Changes to flexible working require a flexible payroll approach

The way of working has changed for many employees over the last few years. Many of us were

forced to make changes to our previous working styles and adapt to working from home during

the pandemic. As a result, there appears to be a changed perception of work-life balance, with

more employees than ever wanting a flexible working approach.

2023 research by the Chartered Institute of Personal Development (CIPD) shows that 6% of

employees changed jobs specifically due to a lack of flexible working options, and 12% left their

profession altogether due to a lack of flexibility in their sector.

No doubt these were contributing factors to the overhaul of existing flexible working legislation.

The Flexible Working (Amendment) Regulations 2023 will come into effect from 6 April 2024,

giving employees the right to request flexible working from day one of employment. Note that this

is the right to request flexible working and not a guarantee that flexible working patterns will be

approved.

Flexible working is a broad term which relates to working hours and patterns. It could be part[1]time hours, term-time only working, flexitime, compressed hours or adjusted start and finish

times. It also covers working location, whether that be working from home, fully in the office or a

hybrid arrangement.

The new regulations introduce key changes to employment law including:

• removing the requirement for an employee to have 26 weeks service to be eligible, so the

ability to request flexible working becomes a day one right

• the existing right to make one request in a 12-month period will be doubled to two

requests in the same period

• employees will no longer need to justify the request or outline how the proposed change

will potentially impact their role or the business, and how that impact might be managed

• workers will benefit from new protections; employers will be required to consult with the

employee before rejecting their flexible working request

• employers’ decision times have been reduced from three months to two months.

The reforms appear favourable to the employee, with more workers now putting their work-life

balance as a priority. In May 2023, Mental Health UK reported that flexible working could tackle

burnout in the workplace, with employees feeling that being able to work flexibly to suit their

needs allows time to “catch up with family life”.

So, what effect does this have on employers?

Employers will still have the right to decline the request if it isn’t suitable for the business’s needs.

But employers should be encouraged to look for a reason to accept, rather than a reason to

decline the request.

In 2019 Henley Business School conducted a trial study on the effects of shorter working week.

“Henley’s Four Better or Four Worse?” white paper explored the impacts of employees working a

four-day week on full pay. The research found that 64% of businesses that have already

implemented the four-day working week reported improvements in staff productivity. 78% said

staff were happier, 70% said employees were less stressed and 62% confirmed a reduction in

days off from work due to sickness.

The Confederation of British Industry (CBI) Employment Trends Survey found that 99% of all

businesses surveyed believe that a flexible workforce is vital or important to competitiveness, and

the prospects for business investment and job creation.

Flexible working practices contribute to the attraction of talent and employee retention. If flexibility

can increase employee satisfaction, they will stay loyal to their organisation and reduce staff

turnover, saving the business time and money.

The CIPP’s 2023 Payslip Statistics Report shows that 59% of organisations are enabling more

hybrid / remote working, which allows employees to save on commuting costs.

What impact will the new legislation have on the payroll department?

Although the initial processes which need to be reviewed, such as updating company policies

and training managers, appear to be firmly in the court of the human resource (HR) department,

both payroll and HR will need to collaborate to ensure the best possible outcome for both

employees and employers.

The obvious considerations for the payroll department relate to salary recalculations for changes

in working hours. However, this type of calculation is just one of many factors which would need

investigating before any decision is made by the employer.

There will be implications on an employee’s holiday pay and entitlement. How much of an impact

this would have depends on how holiday entitlement and any leave taken is recorded. In a

business which doesn’t have an automated holiday or time and attendance system, all holiday

entitlement would need to be calculated and recorded manually. A calculation process that can

be complex and time consuming, especially where a company has a range of shift patterns

including four on, four off.

With the term ‘flexible working’ covering a broad range of possible options, there wouldn’t be a

‘one size fits all’ answer. Each request could vary and would require payroll calculations and

compliance checks to be carried out on a case-by-case basis. Employees should be fully aware

of the implications of their request and how it will impact them.

Although an employee changing their work location from office to home wouldn’t directly affect

any payroll calculations, there could be potential for the employer to pay a working from home

allowance. An employer could reimburse working from home costs at a flat rate of £6 per week or

the amount of additional household expenses incurred through home working, without there

being a reporting requirement to HM Revenue and Customs (HMRC) for tax and National

Insurance purposes. Any payment above the advisory rate of £6 per week or over the additional

costs incurred would be reportable and become taxable.

Working from home or hybrid working would require clarity on contracts of employment to

establish if travel expenses from home to a workplace, such as the company’s office, would be

eligible for tax relief or not.

Most payroll departments are already extremely busy, with tight deadlines and short turnaround

times. An influx of flexible working requests could potentially place unmanageable admin burden

on already stretched departments. This may discourage some employers from allowing each

flexible working request the time and attention it deserves. Does this open the risk of requests

not being assessed thoroughly and causing potential compliance issues?

Payroll complexity is growing rapidly, with continuous legislation updates, various rate changes

and let’s not mention ‘simplifying holiday pay for irregular-hour and part-year workers’, so, it’s no

surprise that there are so many payroll systems to choose from, or that software developers are

constantly working on upgrades and new versions, to offer the most attractive option on the

market. Which begs the question, are there payroll systems capable of managing all the complex

calculations and working patterns which could come with the latest developments regarding

flexible working.