shorter qualifying period increases risk where documentation is weak or conversations have been avoided.
- Removal of the unfair dismissal compensation cap – moving to potentially uncapped awards in some circumstances. Awards could rise significantly where processes are mishandled.
- Stronger family-friendly rights – day-one rights to paternity and unpaid parental leave; neonatal leave and pay already in place for babies born after April 2025.
- Stronger obligations on harassment prevention and collective redundancy processes, including extended early conciliation periods and digital HR1 requirements.
On their own, each of these is manageable. Together, they raise the bar for your documentation, your manager consistency and your appetite for risk. These changes will require tighter documentation, more consistent management behaviour and clearer decision-making.
4. What you should do
A planning timeline makes the load manageable and keeps you commercially ahead.
December / January - Get Your Foundations Right
🎯
Model your 2026 people costs
Include:
- Minimum wage increases
- SSP from day one
- Higher statutory payments
- Knock-on cost of frozen thresholds and NI
📋 Audit your policies
- Sickness and absence
- Family leave
- Flexible working
- Harassment and conduct
- Documentation expectations for managers
👥
Identify your risk hotspots
Roles, teams or sites where:
- Absence is high
- Youth labour is concentrated
- Part-time earnings fall below today’s thresholds
Q1 2026 – Build Capability and Tighten Processes
📚
Train your managers
Focus on:
- Return-to-work conversations
- Documentation
- Dealing with persistent short-term absence
- Fair and consistent decision-making
🧠
Improve early intervention
Use simple, consistent triggers that pick up patterns without punishing genuine ill health.
🔍 Strengthen recruitment and workforce planning
- Consider apprenticeships (free training for under-25s in SMEs)
- Review contractor and casual arrangements
- Assess labour mix and rota design
April 2026 – Go Live and Monitor Closely
⚡
Implement new SSP rules
Ensure payroll, HR and line managers are aligned.
📊
Monitor sickness weekly for the first quarter
Spot patterns early before costs escalate.
📝
Support managers through real-time cases
This is where most businesses slip. Hesitation, inconsistency, or avoidance.
👥 Improve management of probation periods for new starters
Don’t let your managers shy away from difficult conversations. If individuals are not delivering as expected provide support to improve and act quickly to dismiss when it’s clear they won’t meet performance expectations.
5. Stop “fixing” people problems reactively
The businesses that will cope best with 2026 are the ones already doing the basics well:
- Clear expectations
- Reasonable, consistent boundaries
- Proper documentation
- Managers who actually lead, not just supervise
If you have underperformance, attendance problems or brewing grievances, deal with them in quickly.
The Reality Check
The combination of wage rises, frozen thresholds and SSP reform means 2026 will be a pressure year for people costs. Particularly for SMEs.
But none of this needs to be chaotic if you prepare early.
The businesses that win in 2026 will be those that:
- Know their numbers
- Strengthen their absence and people systems
- Equip managers properly
- Build clarity and consistency into every decision
You don’t need to firefight through these changes.
You just need a clear, commercial plan. Start now, not in April
Need help and support taking action to improve your people practices and manage budget cuts? Send me a DM and we can talk through how I can support you.
