Payroll reporting from April 2025 – HMRC consults on changes

Proposed changes to payroll reporting from April 2025 may require employers to modify their payroll and HR systems. Ahead of the proposed changes, HMRC recently consulted on the draft legislation, which is aimed at ‘improving the data HMRC collects from its customers’. In short, the proposed changes are expected to mandate employers to record the hours worked in relation to payments made in their real time information (RTI) PAYE returns.

What is changing?

The explanatory memorandum confirms that the draft regulations specify additional information about employees’ hours that employers are required to include in the RTI returns they are required to make to HMRC. Starting from 6 April 2025, employers completing RTI returns will need to supply HMRC with details of the number of hours worked by each employee in respect of a pay period, provided that that information can be determined. 

If that information cannot be determined, employers will need to provide the reason, referring to a specific description outlined in the regulations. 

How is the additional information established?

How this additional information is arrived at 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 that determined the relevant payment.
• If the employee is paid based on a 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. If that employee has worked any additional paid hours in overtime in that pay period, then the reported hours will also need to include the number of overtime hours worked.
• 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 following descriptions of the payment.

1. Statutory payments processed through payroll (eg statutory sick pay).
2. Payrolled benefits-in-kind.
3. Redundancy or termination payments.
4. Payments determined by reference to output (eg piece work).
5. Payments made to officeholders (eg directors without contractual terms that specify a number of working hours).

If the employee’s pay consists of more than one of the above, each element needs to be reported. HMRC has stated that it will publish updated guidance on these measures prior to them coming into effect.

How is this different from current requirements? 

Employers are currently required to include high level information on employees’ working hours in each RTI return by specifying within which band (A – D, as defined in the current regulations) each employee’s working hours fall; or by selecting band E for ‘other’ where, for example, there is no regular working pattern or employees are on zero-hours contracts, and to include the actual hours worked on each employee’s payslip.

This proposed measure will lead to HMRC receiving enhanced information on the actual number of hours, rather than just a broad range of hours, that each individual works.

How should employers prepare for the change?

Employers need to consider the potential implications of these forthcoming changes on their payroll and HR systems. This includes the collection, verification, and reporting of additional data related to hours worked. For some employers, their existing systems may not have the capability to store the necessary information on hours worked or payment descriptions in a format that can be easily reported. They might need to implement additional system interface processes to effectively access the new data required by HMRC.

Employers should also think about the necessary steps, available resources and potential budget allocations for internal projects needed to comply with the new reporting requirements by 6 April 2025. 

If applicable, employers should plan how their preparations for the increased RTI reporting will interact with the preparations for the compulsory payrolling of benefits-in-kind, starting 12 months later from 6 April 2026.

Further thoughts

As a wider point, HMRC’s initial policy consultation directly associated the provision of more detailed information on employees’ actual hours worked with improved national minimum wage (NMW) enforcement.

Whilst enhancing NMW enforcement against intentionally non-compliant employers is a positive step, employers that are generally compliant could face an increased chance of being chosen for a risk-based NMW review if they do not report their employees’ hours accurately. For this reason, it will be important for employers to ensure that they do not negatively impact their NMW risk-rating by inaccurately reporting hours worked when the new obligations are in force.

For more information, please get in touch with Susan Ball or your usual RSM contact.