The 2026 Employee Benefits Landscape

As we kick off 2026, many organisations are already planning how to implement the changes that were introduced in 2025. The combination of rising employment costs, changes to legislation and continued market pressure means there is a lot for employers to navigate.
 
Below we look at the key changes and how they will shape the Employee Benefits and wider HR landscape in 2026. We break down each of the changes, highlight what to watch out for and set out practical steps organisations can take to stay ahead.
 
April 2026

Frozen Tax Thresholds
Frozen tax thresholds mean that for many employees, pay increases won’t feel like real increases this year. For those already under financial pressure, this can make things feel even tougher.
 
As a result, it becomes even more important to look at other ways to help employees make their money go further. The right benefits can play a key role – from Health Cash Plans that reimburse everyday healthcare costs, to discounts and practical financial and mortgage advice.
 
Well-designed benefits can deliver significant value for a relatively small investment – spending an extra £100 per employee per year can feel the equivalent to over £1,000 in pay, while also reinforcing that the company genuinely cares about employee wellbeing – increasing engagement and productivity.
 
In many cases, companies already have some great benefits in place. If so, the focus should be on communicating them clearly and regularly so employees understand what benefits are available and how to access them.

  Actions:

• Review benefits like Health Cash Plans that can give employees money back on healthcare costs
• Consider financial wellbeing support, including mortgage advice, budgeting education and debt management
• Communicate regularly so employees understand how the benefits package helps them save money and manage costs

National Living Wage Increase To £12.71 per hour

The increase in the NLW from 1st April 2026 will, for many organisations, have an impact beyond basic pay, especially for lower paid employees who may lose eligibility or headroom for salary sacrifice benefits as they cannot be deducted below the statutory minimum.

This change also increases the risk of pay compression, where differences in salary bands narrow over time. This can have a knock-on impact on role and salary linked benefits, such as pensions and insured benefits, which may need reviewing to ensure they remain fair and aligned with pay structures.

As a result, benefits design should be reviewed to ensure that it works across the full salary range, and not just for those on higher salaries who can take advantage of salary sacrifice.

  Actions

• Check payroll systems correctly apply the new NLW rates and prevent incorrect salary sacrifice deductions
• Monitor the knock-on impact of pay compression on salary linked benefits 
• Review benefits design to ensure there are options available across all pay levels, not just those that are eligible for salary sacrifice

Statutory Sick Pay from Day 1 
It is expected that from April 2026, SSP becomes payable from day 1 of absence and will include lower-paid employees that were not previously covered. This increase in absence related costs puts even more importance on absence management, early intervention and wellbeing support to prevent short term absence.
 
Equipping line managers with the skills and confidence to recognise early signs of stress, disengagement and poor mental health can reduce both absence and costs.
 
Some organisations have seen a reduction in unplanned short-term absence by offering the option to purchase additional holiday. This gives employees greater flexibility to manage pressure and personal commitments – supporting wellbeing and helping to reduce the risk of longer-term sickness.

  Actions:

• Review and update sickness absence and income protection policies
• Provide line manager training to support early recognition
• Review wellbeing, mental health and financial wellbeing support
• Consider offering holiday purchase as part of the benefits package

Paternity Leave & Unpaid Parental Leave from Day 1 
From 2026 paternity leave and unpaid parental leave become day-one rights, removing service requirements. While this is an improvement, Statutory Paternity Leave is still significantly less than most of Europe and increased partner support is shown to improve bonding and dramatically reduce the risk of post-natal depression - meaning increasing the leave further can support a more sustainable return to work for both parents.
 
Many companies have focused on enhancing maternity pay as part of their gender equality commitments. Reviewing paternity leave alongside this helps to reinforce that caring responsibilities are shared and supports a more balanced starting point for parents. It’s also important that policies are inclusive of same sex parents and different family structures, so support is offered fairly and consistently.

  Actions:

• Update policy wording, eligibility criteria and payroll processes
• Review paternity leave pay and duration alongside maternity and shared parental leave
• Consider whether additional policies or benefits could support employees with caring responsibilities, fertility treatment or menopause

Further Ahead

April 2027 - Mandatory Payrolling of Benefits in Kind (PBiK)
From April 2027, most taxable benefits will need to be processed via payroll rather than submitting P11Ds for that period. While this is still a year away, 2026 is critical to ensure benefit data is accurate, systems are updated and payroll processes and feeds are working correctly.
 
The process of setting this up can be time consuming and often uncovers issues, such as incorrect cover, taxation and processing issues. Starting early allows time to resolve issues without the pressure of the mandatory deadline.
 
Clear communications to employees are also key. Without this, some employees may feel like they are being taxed twice during the transition year and opt out of benefits without fully understanding the impact.

  Actions:

• Set up a cross-function project team including HR, Payroll and Tax/Finance
• Document all taxable benefits and work with the payroll provider to configure payroll settings, taking appropriate tax advice
• Audit current treatment of taxable benefits and review the joiners and leavers to ensure accuracy
• Communicate early and clearly with employees to advise them of the change and timeline 

April 2029 – £2,000 cap on Salary Sacrifice Pension 
Announced in the 2025 budget, this change is still few years away. At this stage there is industry engagement and pressure on the government to reconsider this, given the long-term impact it will have on retirement savings when there is already a large proportion of people that are not saving sufficiently for their retirement.
 
While the change is not imminent, it is an important reminder to encourage employees to make the most of their tax-free limits, especially if there is a risk they may lose part of it.
 
This is particularly relevant for women and younger workers who, because of career breaks, lower salaries and the cost-of-living crisis, may not have been able to utilise their tax-free allowance in recent years. The proposed reduction could have a huge impact on their ability to close the gap in their savings.

  Actions:

• Educate and encourage employees, especially women and younger workers, to engage with their pensions
• Make use of free communications, modelling tools and educational resources from pension providers

Other Benefits Trends for 2026

Ongoing premium increases 
Premium increases are expected to continue in 2026, especially across Private Medical Insurance. While it is not unusual for initial quotes to show a 20-30%+ increase in costs, there are opportunities to contain and mitigate cost increases if planning is started early enough.
 
Approaching renewals proactively (4 months out) allows time to explore alternative structures, design changes and funding options, rather than last minute decisions with limited flexibility.

  Action:

• Start renewal planning early and avoid waiting for renewal quotes from providers. Engage a broker in advance to explore options and manage costs proactively

Review Benefits Holistically 
Many organisations are using the upcoming changes as an opportunity to review the benefits package holistically – planning early not only to manage compliance and costs, but to ensure that the benefits remain relevant and engaging to employees – reviewing how everything fits together, from insured benefits, to leave, to wellbeing support.
 
Discovering where there are gaps, whether the package aligns with company values, and how the benefits are purchased and communicated can help to make a huge difference to the impact of the benefits on employees.
 
These reviews often uncover duplications or overspend, creating opportunities to make savings that can be reinvested to refresh the package.

  Action:

• Carry out an audit of existing benefits, including costs, cover eligibility and alignment with values and needs

Communications
From our extensive work with organisations, a common challenge is not the quality of the benefits package, but how it is communicated. Benefits may only be discussed as part of onboarding or annual windows, which can limit understanding and engagement.
 
Regular and clear communications can have a significant impact on how employees perceive both the benefits and the organisation.Actions

• Ensure employees have clear visibility on what is available and how to access
• Create a series of guides – from a simple one-page summary to more detailed guides explaining each benefit

Final thought
 
With everything that is coming up over the next year, organisations that plan early, review benefits holistically and communicate clearly will be better placed to control costs, comply with legislative changes and offer a package that genuinely engages and supports their workforce.
 
If you would like to discuss any part of your benefits strategy, please reach out to emma.cowling@mcr.consulting.