Working a week in hand is pretty common in the UK, but what exactly does it mean for employees and employers? Essentially, when you work a week in hand, your pay is a week in arrears. You’re paid for your work one week after the period in which you actually completed the work. Where an individual works Monday to Friday, the employee would be paid the Friday after for the work completed Monday-Friday the week before.
It’s straightforward enough for employers who write this into each employment contract and have the same deal with all their employees, but as a small business owner it’s possible you might work differently with different employees – but remember a consistent approach is key as you grow.
Still, it’s important to understand the ins and outs of working a week in hand as a business owner so you can implement it into your business if it’s something you’re passionate about. Knowing when and how to pay staff, how it works for average week’s pay and statutory sick pay, and ensuring the correct work period is paid at the correct time is important for any business owner thinking of implementing working a week in hand at their business.
We’ll explore the meaning of a week in hand below and other issues you’ll need to consider.
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What Does Week In Hand Mean?
A week in hand simply means you receive your normal pay for the week worked, but one week later. You won’t receive pay for your current work week until one week later. New employees will work for two weeks with no pay until they receive their first week’s pay at the end of the second week.
Here wages are always a week in arrears, but it is a strong option for employers where their worker’s pay varies each week. It helps with cash flow and can mean hours can be altered more flexibly compared to individuals on a salary who will earn an average weekly pay every week.
Before small business owners in the UK rush off to start paying their employees using this method, you’ll need to learn more about why some businesses do, some businesses don’t, and what it means for your payroll, accounting and more.
Why Do Employers Use Week In Hand?
Small businesses might opt for paying a week in hand because of any of the following reasons:
- Cash flow – Money is always available to cover wages when paying one week in arrears because a worker essentially contributes to the work being completed one week before they’re paid for that work period, allowing you to earn more in that time.
- Probation periods – It allows employers to assess new employees during a probation period before paying them. This minimises risk. Of course, you’ll need to pay for any hours worked even if you terminate their contract early, but it can prevent you from investing too much in an employee who simply isn’t going to work out.
- Notice periods – If an employee leaves without giving notice, the employer will not lose out on any pay. Employees paid for the previous week know if they walk out they won’t walk away with money they haven’t earned.
- Administration – Processing payroll weekly rather than monthly is easier administration. You don’t need to worry about an average weekly figure or anything like that. You calculate the work they did and their final pay will reflect that.
- Cost savings – Paying in arrears may have small cost savings for employers. You’ll always need to meet the worker’s statutory entitlement to minimum wage, however. A minimum week’s wage for any worker over the age of 21, working 40 hours in a week, would be £457.60 (£11.44 x 40 hours) before tax.
For these reasons, many small companies choose to pay a week in hand. It can benefit the business financially and operationally.
Is Week In Hand Legal?
Paying week in hand is perfectly legal in the UK. However, there are some important things to note:
- If employees are part of a union, the union agreement may specify pay dates which must be followed.
- The Employment Rights Act 1996 states that wages cannot be unreasonably delayed. In some cases this may mean offering an early first payment to help workers with the transition to this pay style.
- Contracts and policies should clearly state the pay schedule to avoid confusion. If a worker begins to question it, you can show them where it states their pay structure in the contract they signed.
- Deductions cannot take pay below the National Minimum Wage hourly rates.
As long as it aligns with contracts and legislation, week-in-hand pay is 100% legal. It’s a good idea to have employees sign confirming they understand the pay schedule.
How Does Paying A Week In Hand Affect Things Like Maternity And Sick Pay?
Although an employee may be used to receiving their pay a week in hand, if they become sick or give birth, then maternity pay and statutory sick pay will be paid weekly from the moment you require it. It won’t be delayed by a week to fit your payment schedule.
This may mean some adjustments when returning to work to make the transition back to week in hand pay smoother. Speak to your employer and they ought to accommodate any request for slightly earlier pay.
Implementing Week In Hand Payroll
Payroll would require some tweaks if you decide to switch to paying your employees using a week in hand method instead. Here are some tips:
- Update employment contracts – An employee’s payment schedule should be clearly defined in the employment contract. If it is changed, the contract should be updated.
- Communicate the change – You will need to ensure you give your employee an adequate amount of time to understand the change to their pay schedule. Always tell them early.
- Adjust payroll processing – There’s usually an automated pay process, so ensure it is properly updated to the correct pay date and the correct period.
- Review cash flow – Ensure sufficient funds are available for payroll each week by carefully managing the transition.
- Update accounting – Recognise the week in hand as a liability in accounts. Accrue accurately.
- Report taxes – Remember to continue to report PAYE income tax and National Insurance every month.
So long as you’re prepared, switching to paying employees on a week in hand basis doesn’t have to be complicated.
Pros And Cons Of Week In Hand For Employers
As an employer, it’s important that you consider both the plus sides and the down sides of switching to this pay structure:
Advantages
- Puts you in the financial planning driver’s seat.
- Better cashflow to cover wages.
- No confusion with probation periods and pay given.
- You won’t lose money if an employee fails to show up.
- Simpler payroll administration with weekly processing.
- Potential small cost savings.
Disadvantages
- Most employees are used to a monthly payroll without having to work in hand.
- If you’re not a business that typically pays a week in hand it can become complicated.
- Cashflow must be managed effectively to ensure wages are covered each week.
- May still need to pay notice pay if employees leave.
- Slightly more accounting administration and organisation required.
For small businesses the benefits will usually outweigh the drawbacks, but for larger businesses it’s often too confusing. It’s also worth noting that this pay method is usually preferred in certain industries, such as construction or car mechanics, for example.
What About From The Employee’s POV?
Smaller businesses may find paying a week in hand to be easier, but what do employees typically think?
Advantages
- More frequent pay can be beneficial to some employees
- A weekly cycle of pay can be easier to track to ensure pay is correct
- A week in hand can mean overtime payments are picked up more easily
Disadvantages
- Monthly pay is more standard, and employees may be used to this
- Bank loans, mortgages, and credit can be difficult to come by for some people on this pay cycle, especially if their pay isn’t standardised or consistent in amount
- The lag between work and wages can become frustrating
If you insist upon using this pay period method, ensure the process is properly explained to avoid confusion and encourage employee cooperation.
What Happens When Employees Leave?
Whether or not an individual leaves your employ with proper notice doesn’t matter. They need to be paid for all the work they carried out, including the week in hand arrears they’ll be in.
If an employee gives proper notice, then their notice period should be paid at the usual rate. Ensure final payments are correct no matter how the employee leaves to avoid legal repercussions down the line.
How Week In Hand Affects Commission And Bonuses
Week in hand will have a very real impact on things like commission and additional payments. Here’s a guide for employers:
- Commission – Commission should be paid in line with week in hand policy. Calculate weekly but pay week behind.
- Monthly bonuses – Bonuses covering a month’s work may need to be delayed an additional week when paying week in hand to attribute the bonus appropriately.
- Project bonuses – Bonuses paid at project completion should be paid immediately rather than weeks behind to ensure all pay is correct for the pay period.
- Back Pay – If back pay is owed, pay immediately.
- Expenses – Reimburse expenses immediately upon submission.
Payroll Options For Small Businesses
We’ve spoken a lot today about how this method works for small businesses, but it won’t work for all. Instead, consider these other methods, too:
- Monthly Payroll – Pay monthly on the last day of the month.
- Twice Monthly – Pay on 15th and last day of the month.
- Weekly – Pay every week without a week behind delay.
- Automated Payroll – Use payroll software to simplify and automate. This method integrates with HMRC well and ensures accuracy of pay dates.
- Payroll Service – You might also want to consider outsourcing to an accountant or bookkeeper.
Managing Cash Flow With Week In Hand Pay
Cash flow is king when dealing with week in hand pay. To ensure cash flow is managed effectively consider:
- Forecasting payroll consistently
- Ensuring extra cash is available should calculations be wrong
- Reviewing budgets frequently
- Recording daily, weekly, and monthly cashflow figures
- Making payroll a priority
With close monitoring and planning, week in hand payroll can work with small business cash flow. You might want to consider a backup if cash is tight one month.
Adjusting To Weekly Or Monthly Payroll Changes
Switching to or from a week in hand system requires adjustment for both employers and employees:
Employer Considerations:
- Analyse business finances and determine best payroll frequency.
- Review HR contracts, policies, and training to align with the new system.
- Notify all employees of upcoming change and timeline so they’re well informed early.
- Implement proper payroll and accounting software to ensure success.
- Watch for errors as everyone gets used to the new system and respond accordingly.
Employee Considerations:
- Understand how a new payroll schedule impacts your monthly or weekly budget.
- Proactively adjust automatic payments and debits ahead of time.
- Avoid late fees by alerting companies of payment date changes.
- Ask the employer for help adjusting to the new system if you’re worried about being out of pocket – they should help with the transition as best they can.
Final Thoughts
The week in hand payroll system, where employees are paid weekly in arrears for hours worked, is a common approach used by many small UK businesses for its cash flow and administrative benefits – especially in certain industries.
Implementing this system requires adjusting payroll processing, accounting, employment contracts, and company policies as well as clearly communicating changes to staff. It can have a huge impact on your employees, and not all of them positive. If you want their support with the changes, make clear what is happening and why.
With close cash flow monitoring and planning, a week in hand can work well operationally. Weighing the pros and cons helps determine if it is the right approach for your small business finances and workforce. Adjusting to a new payroll frequency takes time but with preparation it can be a smooth transition and one that benefits both employer and employee long term.
