Proposed changes to payroll reporting – why HR, finance and payroll must work together

Earlier this year, HMRC consulted on changes to the Real Time Information (RTI) Draft legislation: Improving the data HMRC collects from its customers. The proposed changes will require employers to record all hours worked within RTI payroll returns from 6 April 2025. This all sounds relatively simple, and for many employees it will be, but for certain groups of employees, considerable work is required by finance and HR teams prior to commencement, to ensure the data returned is as accurate as possible and minimises the risk of non-compliance.

Current requirements

Payroll returns must include very high level working hours information via a 'banding' for each employee, including the catch all 'Band E - Other' for employees with no regular working patterns. Plus, actual hours worked must be included on each employee's payslip.

Proposed requirements

HMRC propose that employers should include actual hours worked within RTI returns for each pay period (e.g. monthly/weekly).

Why is this difficult for the HE sector?

For the majority of employees, this should be a straight-forward exercise:

• Hourly paid employees  - employers will report the number of hours worked during the pay period
• Contractual hours, e.g. 7.5 hours per day for 3 days per week specified in their employment contract – the employer reports the number of hours that the contract required them to work in the pay period

Within the HE sector, there are a raft of different types of contracts and different payment variables. At present, HMRC has not provided guidance on what to do if your employees are not hourly or contractual workers, e.g. term time based, have no set hours in contracts, have variable hours and where you have no system to collect hours worked.

What should we do about it?

It's important to note that these are proposed changes from HMRC and there is no formal guidance yet available. Whilst we hope for a delay in implementation, we should prepare for the worst.

At this stage, we recommend the 'knowledge is key' response. Ensure HR, finance, tax and payroll teams are aware of the potential changes and create working group to discuss requirements from each team, for example:

• Payroll - Discuss the potential changes with your payroll software provider – what are their thoughts, will they be ready, etc?
• Finance and tax – What changes may be required to the finance system to allow for ease of reporting
• HR - Review your contracts and categorise between low risk (hourly paid and set contractual hours) and high risk (everyone else). If HMRC push forward with the changes, you will at least be in a position to concentrate on your high risk population

As soon as more information is released by HMRC, BUFDG, UHR and UCEA will be working together on the proposed changes to find and produce useful resources to the sector.