Mandatory payrolling of benefits in kind is coming. Are your payroll checks strong enough?

For employers, the message is clear: if payroll data, systems, and governance are not strong today, the risks will only grow as reporting becomes more real-time, visible, and increasingly reliant on accurate information exchanged between payroll, HR, rewards, and finance.

Why recent minimum wage fines matter for payroll readiness

• Around £4 million was repaid to more than 27,000 workers.
• Many underpayments arose from technical issues, including deductions, salary sacrifice, allowances, unpaid working time and weak payroll controls.
• These issues point to a wider risk: payroll compliance now depends on accurate data, joined-up systems and clear ownership across the business.

Are reporting and payroll systems reaching breaking point?

National Minimum Wage (NMW) compliance can be affected by more than headline hourly rates. Errors can occur when payroll teams do not have complete or timely information about working time, deductions, allowances, salary sacrifice arrangements, uniforms, travel time, training time, opening and closing duties, or role and age-band changes.

In many organisations, the root cause is not a lack of intent to comply. It is fragmented data, manual workarounds, unclear ownership and systems that were not designed to give payroll a complete picture before each pay run. 

That matters because enforcement is becoming more visible. Employers can face repayments, penalties and reputational risk even where mistakes are historic or unintentional. The businesses that reduce risk are those that can evidence strong controls, regular checks and clear data flows.

Mandatory payrolling of benefits in kind will raise the stakes further

From April 2027, mandatory payrolling of benefits in kind will move key taxable benefits into real-time payroll reporting. Company cars, car and van fuel, company vans and employer-provided medical benefits will be in scope first, with most remaining benefits following from April 2028.

Mandatory payrolling is not just a tax reporting change. It will require employers to calculate, validate and report benefit values through payroll during the tax year. That means late, incomplete or inaccurate benefits data could affect tax deductions, employee payslips, Class 1A NIC reporting and HMRC submissions.

If current payroll processes already struggle with manual inputs, disconnected systems or inconsistent ownership, mandatory payrolling will expose those weaknesses quickly.

• Data accuracy: benefit values, changes and employee eligibility will need to be available before each payroll run.
• System readiness: payroll, HR and benefits platforms must be able to share and validate information in time.
• Clear ownership: businesses need to define who is responsible for benefit data, approvals, corrections and escalation.
• Employee confidence: employees will need clear communication on why deductions appear on payslips and how their net pay may be affected.

The lesson from recent minimum wage enforcement is that technical payroll mistakes can carry significant consequences. Mandatory payrolling will make it even more important for employers to spot issues early, correct errors quickly and prove that the right controls are in place.

Act now: strengthen payroll checks before the pressure increases

April 2027 may feel some way off, but employers shouldn’t wait. Payroll testing, system changes, data cleansing and employee communications all take time.

Key actions organisations should take now:

1. Review National Minimum Wage (NMW) processes, including deductions, salary sacrifice, unpaid working time, training time, travel where applicable, opening and closing duties, allowances and age-band changes.
2. Keep records that demonstrate pay and working time for each pay reference period, with minimum wage records retained for at least six years in line with current Government guidance.
3. Run periodic look-back audits, prioritising high-volume and complex-pay populations.
4. Repay identified arrears quickly, correct the underlying process and take specialist advice where the rules are uncertain.
5. Check whether payroll, HR, reward and finance teams have consistent data and clear ownership for compliance checks.
6. Map benefits in kind by phase, identifying which benefits must be payrolled from April 2027 and which follow from April 2028.
7. Engage payroll software providers, outsourced payroll teams and benefits administrators early to confirm system capability and testing timelines.
8. Build a communications plan so employees understand payslip changes, tax deductions and the value of their benefits package.

How our employment tax and payroll specialists can help

Our employment tax and payroll specialists can help organisations assess their current payroll risks, prepare for mandatory payrolling and design practical processes that work across payroll, HR, reward and finance.

Get in touch today