COMPLIANCE
Holiday pay and contractual adjustments
gender pay gap reporting so that employers with 250 employees or more will also be required to disclose ethnicity and disability pay gaps. It’s proposed that this enhanced transparency will identify pay disparities at an organisation-wide level and prompt employers to constructively consider why pay gaps exist and how to tackle them. While some employers are already volunteering to report their ethnicity and disability pay gap figures, these changes mean regular pay gap reporting will need to be more comprehensive, including ethnicity and disability categories. This will require additional data collection and reporting mechanisms, and a need for payroll teams to get up to speed with the legislative guidance on how to calculate these figures. Increased compliance pressures on payroll teams Under the Bill, the newly formed FWA will assume greater enforcement powers, including the ability to audit employers and enforce workers’ rights to SSP, NMW and holiday pay. This includes 200% penalties for underpaying SSP or holiday pay (as is currently the case for NMW). Employers will also need to maintain adequate records, which show compliance with holiday entitlement and pay obligations for a period of six years or be liable to a fine. This will likely mean that payroll departments are tasked with more ownership of compliance on these issues and will therefore need to ensure systems and processes are compliant, particularly as they may be scrutinised by the FWA. They’ll have to give team members regular training.
Payroll teams will need to review holiday pay calculations to reflect any changes in a worker’s contract during each pay reference period, ensuring the holiday pay is based on the worker’s actual pay during the reference period in line with the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023. “Understanding what the changes are and identifying the current gaps in compliance will be the first step for payroll teams to take” Given the extended remit of the Fair Work Agency (FWA) to enforce holiday pay along with national minimum wage (NMW), this will be a key risk for businesses, and payroll will play a key part in mitigating that risk. Day one rights The Bill introduces several “day one” rights, including enhanced SSP, unpaid parental leave, paternity leave, paid bereavement leave and additional maternity protection. One key change is the extension of SSP, which will no longer have a lower earnings limit or a waiting period. This means workers will be entitled to SSP from the first day of sickness absence. In addition, people on low wages who fall ill will receive either 80% of their average weekly earnings or statutory sick pay – whichever is lowest. SSP will also increase to £118 per week. Payroll teams must ensure their systems are updated to reflect these changes, processing SSP from day one of sick leave. to ensure compliance with the new rules. Pay gap reporting and equal pay The Bill takes the current pay gap reporting requirement a step further, by requiring large employers (those with 250 or more employees) to develop and publish an equality action plan. In connection with this, the draft Equality (Race and Disability) Bill plans to extend
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Conclusion The Employment Rights Bill is a
significant piece of legislation, which will have wide-reaching implications for all employers. Payroll teams will play their part in preparing for the changes – from recalculating guaranteed hours and tracking shift changes, to managing holiday pay and pay gap reporting. Understanding what the changes are and identifying the current gaps in compliance will be the first step for payroll teams to take. From then, clear processes should be introduced, and systems updated to mitigate risks arising from the unintended consequences of the Bill, to ensure a smooth transition to the new rules. n
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| Professional in Payroll, Pensions and Reward |
Issue 110 | May 2025
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