How backdated pay can cause problems for school and trust payroll

Pay increases may seem straightforward on the surface. However, in the education sector, things can get complex very quickly.  

For example, one phrase that sends a shudder through most professionals in the field is "backdated pay."  

This autumn, many payroll teams will be working to handle backdated pay to 1 September 2024. This will be for a government-approved recommendation from the School Teachers' Review Body (STRB) to implement a 5.5 per cent increase for teachers.  

Of course, this is an example of a major development affecting all teaching staff at the same time. But teachers usually go up a pay scale every 2 years, and support staff experience something similar. Such pay rises often get approved in October or November as part of annual performance reviews, but they must be backdated to the start of September. 

What might such developments mean for you as back-office staff managing payroll for your school or trust? In short, there will be a lot of work done and time spent ensuring no mistakes are made. 

The STRB's recent decision and its impact on payroll teams 

In this recent example (at the time of writing), we are looking at a government-approved pay rise that could see the lowest salary for teachers outside London reach £31,650, while the highest (for leadership) could reach £138,265. As a result, £1.1 billion is being allocated to schools to cover costs, along with an additional £97 million for post-16 education.  

However, even if you agree that the cost of this wide-reaching pay rise has been covered, the administrative challenges it presents are not something the government can alleviate for Multi-Academy Trusts (MATs) implementing the change. It also doesn’t help the increasing number of state schools that now have to manage their own payroll after councils ceased providing this service. 

Backdated pay and the challenge for payroll 

When pay rises are decided, they often take effect retroactively. This is because: 

• The STRB may not have the award approved by the government until after the start of the financial year (April) or the school year (September). As a result, schools need to recalculate the pay for each teacher from April or September, depending on when the decision was made and which 'year' (financial or school) is relevant. 

• As part of the approval process, there is generally a consultation period. In the case of the 5.5 percent pay increase for teachers, this consultation lasts 10 weeks. 

• The rise may have resulted from a dispute with unions, which takes time to resolve. 

• Government budgets are set each year, and the resulting funding may not be allocated until after the start of the new year. 

Trust or school-wide, this can present a budgeting issue. Budgets are signed off before summer, often having to anticipate any pay award disputes underway and how they might be resolved. What if your team doesn’t factor in the right increase and the correct support? 

Then there is the focus of this blog: the issues backdated pay can bring to a pay run. 

Managing complexities with technology 

If the school or MAT aligns with government pay guidance, payroll teams must accurately calculate and distribute owed amounts from previous months, and they have to pay this money in the nearest available pay run.  

This process can be complicated by how the pay award applies to different roles, hours worked, pay scales in your trust, and any other relevant contractual terms. These may vary across a Multi-Academy Trust (MAT) because it consists of several schools.  

Accordingly, the workload increases. Back-office payroll teams may need to work overtime or bring in additional help to meet deadlines.  

But the bad news is that accuracy and compliance are non-negotiable. Payroll has to be ‘right first time’, and that includes for pay awards; mistakes can lead to other financial issues and angry employees. This is best avoided in an environment where MATs compete fiercely for the best staff. 

It doesn't end there 

Unfortunately, complexities don’t end with backdated pay rises. Here are a couple of other obstacles you’ll likely encounter doing payroll in-house if you have a basic setup – even if your staff are among the best. 

Rounding rules: Getting these small calculations wrong or inconsistent can lead to staff pay errors that accumulate over time.  

Company sick pay: The Burgundy Book assists schools in determining fair compensation based on the years served and whether the employee is full-time or part-time. It's essential to have this information updated and easily accessible. If it’s not part of a software package you’re using, you must regularly research this and ensure payroll staff have the latest information. 

Overtime: If you are a single school managing payroll, it can be difficult enough to make sure everything feels simple, trackable, and consistent when compensating people for extra hours. However, if you are a MAT, you might have to implement different overtime rules across your schools. 

Accuracy: The more data you retype, the more susceptible it is to errors. If you are using basic payroll software, you will have to double-check yourself constantly. 

How to get backdated payroll right (and everything else)  

You have two routes: optimising your in-house payroll infrastructure or outsourcing. 

An in-house payroll system can be more cost-effective and provide control as it leverages your team, processes, and systems. However, it also comes with challenges. You must recruit and retain education payroll professionals, keep up with legislative changes, and ensure payroll compliance and accuracy. To meet that high bar, you also need top-of-the-class software.  

On the other hand, there is payroll outsourcing. Outsourcing effectively provides you with a team of experts ready to alleviate the stress of payroll management. With outsourcing, you provide the raw data (such as hours worked, pay rates, and employee details), and a managed service looks after the rest. This includes calculating pay, deducting taxes, distributing payslips, and ensuring accurate reporting to HMRC. Additionally, if you have a question or a problem, a good outsourcing team is always on hand to resolve them.  

Where next?

It's time to check out our upcoming webinar on backdated pay. It looks at the impact of the government's pay increase and the incoming October Budget.

It will explore:

• The legal implications of backdating pay.
• The risks associated with non-compliance.
• How to mitigate these risks through proper documentation and communication.

It's perfect for HR professionals, payroll managers, and business leaders.

Even better, if you miss the live event, you can always catch up 'on demand'.

Click here for the webinar.