Payroll Changes – what is coming?

Proposed adjustments to payroll reporting starting from April 2025 could necessitate employers to update their payroll and HR systems. HMRC has recently sought input on the draft legislation, focusing on enhancing the data collected from its customers. Essentially, the planned modifications will likely require employers to document the hours worked concerning the payments made in their real-time information (RTI) PAYE returns.

What will be different?

The explanatory memorandum states that the new regulations provide additional information regarding employees’ working hours that employers need to include in the RTI returns sent to HMRC. Starting from April 6, 2025, employers are required to report the hours worked by each employee per pay period if the data is available. If this information is not accessible, employers must explain the reason by referring to a specific description specified in the regulations.

How can the extra information be established?

The method used to obtain this extra information will vary based on how the employee’s salary is calculated.

  •  If an employee is compensated hourly, the employer should document the hours worked that led to the corresponding payment.
  • For employees whose pay is based on a set number of hours outlined in their contract, the employer should record the hours specified in the contract for the pay period. If the employee worked additional overtime hours during that period, those hours should also be included in the report.

In cases where the employee’s payment isn’t based on these methods, the employer should note the relevant hours as ‘nil’ and, if necessary, provide a description of the payment method used.

These descriptions could be:

  • Statutory payments such as statutory sick pay that are handled through payroll.
  • Benefits received as part of one’s payroll. (Benefits in Kind)
  • Severance or redundancy payment.
  • Payments issued to officeholders (such as directors without specified working hours in their contracts).

If an employee’s pay includes multiple components from the list above, each element must be disclosed. HMRC has announced that it will release revised instructions on these regulations before they take effect.

How can employers get ready for the upcoming change?

Employers must consider the upcoming changes’ potential impact on their payroll and HR systems. This involves collecting, verifying, and reporting additional data regarding hours worked. Some employers may lack systems capable of storing the required information on hours worked or payment details in a report-friendly format. They may need to set up additional system interface processes to access the new data needed by HMRC effectively.

Employers should also plan for the necessary steps, allocate resources, and budget for internal projects to meet the new reporting requirements by April 6, 2025.

If applicable, employers should coordinate their preparations for the enhanced RTI reporting with the plans for mandatory payrolling of benefits-in-kind, which starts 12 months later, April 6, 2026.

Next Steps.

Stay ahead of the game by reaching out to your local payroll team at LHP.

Carmarthen – 01267 237534
Haverfordwest – 01437 766749
Lampeter – 01570 422204
Tenby – 01834 844743
Cross Hands – 01269 834877
Aberaeron – 01545 570401
Aberystwyth – 01970 601188