UK Sick Pay Takes Effect Immediately! Oil Price Surge Threatens Inflation Drop! 60-Day Payment Cap for Big Companies!
- TBA
- 6 days ago
- 5 min read
HMRC clarifies statutory sick pay changes for employers
With the UK government implementing reforms to the Employment Rights Act from 6 April 2026, statutory sick pay (SSP) will undergo a major change: all eligible employees, regardless of income, will be entitled to sick pay from the first day of illness.
In response, HM Revenue & Customs (HMRC) has issued detailed guidance clarifying payment rules for employees spanning the old and new regulations, including long-term sickness cases. Under the new rules, SSP will be paid at 80% of the employee’s average weekly earnings (AWE) or a flat weekly rate of £123.25, whichever is lower. The measure is estimated to cost employers approximately £420 million per year.
HMRC noted that employees who started sick leave before 6 April 2026 and previously could not claim SSP due to earnings below the Lower Earnings Limit (LEL) may now receive payments starting from 6 April.
Key dates include:
On or after 22 September 2025: long-term sick employees will have their entitlement calculated from this date.
On or before 21 September 2025: if sick leave continues uninterrupted until 5 April 2026, SSP entitlement will not start until at least eight weeks after returning to work.
For continuous or restarted sick leave, SSP payment days will be adjusted based on the duration of the absence:
Three days or fewer: only eligible days from 6 April onward are paid.
Four days or more: SSP is paid from the first day of the restarted sick leave for all eligible days.
Once the new rules take effect, the previous waiting days will be replaced by “first-day entitlement”, meaning employees will no longer have to wait before receiving SSP, and waiting days prior to 6 April 2026 will not be paid.
Employers are advised by HMRC to:
Review current sick leave records and start dates to ensure compliance.
Verify employee eligibility for SSP, considering any recent Employment and Support Allowance (ESA) claims.
Update sick leave policies and notify employees of the changes.
Ensure payroll systems are ready if using third-party payroll providers.
HR consultancy BrightHR commented: “Paying SSP from the first day may increase the number of short-term sick absences, as employees no longer fear lost income. It is estimated that after implementation, around 200,000 employees may take single-day sick leave, potentially costing employers at least £5.13 million.”
UK inflation remains unchanged at 3% in February
According to the latest data from the UK Office for National Statistics (ONS), the annual inflation rate remained at 3% in February, unchanged from the previous month. Although inflation has fallen from a high of 11.1% in October 2022, prices themselves have not decreased—they are simply rising at a slower pace.
However, these official figures were recorded before the outbreak of the US-Israel-Iran conflict, at a time when petrol prices were at their lowest since June 2021. Since the conflict began, wholesale oil prices have surged, pushing up petrol and diesel pump prices.
Experts warn that this could drive up energy and other consumer costs, including leisure and food, as manufacturers and businesses pass on higher expenses to consumers. As a result, the previously expected drop in inflation this year may no longer occur.
Last week’s data also showed that wage growth in the UK is at its slowest rate in over five years. While wages are still growing faster than prices, the situation could change if Middle East tensions continue to push energy prices higher. Capital Economics predicts that, based on current oil and gas price assumptions, inflation could peak at 4.6% by the end of this year.
Rising inflation expectations due to the Middle East conflict have led some analysts to conclude that the Bank of England’s chances of cutting interest rates this year are slim, with some even predicting a rate hike later in the year. The Bank adjusts its base interest rate to control inflation, aiming to keep it at or near 2%. When inflation exceeds the target, the Bank typically raises rates to curb consumption and slow price increases.
Chancellor Rachel Reeves stated that the government is taking measures to reduce the cost of living: “We are also acting to protect people from unfair price increases, bring down food prices at the till, and cut red tape to improve long-term energy security, building a stronger, safer economy.”
60-day invoice payment deadline from 2027
The UK government has announced that, starting from the 2027 financial year, a mandatory 60-day payment cap will be applied to invoices paid to small and medium-sized enterprises (SMEs). Late payments will incur fines and interest at 8% above the Bank of England base rate, currently equivalent to 11.75%.
The new rules aim to hold large businesses and repeat offenders accountable, with legislation to be introduced “as soon as parliamentary time allows,” and further details expected in the King’s Speech.
Scope and Penalties
Under the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, the rules will apply to large businesses with an annual turnover exceeding £54 million, a balance sheet above £27 million, or more than 250 employees. The Small Business Commissioner will have the authority to “investigate poor payment practices, adjudicate disputes, and fine the worst offenders tens of millions of pounds.”
The Department for Business and Trade (DBT) estimates that the new rules will cost these businesses £143.28 million annually, covering both the 60-day payment cap for large firms paying smaller suppliers and the requirement that all commercial contracts include statutory interest at 8% above the Bank of England base rate.
For example, if a business is owed £10,000 and payment is delayed by 60 days, under the new rules the company would receive a total of £10,293.15, including interest, plus an additional £100 compensation.
In addition, proposed legislation will ban withholding retention payments under construction contracts, though this is still under consultation.
Glenn Collins, Head of Technical and Strategic Engagement at ACCA, said: “Given the challenging economic climate for small businesses, we hope these important reforms are implemented as soon as possible. However, primary legislation takes time, and large corporates will also need to adjust their purchase-to-pay systems, which cannot happen overnight.”
In a letter to the CEOs and CFOs of the UK’s largest companies, the government noted: “Late payments cost the UK economy £11 billion each year and cause the closure of 38 businesses daily. UK companies spend 133 million hours annually chasing late payments, which damages cash flow, hinders growth, and threatens survival. We are determined to fix this problem and ensure small businesses are paid on time.”
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