Making flexible payroll systems work

Expert advice on what to consider when implementing flexible payroll options

A growing number of UK firms are introducing flexible payroll practices, enabling staff to choose a pay day that best suits their personal lives or to draw down advances on wages.

It’s a trend that’s linked to the growth of the gig economy, the crackdown on payday lenders, and developments in mobile technology such as apps.

Employers simply wanting to facilitate multiple payroll dates should find that their current payroll provider already allows this. However, while the systems may be in a strong position to handle this change, the people side of things is more complex.

“You don’t need specialist staff to handle it but choosing multiple payrolls involves so much more work, administration and data being sent to HMRC,” says Steven Watmore, product management lead UK and Ireland at Sage.

Switching to a newer payroll provider with built-for-purpose systems can greatly reduce the workload. Mitrefinch reports that its Flexipay system typically saves payroll professionals around a quarter of their time.

Flexibility in practice

Mitrefinch has teamed up with specialist third-party lender Wagestream to enable employees to draw down their pay. Mitrefinch simply gives those using Flexipay a licence key and trains their HR personnel, and Wagestream has technology connecting with 25 workforce management systems.

Peter Briffett, CEO and co-founder of Wagestream, says: “Our engineering team will make a quick call and establish the appropriate connection. Companies can give us payroll data manually or via an API [application programming interface].”

But employers wishing to remain with their existing payroll provider can team up with a third-party lender themselves. The lender is responsible for paying advances and then collecting the money from employees later via an electronic account through which net pay runs. It may charge employers a small monthly amount per employee and/or charge workers a small flat fee or interest payment per transaction.

Employers could provide advances internally instead, but this will entail a lot of manual administration and requests for money would have to go through HR or payroll rather than via an external party. Some employees may be uncomfortable with their employers having this control over their personal finances.

Whichever the preferred option, there are many practical considerations to making flexible payroll systems work in practice.

Preliminary research

There will be extra work involved with changing practices so it is essential to canvas employee opinion beforehand to see if a move is justified.

“It’s all part of an overall financial wellbeing programme so you should work closely with employees to see how high this is on their agenda, as you can’t always give them everything,” says Jeff Phipps, managing director of ADP UK. “Would they, for example, prefer flexible pay to financial education seminars?”

Administration and cash flow

Thought must be given to the administrative overheads created by a flexible payroll system and to whether more staff are needed to deal with the additional workload, feels Watmore.

If employers are granting more frequent pay dates or funding pay advances internally then they must first obtain a thorough cash flow appraisal from the finance department. However, cash flow is not an issue if working with a third-party lender as the lender makes the advances.


If you move the pay date you must give due consideration to reporting practices and the potential impact on employee rights.

“There are concerns about whether entitlement to Universal Credit claims could be affected where regular drawdown appears to create a change in pay frequency,” says Samantha Mann, senior policy and research officer at the Chartered Institute of Payroll Professionals.

“Where this occurs RTI [real-time information] submissions need to accurately reflect the pay reference period in use.”

Julie Lock, Flexipay general manager at Mitrefinch, advises ensuring that advances do not constitute loans (as these require Financial Conduct Authority regulation).

“It is important to realise that you can only draw down on money that has actually been earned, and this is the bit where people can come unstuck,” she says.

Ethical considerations

Phipps advises HR to also consider the ethical implications of such an approach. Employers should consider whether they feel comfortable working with third-party lenders that charge fees to employees. Even flat fees – typically between £1.50 and £2 per transaction – could be construed as being for commercial gain rather than in employees’ interests.

It’s also crucial to check that lenders incorporate adequate controls to ensure staff borrow responsibly and that any worrying behavioural patterns can be spotted quickly.

Watch this space

A lot of providers are eyeing up this fast-developing field. So the options available from third parties – and even current payroll providers – will change and increase. And this means so too will HMRC requirements.

As Mann says: “Successive governments struggle to stay abreast of changes in evolving employment practices, and HR needs to watch out for announcements. If pay on demand builds momentum HMRC would need to revisit existing guidelines to ensure they remain fit for purpose.”

This piece appeared in the February 2020 print issue. Subscribe today to have all our latest articles delivered right to your desk