Operational efficiency Flexible payroll
Making flexible
payroll systems work
EDMUND TIRBUTT gathers expert advice on what to
consider when implementing flexible payroll options
A growing number of UK
firms are introducing flexible
payroll practices, enabling staff to
choose a pay day that best suits
their personal lives or to draw
down advances on wages.
It’s a trend that’s linked to the
growth of the gig economy, the
crackdown on payday lenders,
and developments in mobile
technology such as apps.
Employers simply wanting to
facilitate multiple payroll dates
should find that their current
payroll provider already allows
this. However, while the
systems may be in a strong
position to handle this change,
the people side of things is
more complex.
“You don’t need specialist staff
to handle it but choosing multiple
payrolls involves so much more
work, administration and data
being sent to HMRC,” says Steven
Watmore, product management
lead UK and Ireland at Sage.
Switching to a newer payroll
provider with built-for-purpose
systems can greatly reduce the
workload. Mitrefinch reports that
its Flexipay system typically saves
payroll professionals around a
quarter of their time.
Flexibility in practice
Mitrefinch has teamed up with
specialist third-party lender
Wagestream to enable employees
to draw down their pay.
Mitrefinch simply gives those
using Flexipay a licence key and
trains their HR personnel, and
Wagestream has technology
connecting with 25 workforce
management systems.
Peter Briffett, CEO and cofounder
of Wagestream, says:
“Our engineering team will
make a quick call and establish
the appropriate connection.
Companies can give us payroll
data manually or via an API
application program interface.”
But employers wishing to
remain with their existing payroll
provider can team up with a
third-party lender themselves.
The lender is responsible for
paying advances and then
collecting the money from
employees later via an electronic
account through which net pay
runs. It may charge employers a
small monthly amount per
employee and/or charge workers a
small flat fee or interest payment
per transaction.
Employers could provide
advances internally instead, but
this will entail a lot of manual
administration and requests for
money would have to go through
HR or payroll rather than via an
external party. Some employees
may be uncomfortable with their
employers having this control
over their personal finances.
Whichever the preferred
option, there are many practical
considerations to making
flexible payroll systems
work in practice.
Preliminary
research
There will be extra work
involved with changing
practices so it is essential to
canvas employee opinion
beforehand to see if a move
is justified.
“It’s all part of an overall
financial wellbeing programme
so you should work closely with
employees to see how high this is
on their agenda, as you can’t
always give them everything,” says
Jeff Phipps, managing director of
ADP UK.
“Would they, for example,
prefer flexible pay to financial
education seminars?”
Administration and
cash flow
Thought must be given to the
administrative overheads created
by a flexible payroll system and to
whether more staff are needed to
deal with the additional
workload, feels Watmore.
If employers are granting more
frequent pay dates or funding pay
advances internally then they
must first obtain a thorough cash
flow appraisal from the finance
department. However, cash flow is
not an issue if working with a
third-party lender as the lender
makes the advances.
Compliance
If you move the pay date you must
give due consideration to reporting
practices and the potential impact
on employee rights.
“There are concerns about
whether entitlement to Universal
Credit claims could be affected
where regular drawdown appears
to create a change in pay
frequency,” says Samantha Mann,
senior policy and research officer
at the Chartered Institute of
Payroll Professionals.
“Where this occurs RTI realtime
information submissions
need to accurately reflect the pay
reference period in use.”
Julie Lock, Flexipay general
manager at Mitrefinch, advises
ensuring that advances do
not constitute loans (as these
require Financial Conduct
Authority regulation).
“It is important to realise that
you can only draw down on
money that has actually been
earned, and this is the bit where
people can come unstuck,”
she says.
Ethical considerations
Phipps advises HR to also
consider the ethical implications
of such an approach. Employers
should consider whether they feel
comfortable working with thirdparty
lenders that charge fees to
employees. Even flat fees –
typically between £1.50 and £2
per transaction – could be
construed as being for
commercial gain rather than in
employees’ interests.
It’s also crucial to check that
lenders incorporate adequate
controls to ensure staff borrow
responsibly and that any worrying
behavioural patterns can be
spotted quickly.
Watch this space
A lot of providers are
eyeing up this fastdeveloping
field. So the options
available from third parties – and
even current payroll providers
– will change and increase.
And this means so too will
HMRC requirements.
As Mann says: “Successive
governments struggle to stay
abreast of changes in
evolving employment
practices, and HR
needs to watch out
for announcements.
If pay on demand
builds momentum
HMRC would need
to revisit existing guidelines
to ensure they remain fit
for purpose.” HR
42 HR February 2020 hrmagazine.co.uk
/hrmagazine.co.uk