Payroll teams prepare for new status nuances resulting from the Flexible Working Act

The Employment Relations (Flexible Working) Act 2023 successfully passed through Parliament and received Royal Assent in late July. While workers in the UK always had the ability to request flexible working conditions from their employers, the Act enshrines their rights into law, expected to go into effect at some point next year.

Employers in the UK will now have to contend with the repercussions of this law, and perhaps the biggest impact will land on payroll processing, an area already on the path to becoming more complex in the UK.

Changes to conditions of employment

Employees in the UK can now legally ask their employers for changes to working conditions after having been employed for 26 consecutive weeks. Employees can file two requests every 12 months, and employers must provide a valid reason if they deny the request.

Currently, employers must choose from one of eight statutory reasons for rejecting a request, and respond to their employee within two months of filing the request. While the Government hasn’t installed an appeal process, employers can offer one.

Workplace arrangements have been changing following the COVID-19 pandemic, and the Employment Relations Act reflects the realities of this evolution. It also stresses the importance of employee data management and electronification, another trend that gained pace during the pandemic.

Compliance errors cause needless expenses, and the change in worker statuses this Act creates might result in a wave of non-compliant filings. The biggest reason? Failing to account for and assign the right worker statuses.

Flexible work therefore makes payroll data management critical, and fast-growing companies that do not use automated payroll solutions will find this new law creating significant challenges. Pento, for example, is leading the way among UK payroll software solutions, with its new functionalities to support employers with flex workers and less conventional pay schedules.

Worker status implications

The Government has currently outlined eight types of flexible working situations. These are job sharing, working from home, part-time working, compressed hours, flexible hours, annualised hours, staggered hours, and phased retirement.

A worker switching from full-time to any of these roles will likely create significant tax implications for their employer. “If an employee requests flexible working but remains an employee, from a tax compliance perspective, it shouldn’t be an issue,” says Seb Maley, CEO of contractor insurance provider Qdos.

“But if a self-employed individual starts working in a manner akin to an employee, it can have a bearing on employment status compliance. In this scenario, businesses are on the hook for missing employment taxes.”

One way companies can mitigate this risk is by using the Government’s employment status for tax tool. While this tool will simplify employee tax filing codes, companies with growing workforces cannot manually enter information and transfer it.

The right move is to electronify and automate payroll management to account for these changes. Pento’s solution removes the chances of manual error creeping into the process by syncing with HR information systems and automating status filings at the click of a button.

Typically, companies outsource their payroll services when small, and those service providers are a good fit for companies that choose to remain small. However, growing companies face rapidly changing payroll landscapes and need flexibility.

For instance, a company may face a rapidly growing number of employees switching statuses, creating a need for HR to constantly reach out to the third-party provider. In this scenario, constant back-and-forth removes HR from offering salary and compensation data as inputs to the firm’s growth operations team, leading to an incomplete growth plan.

Adjusting to changes

Companies that approve the bare minimum do risk losing worker trust and damaging their chances of attracting top-tier talent. Offering flexible work is now a competitive advantage, with companies that accommodate such requests attracting better talent.

Pento’s solution seamlessly scales with growing companies, removing payroll complexity while ensuring all filing deadlines are met. Companies can create custom payroll workflows to account for all employee demands. By integrating with different platforms in a company, HR can offer payroll data insights, and companies can model the impact of changing payroll costs.

Moreover, HR managers can quickly assess the financial impact of an employee’s flexible work request by modelling the changes to the payroll structure and offering data-backed reasons for denying a request.

For instance, transforming workers in a department into compressed hour workers might offer the company tax advantages. Alternatively, accepting those requests might turn the department into a major cost centre. Either way, Pento can offer payroll data insights that give finance and HR teams data-backed reasons to approve or deny requests.

Flexible work is the future

Flexible work arrangements are here to stay, and companies must react proactively to the Act. Those that electronify their payroll workflows will generally have an easier time dealing with these changes.

Given its position as a significant business expense, increasing payroll efficiency certainly helps to keep companies compliant and ahead of the curve in the competitive marketplace.