7 HR, reward, and compensation trends for 2026 

The Autumn 2025 Budget introduced a new £2,000 annual threshold on employee pension salary sacrifice arrangements, effective April 2029, after which National Insurance contributions will apply¹.  While this change is several years away, it signals the need for proactive planning. Employers should continue leveraging salary sacrifice for tax-efficient savings now and in the coming years that remain. But should also be developing strategies to adapt compensation structures ahead of the transition to protect both cost efficiency and employee benefits.

The UK Employment Rights Bill was passed by Parliament in December 2025².  It represents the most significant legislative shift in a decade, significantly reducing qualifying periods for unfair dismissal claims from two years to six months, expanding pay gap reporting obligations, and enhancing protections for gig workers³.  This is a strategic opportunity to reinforce fair, transparent workplace cultures. HR leaders should urgently review and update policies, invest in training for HR and management teams, and communicate changes clearly to maintain compliance and foster trust.

Escalating health risks, sickness absence rates, tightening regulatory requirements, and budget constraints will continue to shape the UK employee health and benefits market in 2026. Private Medical Insurance (PMI) costs continue to rise, though growth has moderated to +13.4%⁴. Group Protection pricing remains stable, while demand for dental and cash plan benefits accelerates⁴.  Leaders should reassess health benefits portfolios to balance cost control with employee wellbeing, exploring integrated solutions like cash plans and group income protection to mitigate PMI inflation and support workforce health. This focus becomes particularly heightened given the findings of the government's ‘Keep Britain Working report’.

Mental health claims now represent 9.5% of total healthcare spend, up 17% since 2021, with service usage surging⁵.  Investing in robust mental health support—through Employee Assistance Programs (EAPs), Cash Clans, and Income Protection—can help reduce overall healthcare costs and improve productivity. HR executives should prioritise embedding these interventions, measuring and demonstrating the ROI of mental health initiatives as a core component of total rewards strategy.

The war for talent remains intense, making competitive and flexible reward packages combined with clear career development crucial to attract and retain top performers. Employers should leverage data-driven insights on workforce preferences and market benchmarks to design total rewards that meet evolving employee expectations. Additionally, effective salary benchmarking will be essential to ensure compensation is both fair and competitive in a complex, changing market.

AI will no doubt continue to reshape job roles in 2026. Organisations will need to prioritise upskilling across both technical capabilities and human-centric skills like creativity, adaptability and ethical awareness. Cultivating a culture of continuous learning and reskilling existing talent for effective human-AI collaboration will build a resilient, future-ready workforce and help sustain competitive advantage in an AI-driven landscape. 

With a June 2026 deadline for implementation of the EU Pay Transparency Directive, UK organisations with cross-border operations need to be ready for the requirements of the Directive. Proactive pay equity audits, transparent reporting and updated policies and processes will be vital to mitigate risk and demonstrate commitment to fair pay practices.