01 December 2021
Samantha Johnson LLB(Hons) ChMCIPPdip, CIPP policy lead, provides a whistle-stop tour of the changes for for payroll professionals for tax year 2022/23
As 2021 draws to a close, and Christmas and new year celebrations commence, it is natural to reflect on the last twelve months and wonder what 2022 will bring. In payroll, change is a constant and 2022 will most certainly be no different.
Health and social care levy
On 7 September 2021, the prime minster, Boris Johnson, announced the introduction of a new health and social care levy. This levy will be set at 1.25%, and for the 2022/23 tax year only, will be added to national insurance (NI) rates. In practice, the implementation should be straightforward in 2022, with the increase applying to class 1, 1A, 1B and class 4 NI.
However, the more significant impact in 2022 will be two-fold. Payroll teams will be asked to prepare both the employee and the employer for the additional costs. Uninformed employees could create a tidal wave of queries if they are not expecting the increase in NI. Although, employers are being encouraged to include a payslip message to aid employee understanding. Employers will also need to ensure they have allocated sufficient budget to this new employment cost and take action to adjust their business strategy if they are unable to absorb the oncost.
In the payroll software space, developers will quickly be looking to understand the detail of the 2023/24 health and social care levy, which will be separated from NI at the start of the 2023/24 tax year tax year. Her Majesty’s Revenue and Customs has yet to confirm the detailed structure, and the clock is ticking for software to be designed, developed and tested before it can be rolled out to users.
Flexible, hybrid and remote working
The pandemic created an opportunity which challenged the traditional perception that payroll processing can only take place in the office. Working from home became the norm in payroll in 2020 and 2021, and we are only at the beginning of the cultural journey to understand if working from home is here to stay. Many businesses have already embraced this change with open arms, issuing permanent policy changes to facilitate a more flexible approach to the traditional nine to five.
With transferable skills that mean payroll professionals can work across all sectors, it will be incumbent on employers to ensure they are actively evaluating and assessing the needs of their employees, to avoid losing valuable talent from their organisation.
In addition, with the removal of the temporary home working rule on 6 April 2022, employees who work from home due to Covid will no longer be able to claim for the £6 per week tax relief. Instead, they must show they are eligible under section 336 of the Income Tax (Earnings and Pensions) Act (ITEPA) rules, which are much more restrictive. The rules can be found here: http://ow.ly/B4AI30s1Ihp. Employees must demonstrate that the expenses were incurred in the performance of their duties, were necessarily incurred and that they were wholly and exclusively incurred. If employees have changed their working arrangements to facilitate home working, they cannot be guaranteed they will be eligible for this allowance in the next tax year.
The eagerly anticipated Employment Bill continues to keep payroll professionals waiting. This Bill will hopefully introduce an implementation date for statutory neonatal pay and leave, and statutory carer’s leave. It will also provide details on the introduction of the single enforcement body.
In 2020, the government confirmed it would introduce neonatal pay and leave, however, an implementation date is yet to be confirmed. The introduction of this new statutory entitlement will provide parents with babies who are 28 days old or under and require neonatal care, with a new type of leave which will be in addition to the standard parental leave. Leave entitlement will be a day one employment right, with paid leave based on length of service. Leave and pay could last for a maximum of twelve weeks.
Conversely, carer’s leave will be an unpaid entitlement for all and will be a day one employment right. Employees will be entitled to one week, to be taken in one block or used flexibly, by taking half or single days.
The details of the single enforcement body are expected to appear in the Employment Bill. In June 2021, the government confirmed it would be moving forward with a single organisation, tasked to enforce key areas that impact payroll professionals on a daily basis. Holiday pay, national minimum wage (NMW) and statutory sick pay will be some of the areas that will be actively enforced by this new body.
2022 will see another step towards the government’s target for minimum wage. On 1 April 2022, the national living wage (NLW) will increase to £9.50 per hour. In 2021, the real living wage (RLW) was set at £9.50, the key difference being that this applies to everyone aged eighteen and over. The new RLW rates were confirmed in November and are set at £9.90 per hour across the UK, and £11.05 in London.
The increase in the NLW will be welcomed by many, but with a 1.25% increase created by the social care levy, and a further 6.6% rise in NLW, employers will be looking to introduce measures to offset additional employment costs. These measures could see future rises in the overall cost of living as the costs are passed on to the consumer.
Payroll teams will also need to evaluate the payroll carefully, taking into consideration salary sacrifice arrangements and all working hours to ensure that employees do not fall into a non-compliant state when the increase becomes effective.
Pay gap reporting
In September 2021, Parliament debated the introduction of ethnicity pay gap reporting, following a petition which gained more than 130,000 signatures in support of this legislative measure. Payroll teams are familiar with gender pay gap reporting, which will see its original deadlines for publication return to normal in March and April 2022.
Ethnicity pay gap reporting could create a more significant statistical challenge in presenting the data. Gender pay gap reporting is completed using the binary male and female comparison. Conversely, the number of ethnic groups that would need to be considered could could easily reach double digits. Before this calculation can become mandatory, government would need to clearly define how the data should be analysed to present a clear and transparent picture.
In addition, ethnicity data collection presents a further challenge. There is no mandate to provide employers with ethnicity, therefore, the information may not be available to produce the calculation at all.
However, despite the challenges, Parliament recognised that, without mandatory reporting in this area, the gap was unlikely to close.
The autumn Budget
The 2021 autumn Budget laid out several changes that would impact payroll professionals across the UK. The November 2021 magazine provided an overview on this, and the autumn Budget webcast talks through the key announcements from the day. Find it here: http://ow.ly/Hqnh30s1pLH. To stay up to date with the practical applications for the new tax year, be sure to sign up to BeConnected – our CIPP free-to-attend events for associate and above members.
Featured in the December 2021 / January 2022 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.