Payroll teams need to understand the laws that affect how employees are paid and treated at work. This blog highlights the key legislation that employers should know and what it means for payroll.
Employment Rights Act 1996
- Protection against unfair dismissal
- Parental leave (Maternity, paternity, shared parental and adoption)
- Employment particulars
- Redundancy rights
- Consolidation of rights
- Right to notice on termination
- Right to request flexible working arrangements
- Clarification on ‘workers’ vs ‘employees’
All employers have a responsibility to ensure that they have an organisational understanding and demonstrate compliance with the rights outlined in this act.
Employers should also ensure that anyone in a human resources or management role has been sufficiently trained, and their knowledge of the act tested.
Non-compliance with the act is the fastest way for a small employer to lose a tribunal case and suffer serious consequences.
Working Time Regulations 1998
- Maximum working hours
- Rest breaks
- Weekly rest period for shift workers
- Young workers maximum working hours and rest breaks
- Paid annual leave
- Special provisions for night workers
- Holiday entitlement
- Protection from employment detriment
The working time regulations in conjunction with the National Minimum Wage Act (passed the same year) provide payrollers with the tools to check processed hours for any non-compliance, and to flag these to employers as something to watch. Usually this just means that someone has made a typing error on a timesheet, but sometimes it's something requiring a lot more work.
The Working Time Regulations also set out protections for employees, such as: reduction of hours, bullying, harassment and blocking of progress and training.
Violations of the working time regulations act are serious, and employers could suffer significant reputational damage as a result.
Payrollers have many tools to detect the early signs of concern, and can help employers to spot the signs and keep on top of their responsibilities.
Income Tax (Earnings and Pensions) Act 2003 (ITEPA)
- Outlines how employment, benefits in kind and pensions should be taxed
- Simplified and clarified the rules governing the taxation of employment income
- Defines ‘taxable earnings’
- Defines tax reporting requirements and responsibilities
This could arguably be considered ‘the payroll act’, as it outlines many of the rules that payroll need to apply to your earnings when processing. Modern payroll software applies many of these rules automatically but we still need to understand ‘why’ the software is doing what it’s doing.
Knowledge of the ITEPA rules is what really makes payrollers specialists, and gives us crucial insights into the real costs facing your business when employing staff, especially if we work closely with bookkeepers to identify benefits and purchases that would trigger taxation rules before they become a huge, forgotten, issue that will come back to haunt you.
Employment Rights Bill 2025
- End zero hours contracts and introduce guaranteed hours
- End ‘fire and rehire’ practices
- Making unfair dismissal a day one right
- Removing waiting days for statutory sick pay
- Creating a statutory ‘bereavement leave’
This bill is currently progressing through Parliament, and is due for it’s third reading in the House of Lords tomorrow. It seeks to address several key areas that affect payroll and salaries, most notably changes to statutory sick pay rules that could significantly increase payroll costs for businesses with high absence rates.
We’re keeping an eye on how things have progressed and will share our insights once the bill receives Royal Assent.
The Pensions Act 2008
- Outlined employer responsibilities
- Ensured every employee is automatically enrolled
- Set mandatory minimum contribution rates via payroll
- Set the state retirement age and provided a framework for future pension acts
The act that brought in automatic enrolment rules and caught many employers and pension providers out. Now that all the phased deadlines have well and truly passed it’s important that employers understand their responsibilities under the law, and why the Pensions Regulator might be getting in touch.
This act fully integrated pensions into the payroll process. If you’re not sure about your responsibilities, your payroller will definitely be able to help you.
The Pension Schemes Bill 2024-25
- Consolidation within the pensions market allowing for better investments
- Minimum asset requirements for pension providers
- Creation of ‘megafunds’ to ensure better return for savers
- More protections for defined benefit schemes
- Automatic consolidation rules for small defined contribution funds for savers
This is still in the early stages in the House of Commons, but promises to bring much needed reform and clarity to the pensions industry. Just as the pensions act ensured that many billions of pounds were headed their way, the pension schemes bill will require all pension schemes to demonstrate a reasonable rate of return on employee’s investments.
As part of this, pension schemes could be required to provide insights into scheme performance, which may lead to employees requesting that employers change which scheme they use for automatic enrolment.
This is a good example of a law that on the surface doesn’t impact payroll at all, but in practice will lead to lots of small changes that ensure employees get a better pension deal at retirement. And with how much employer pension contributions cost business, it should be some comfort that there will be clearer guidance on what exactly your pension provider is doing with that money.
The next step
How many of these laws do you know about? And how familiar are you with the ones that you did?
Payrollers need to keep up to date with the latest changes in the law through both the legislative process and court rulings that modify or clarify points within the law.
Talk to Steven Quayle or your local UHY payroll adviser to learn more about your responsibilities as an employer, and how engaging a payroll professional can help you to succeed.
