HMRC (His Majesty’s Revenue and Customs) has proposed some significant changes to payroll reporting via the Real Time Information (RTI) system.
Currently, employers are required to include information on employees’ working hours in each RTI return by specifying within which band (A – D) each employee’s working hours fall (or selecting band E for ‘other’), and to include the actual hours worked on each employee’s payslip.
Following HMRC’s consultation ‘Improving the data HMRC collects from its customers’, they announced that it would require employers to provide additional information on contractual hours worked where these are reasonably stable (e.g., where the employee is not on a zero-hours contract) and actual hours worked for hourly rate employees.
HMRC has now published draft legislation which is subject to consultation until 9 May 2024, to implement the specific proposals. The new employer reporting obligations are expected to apply for 2025/26 and subsequent years.
With effect from 6 April 2025, employers will be required to report the total number of hours worked by each employee in respect of payments reported on the relevant RTI return.
How this is done will depend on how the employee’s pay is determined:
- If the employee is paid based on an hourly rate, the employer must report the number of hours worked.
- If the employee is paid based on the number of hours specified in their employment contract, the employer must report the number of hours that the contract required them to work in the relevant pay period; and
- If the payment to the employee is not determined on one of these bases, the employer should report the number of relevant hours as ‘nil’ and, where relevant, specify one of the below categories of payment:
- Taxable social security benefits (e.g., Statutory Sick Pay).
- Payrolled Benefits-in-Kind.
- Termination payments.
- Payments determined by reference to output (e.g., piece work); or
- Payments made to officeholders (e.g., directors without contractual terms that specify the number of working hours).
- HMRC will publish updated guidance on these measures before they come into effect.
As an employer, you will need to start to consider what these changes will mean in terms of your payroll/HR systems and processes in terms of gathering, validating, and reporting the additional data on hours worked. For some, the current systems might not hold the required information on hours worked or descriptions of payments in an easily reportable manner. This may require additional system interface processes so that the data can be accessed effectively.
The draft legislation can be found here:
