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Week in Hand Meaning: What Small Business Owners Need To Know

Week in Hand Meaning

Week in hand means that employees are paid one week after the work period. For example, if the work week is Monday to Friday, employees would be paid on the following Friday for the work done the previous week.

While this may seem straightforward, as a small business owner or manager in the UK, it’s important to fully understand the implications of week in hand pay. When and how you pay your staff has a significant impact on your finances, cash flow, accounting, and employees.

Getting it right takes preparation but pays off in the long run. In this article, we’ll explore all aspects of week in hand payroll so you can implement it effectively.

What is Week in Hand?

Rather than receiving wages in alignment with the current work week, employees paid under a week-in-hand system get paid one cycle behind. So the paycheck received on a Friday would cover the work period from the previous Monday to Friday.

This lagged payment schedule means wages are always in arrears. The benefits for cash flow and administration make week-in-hand payroll a preferable option for many small UK businesses. But before implementing it, owners must understand the implications across payroll, accounting, contracts, and more.

Why Do Employers Use Week in Hand?

There are a few reasons why paying week in hand is common, especially for small businesses:

  • Cash flow – It helps manage cash flow and ensures that money is available to cover wages each pay period. As a small business, fluctuating cash flow can be a challenge.
  • Probation periods – It allows employers to assess new employees during a probation period before paying them. This minimises risk.
  • Notice periods – If an employee leaves without giving notice, the employer will not lose out on any pay.
  • Administration – Processing payroll weekly rather than monthly is easier administration.
  • Cost savings – Paying in arrears may have small cost savings for employers.

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 legal in the UK in most cases. 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.
  • Contracts and policies should clearly state the pay schedule to avoid confusion.
  • 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 allowed. It’s a good idea to have employees sign confirming they understand the pay schedule.

Implementing Week in Hand Payroll

Putting a week in hand into practice requires some adjustments to standard payroll procedures. Here are some tips:

  • Update employment contracts – The payment schedule should be clearly defined in contracts. Have new hires sign confirming they understand.
  • Communicate the change – If transitioning to week in hand pay, notify existing employees of the change in advance.
  • Adjust payroll processing – Process payroll weekly rather than monthly with the cut-off being a week before pay date.
  • Review cash flow – Ensure sufficient funds are available for payroll each week. Monitor closely at first.
  • Update accounting – Recognize the week in hand as a liability in accounts. Accrue accurately.
  • Report taxes – Continue reporting PAYE income tax and National Insurance every month.

With some modifications to processes, week-in-hand payroll can work smoothly. Brief your payroll administrator and accountant to ensure it is implemented properly.

Pros and Cons of Week in Hand for Employers

There are both advantages and disadvantages to week in hand pay from an employer’s perspective:

Advantages

  • Improved cash flow and financial planning.
  • Assess employees during probation more easily.
  • Avoid losing out on pay if employees leave without notice.
  • Simpler payroll administration with weekly processing.
  • Potential small cost savings.

Disadvantages

  • Employees may prefer monthly payroll.
  • Can seem complicated at first.
  • Need to ensure cash flow sufficient for weekly payroll.
  • May still need to pay notice pay if employees leave.
  • Slightly more accounting administration.

Overall, the benefits often outweigh the downsides, especially for small companies with fluctuating cash flow.

Employee Perspective on Week in Hand

While week in hand payroll simplifies things for employers, what do employees think?

Some potential benefits:

  • Paid more frequently rather than large monthly sums.
  • Get into a weekly pay cycle routine.
  • Don’t have to wait until the end of month for wages.

Some disadvantages:

  • Prefer monthly budgeting and pay schedule.
  • Causes problems qualifying for credit or loans.
  • Lag between work and wages is frustrating.

To get employee buy-in, clearly explain the reasons for week in hand payroll and the benefits for the company. Respond to any concerns raised.

What Happens When Employees Leave?

If an employee gives proper notice, they will be paid as normal during the notice period. The week in hand arrangement still applies.

If the employee leaves without giving notice, the situation changes:

  • No payment is legally required for the notice period.
  • However, the employer must pay any earned wages for time worked.
  • This includes the week in hand owed to the employee.

So while notice pay can be forfeited, week in hand wages must still be paid. Make sure final payments adhere to legal requirements.

Is Week in Hand Different Than Week in Arrears?

Week in hand and week in arrears refer to the same payroll arrangement – employees are paid one week after work is completed. The terms can be used interchangeably.

Sometimes “in arrears” is used more formally in contracts and legal documents. But both terms mean wages are delayed one week behind the work schedule.

Examples of Week in Hand Payroll Schedules

To understand week in hand payroll better, it helps to look at some examples of how it works in practice:

Weekly Payroll Schedule

  • Pay period is Monday to Sunday
  • Hours worked Monday to Sunday are paid the following Friday
  • Paycheck on Friday is for previous week’s work
  • Example:
    • Week 1: Work Mon 1st – Sun 7th
    • Week 2: Payday on Friday 14th for Week 1 hours
  • Pay is always 1 week behind hours worked

This is the most straightforward example – payroll is processed every week and paid on Fridays for the previous week’s work.

Weekly Payroll With Delay

  • Pay period is Monday to Sunday
  • Payday is every second Friday
  • Hours worked Weeks 1 and 2 are paid on Friday of Week 3
  • Pay is 2 weeks behind hours worked
  • Example:
    • Week 1: Work Mon 1st – Sun 7th
    • Week 2: Work Mon 8th – Sun 14thadditional
    • Week 3: Payday on Friday 21st for Weeks 1 and 2 hours

Here pay is still weekly but the payday is delayed 1 additional week. This gives more time for payroll processing and improves cash flow.

Hybrid Weekly/Monthly Payroll

  • Pay period is Monday to Sunday
  • Paydays on 2nd and 4th Fridays of the month
  • 1st pay period covers Weeks 1 and 2, 2nd period covers Weeks 3 and 4
  • Example:
    • Weeks 1 & 2: Work Mon 1st – Sun 14th
    • Week 3: Payday on 2nd Friday 21st for Weeks 1 and 2
    • Weeks 3 & 4: Work Mon 15th – Sun 28th
    • Week 4: Payday on 4th Friday 28th for Weeks 3 and 4
  • Combines weekly tracking with larger monthly paychecks

This combines weekly pay periods with larger monthly paydays. Good for employees who prefer budgeting monthly while allowing employers to track hours weekly.

How Week in Hand Affects Commission and Bonuses

Besides regular wages, week in hand will impact commission, bonuses, and other incentive pay:

  • 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.
  • Project bonuses – Bonuses paid at project completion should be paid immediately rather than weeks behind.
  • Back Pay – If back pay is owed, pay immediately rather than delaying further.
  • Expenses – Reimburse expenses immediately upon submission rather than weeks behind.

Review incentive pay plans and make adjustments so employees are not disadvantaged by week in hand delays. Communicate any changes clearly.

Payroll Options for Small Businesses

While week in hand payroll works for many small companies, what are some other payroll options:

  • Monthly Payroll – Pay monthly on the last day of the month. Works for stable cash flow.
  • Twice Monthly – Pay on 15th and last day of the month. More frequent than monthly.
  • Weekly – Pay every week without a week behind delay. Better for employees.
  • Automated Payroll – Use payroll software to simplify and automate. Integrates with HMRC.
  • Payroll Service – Outsource to an accountant or bookkeeper. Cost efficient.

Look at both operational and cost factors when selecting payroll frequency. Change it as your business grows but always stay compliant with HMRC for taxes.

Managing Cash Flow with Week in Hand

For a week in hand to work, cash flow must be sufficient to cover weekly wages. Some tips for managing cash flow:

  • Forecast payroll costs closely, factoring in weeks behind wages.
  • Keep reserves available to pay week in hand each period.
  • Review budgets regularly and set aside payroll funds.
  • Monitor cash flow daily and weekly to stay on top of fluctuations.
  • Payroll should be a priority payment each period.
  • Have a float or overdraft if needed to cover payroll.
  • Adjust payments like VAT if needed for payroll but remain compliant.
  • Consider trade credit with suppliers to ease pressure on cash reserves.

With close monitoring and planning, week in hand payroll can work with small business cash flow. Have a backup plan if cash gets tight.

How Week in Hand Impacts Loans and Credits

Some points on how week in hand pay can impact getting credit:

  • Makes it harder to qualify for credit cards, loans, and mortgages as pay is not on set dates.
  • Lenders prefer fixed monthly or weekly pay schedules they can rely on.
  • One week’s variance seems inconsistent even though the employee still gets full wages.
  • Ask lenders if they will accept payslips as proof of income.
  • For large purchases, time applications so payslips align with payment cycles expected by lenders.
  • Avoid payday lenders and high cost financing that takes advantage of payroll variations.

While frustrating, being aware of how lenders perceive it can help manage the credit impacts of week in hand pay.

Adjusting to Weekly or Monthly Payroll

Switching to or from a week in hand system requires adjustment for both employers and staff:

Employer adjusting payroll frequency:

  • Analyse business finances and determine best payroll frequency.
  • Review HR contracts, policies, training to align with the new system.
  • Notify all employees of upcoming change and timeline.
  • Implement properly in payroll and accounting software.
  • Watch for errors as everyone gets used to the new system.

Employees adjusting to pay frequency:

  • Understand how a new payroll schedule impacts your monthly or weekly budget.
  • Proactively adjust automatic payments and debits.
  • Avoid late fees by alerting companies of payment date changes.
  • Review budgets and financial plans during the transition period.
  • Ask the employer for help adjusting to the new system.

With planning and communication, the payroll transition can go smoothly for both the company and staff.

In Conclusion:

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.

Implementing this system requires adjusting payroll processing, accounting, employment contracts, and company policies as well as clearly communicating changes to staff. It impacts things like commissions, bonuses, and loan qualifications.

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.

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