Paul Unwin, MCIPP and Payments Integration Manager at Caxton, shares how the UK's Employment Rights Act impacts the payroll industry.
For many, early April means Easter break and a chance to relax after a hectic Q1. For people like me in the payroll industry, however, April this year means the final chance to ensure payroll is compliant and ready for the formal implementation of the Employment Rights Act.
This signature legislation from the Labour government introduced a range of new employee rights that took effect on 6 April. These include the banning of Zero-Hours contracts, the right to flexible working and statutory sick pay (SSP) from day one, and other measures aimed at strengthening collective bargaining in the workplace.
The Act will continue to generate political headlines. Away from that, however, for payroll systems, the measures it contains bring a significant technical challenge.
Staying compliant
A key impact for payroll teams will be the delivery of SSP for new employees on day one.
This is going to require close management by HR teams and, for payroll professionals, it means ensuring SSP is part of any new employee onboarding process. Alongside this, the Act removes the lower earnings limit, meaning all employees - regardless of earnings level - will also be entitled to SSP from day one. Finally, SSP has, until now, often been paid at a flat rate. The Act introduces a variable rate of SSP, tagged to a percentage calculation of an employee's salary.
All of this brings a degree of complexity to SSP. For those in the profession handling employees with absences that began prior to April 6 and extending beyond it, there is a further complexity in that two separate calculations will be needed to stay compliant with these employees.
Paying the price for non-compliance
However complex the Act might make payroll, the impetus for businesses now is to get compliant, and quick.
Alongside creating new employee rights, the Act has also created a Regulator to enforce them, and it is armed with significant powers to take action when it comes to breaches. The Fair Work Agency (FWA) will be able to levy fines upon those businesses found to be in breach of the Act. The fines would cover under or non-payments to staff, plus a penalty of 200% of that sum. Underpayments going back up to six years will also be enforceable so, so any business that isn’t compliant now could find itself waking up to a nasty shock in 2032, six years from now.
The FWA will also be able to investigate proactively rather than on the basis of a specific complaint and will be able to take employers to tribunal, with or without the wronged worker. Failure to keep adequate records will also be considered an offence.
So, this is a regulator with teeth. All of which will mean increased scrutiny of payroll and increased demands on payroll teams and tech for flexibility, record keeping, and compliance.
BACS to the future
The key challenge for teams, and more especially for the tech, will be handling the complexity that the Act brings.
Payroll systems have traditionally been built to handle regular, recurring, and predictable payments. For regularity, BACS tends to work well - although teams should always have a back-up - but for fluctuating and variable SSP and team members on irregular hours? Here is where BACS might struggle.
BACS payments, for example, are difficult to cancel or recall once they’ve begun processing due to strict deadlines, and cancellations can come with cost.
Also, once submitted, BACS files cannot be amended, which, combined with the complexities of SSP in particular, could be a problem for payroll teams. Corrections will need to be reflected in fresh submissions in the next available processing window – slowing down payments, creating complexity, and putting pressure on payroll teams.
All of which narrows the scope within which errors can be rectified and enforcement avoided. So, will the Act be the death knell of BACS?
Probably not, but further tools will be needed to ensure payroll is fit for the future and to keep up with the new obligations employers face.
Paytech
Faced with the demands of the Act, it is likely that most businesses will need to move to a dual payroll system. BACS still has a significant role to play for regular, predictable salary runs. For urgent, irregular, and out-of-cycle payments, however, paytech solutions are going to be a necessity if payroll teams are to avoid the wrath of the regulator.
Payroll has always been at the heart of business. After all, if people don’t get paid, the business will unravel pretty quickly. The potential for substantial fines for payroll breaches, however, means payroll will need to be even more of a priority, and tech budgets will need to increase and solutions upgraded.
The Employment Rights Act raises the bar not just on what employers owe their staff, but on the infrastructure payroll teams need to deliver it reliably. Tech is going to be central to managing this growing complexity and to equipping payroll with the flexibility demanded by the modern workplace and by the law.
About Paul Unwin
As Payments Integration Manager at Caxton, Paul works within Caxton's Operations Team under the leadership of the COO, Alana Parsons. His focus is on enhancing the platform and evolving the business model to support growth, particularly as the company expands into new sectors. He brings a diverse background across multiple industries, including construction and payroll bureau services, which gives him a broad perspective on operational efficiency, systems integration, and client needs. This cross-sector experience helps him bridge the gap between technical implementation and commercial impact. He is passionate about driving meaningful change through collaboration, innovation, and a deep understanding of how payments can power better business outcomes.
