Employment Rights Act for Logistics and Construction Firms: Payroll Risks to Avoid

Running a haulage or construction business means juggling tight margins, shifting rotas, subcontractors and agency workers, and all of it lands on your payroll. With the biggest overhaul of workplace law in a generation now being phased in, even small errors in holiday pay, sick pay or worker status can become costly claims. Many owners are turning to outsourced payroll services in London to stay compliant without losing hours to paperwork. This guide explains the key Employment Rights Act changes, the payroll risks logistics and construction firms should watch for, and the practical steps that protect your cash flow and keep your workforce paid accurately and on time. Getting payroll right now is always far cheaper than fixing it later. 

Why the Employment Rights Act Matters for Logistics and Construction Payroll?

The Employment Rights Act 2025 became law in December 2025 and is being introduced in stages across 2026 and 2027. If you are wondering about the Employment Rights Act, what employers need to know comes down to three things: more rights for workers from day one, higher financial exposure for employers, and tougher enforcement through the new Fair Work Agency.

Logistics and construction are hit harder than most sectors. Drivers and warehouse staff work irregular hours, nights and overtime. Construction firms mix employees, subcontractors and agency labour on the same site. Each group follows different pay rules, and one wrong assumption can create a liability that grows quietly for years.

Employment Rights Act payroll compliance is no longer just an HR task. Every change ends up in your payroll software, your payslips and your cash flow. Your Employment Rights Act UK employer obligations also sit on top of existing law, including the Employment Rights Act 1996 payroll requirements on itemised payslips and unlawful deductions from wages. Reliable payroll management services in London help you connect all of these moving parts.

1. Key Employment Rights Act Changes That Affect Your Payroll

The Employment Rights Act 2025 changes for employers are arriving in waves, so it helps to separate what is live from what is coming.

Already in force (April 2026):

• Statutory Sick Pay changes, so more workers now qualify and SSP is payable from the first day of sickness
• Paternity leave and unpaid parental leave as day-one rights
• The Fair Work Agency, which enforces employment rights

Arriving in October 2026:

• Employment tribunal time limits rise from three to six months from 1 October
• Trade union access reforms and workplace harassment reforms take effect on 30 October

Still to come:

• Rules on guaranteed hours and reasonable notice of shifts
• Changes to dismissal rights in 2027

Some start dates have already moved. For example, the fire and rehire protections were pushed back from October 2026, so always check gov.uk before acting on a specific date.

These Employment Rights Act payroll changes only work if your contracts, absence tracking and payroll settings all agree with each other. Updating a policy document without updating payroll is one of the most common mistakes. For smaller firms, accounting services for small businesses that include payroll make this much easier to manage.

2. Common Payroll Risks for Construction Firms

Construction payroll is complicated because the workforce is rarely simple. The biggest risks usually come down to status and deductions.

Employed or self-employed? Understanding self-employed vs employed construction workers is the foundation of compliance. A worker who is told when to turn up, uses your equipment and cannot send a substitute may be an employee in law, whatever the contract says. Get this wrong and HMRC can assess you for unpaid PAYE, National Insurance and holiday pay.

CIS or PAYE? Employees go through PAYE, while genuine subcontractors are paid under the Construction Industry Scheme. The difference between CIS payroll vs PAYE construction is easy to blur, particularly when someone changes roles on the same project. Check status at the start of every engagement, not once a year.

CIS deductions. CIS deductions payroll compliance means verifying subcontractors with HMRC, applying the right rate (20% for registered, 30% for unregistered, or gross payment where approved), filing monthly returns and issuing statements on time. Late or incorrect returns attract penalties quickly.

IR35. Off-payroll working IR35 construction rules can apply when you engage individuals through their own companies. Understanding how they affect your contractors and agencies protects you from nasty surprises. If this is stretching your team, outsourced accounting services can take the routine compliance off your site managers.

3. Common Payroll Risks for Logistics Companies

Logistics payroll is a different challenge. The risks come from hours, premiums and agency labour.

Driver pay: Driver pay compliance UK means paying at least the National Minimum Wage for all working time, not just time behind the wheel. Loading, waiting, vehicle checks and paperwork can all count. Piece rates and trip-based pay need careful checking against the hourly minimum.

Working time: Working time regulations drivers payroll rules interact with driving hours, rest breaks and average weekly limits. Your payroll data needs to show what was actually worked, because records are the first thing an inspector asks for.

Nights and overtime: Night shift pay logistics UK is often set by contract rather than a fixed legal premium, but night workers have separate protections on average hours and health assessments. Where you promise a night rate or overtime enhancement, it must be paid consistently and shown clearly on payslips.

Warehouse and agency staff: Warehouse worker payroll compliance covers shift patterns, short-notice changes, holiday accrual for irregular hours and agency workers who may qualify for equal treatment after 12 weeks. As guaranteed hours and shift notice rules arrive, firms with variable hours will feel the change most. Strong management accounting services in London can also show you which routes, depots or contracts are really profitable once labour costs are accurate.

4. Holiday Pay and Sick Pay: The Most Expensive Mistakes

If there is one area where logistics and construction firms pay for errors, it is holiday and sick pay.

Holiday pay. Workers are entitled to 5.6 weeks of statutory leave, and holiday pay must reflect normal pay. That includes regular overtime, commission and certain allowances, not just basic salary. For workers with irregular hours, holiday is typically accrued at 12.07% of hours worked. Paying only the basic rate is the classic error, and it can be claimed back across many years of pay.

Sick pay. With the 2026 SSP changes, check that absence is recorded from day one and that eligibility rules in your payroll system are updated. A system still applying old waiting days will underpay staff.

Casual and variable-hours workers. Shift workers, seasonal labour and zero-hours staff accrue holiday and SSP rights too. Treating them as outside the system is a risk, especially as the Fair Work Agency begins enforcing standards. Payroll services for small businesses in London can automate these calculations so they are applied the same way in every pay run.

5. What Happens If You Get Payroll Wrong?

The cost of a payroll error is rarely just the underpayment itself.

• Back pay: Underpaid holiday, sick pay or minimum wage must be repaid, often for several years.
• Penalties and interest: HMRC can charge penalties on incorrect PAYE, NIC and CIS returns, plus interest on late payments.
• Public naming: Minimum wage breaches can lead to public naming and financial penalties.
• Tribunal claims: With the time limit moving to six months, workers will have longer to bring a claim.
• Cash flow shock: A multi-year correction can arrive as one large bill. Cash flow management and forecasting in London helps you see liabilities coming and plan for them.
• Lost contracts: Main contractors and large clients increasingly check supplier compliance.

Prevention is almost always cheaper than correction.

6. Payroll Compliance Checklist for Logistics and Construction Firms

Use this list to review your position now:

• Confirm the employment status of every worker, including subcontractors and agency staff
• Check CIS verification, deduction rates and monthly returns
• Review holiday pay calculations to include regular overtime and allowances
• Update SSP settings and absence recording for the April 2026 changes
• Test driver and warehouse pay against National Minimum Wage, including non-driving time
• Make sure payslips are itemised and show every deduction clearly
• Align contracts, policies and payroll settings so they say the same thing
• Keep accurate time and working hours records
• Review right-to-work check procedures ahead of expected changes
• Book a yearly payroll health check with a trusted accounting service London business owners can rely on

How Fred Michael & Co Ltd Can Help

Fred Michael & Co Ltd is an accountancy firm based in Barking, working with construction, logistics and pharmacy businesses across East London and beyond. We look after bookkeeping, payroll, tax and VAT, credit control and strategic advice, so you can focus on running your business.

If you want guidance beyond compliance, our team acts as your business financial advisors in London, helping you plan, budget and grow. And when you need board-level direction without the full-time salary, a virtual finance director in London gives you expert financial leadership on demand. At Fred Michael & Co Ltd, we support business owners across Barking and London with practical accounting and financial guidance. We can help you understand the construction, logistics and pharmacy businesses and identify steps to prepare. Want to know how the Autumn Budget could affect your business? Book a free consultation with Fred Michael & Co Ltd today.

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