What Happens to Payroll if a Business Switches to a 4 Day Week

More UK employers are exploring a four day working week. Some want better staff wellbeing. Some want to attract talent. Others want to boost productivity or reduce costs. Whatever the motivation the biggest operational question is always the same. What happens to payroll if a business switches to a four day week

A change in working pattern can affect contracts, salaries, holiday entitlement, National Insurance calculations, pension contributions, overtime rules, sick pay, and payroll setup. It can also affect HR systems and payroll software. In my opinion the impact is manageable but only if the employer understands how pay is structured and sets clear rules before the change takes effect.

This guide explains how payroll is affected when a business moves to a four day week, the decisions employers must make, how to avoid payroll errors, and what the change means for staff pay and benefits.

What a 4 Day Week Actually Means for Payroll

A four day week can be introduced in several different ways. Payroll changes depend entirely on the model chosen. The three most common approaches are:

1. Four days with the same total pay and fewer hours

This is the most popular model in UK trials. Staff work fewer weekly hours but keep the same salary.

2. Four days with compressed hours

Staff work the same number of weekly hours but across four longer days. Pay remains the same because total hours do not change.

3. Four days with reduced salary

Staff move to a shorter week and a proportional salary reduction. This is similar to part time work.

Before adjusting payroll an employer must choose which model applies to their organisation. Each model has different consequences for pay, benefits, and employment law.

Payroll Impact Depends on Whether Total Hours Change

Payroll systems rely heavily on hours worked. Weekly hours determine:

• Salaried pay

• Hourly rates

• Overtime thresholds

• Holiday accrual

• Pension calculation

• Statutory pay qualification

• National Minimum Wage compliance

Changing the length of the working week changes how payroll calculates pay unless the employer keeps total hours the same.

If total weekly hours decrease

Payroll must recalculate:

• Salaries if pay reduces

• Hourly rates if needed

• National Minimum Wage compliance

• Holiday entitlement

• Statutory payment thresholds

• Pension contributions if salary changes

If total weekly hours stay the same

Payroll systems need only adjust working patterns in the software not pay.

If total weekly hours increase

Unusual but possible with a compressed schedule. Payroll must adjust overtime rules to avoid confusion.

In my opinion the biggest payroll issues come when employers reduce hours but want staff to remain salaried on the same pay. This requires careful handling.

Salaried Employees on a 4 Day Week

If pay is kept the same

If the employer keeps salaries exactly the same payroll remains largely unchanged. The employee receives the same monthly salary and the employer simply records a new working pattern.

What payroll must do

• Update contracted hours

• Update work pattern in software

• Ensure National Minimum Wage compliance across the year

• Adjust pro rata holiday entitlement where required

• Review overtime and rest day rules

If salary is reduced

If weekly hours fall and salary is reduced proportionally the employer must:

• Issue an updated contract

• Adjust the annual salary in payroll

• Recalculate holiday

• Update pension contributions

• Check statutory payment thresholds

Reducing salary affects everything connected to pay including maternity pay and redundancy pay so it must be handled carefully.

Hourly Paid Employees on a 4 Day Week

Hourly paid staff are more affected by working pattern changes because payroll is based on hours worked.

When hours decrease

Payroll must:

• Reduce hours

• Recalculate gross pay

• Reassess pension eligibility

• Recalculate holiday accrual

• Monitor minimum wage compliance

When hours remain the same

Payroll simply adjusts shift patterns without changing pay.

When hours are compressed

Payroll must make sure overtime does not trigger accidentally. Longer daily hours should not cause payroll systems to treat extra hours as overtime if weekly hours stay the same.

Hourly payroll becomes more complex during the transition. In my opinion employers should trial the pattern before making it permanent.

National Minimum Wage Considerations

One of the most important payroll checks in a four day week is National Minimum Wage compliance.

The minimum wage is based on:

• Total pay

• Total hours worked

If an employer reduces staff hours but keeps pay the same there is no risk. However if the employer keeps pay the same but keeps the total hours unclear this could accidentally breach the rules.

Example:
A salaried employee working 37.5 hours moves to 30 hours with the same salary. This increases their hourly rate. That is fine.
If they move to 30 hours and the employer mistakenly keeps the hourly rate the same instead of the salary the employee’s salary would drop significantly. Compliance must be checked.

National Minimum Wage becomes even more relevant for charity staff, care sector staff, hospitality workers, and younger employees whose salaries sit closer to the threshold.

Overtime and Premium Pay Rules

Switching to a four day week can unintentionally create overtime issues.

If weekly hours decrease

Any hours worked beyond the new contracted hours may be overtime.

If weekly hours remain the same

Longer daily shifts may require clarification about overtime after certain hours.

If weekly hours increase through compression

This is rare but if employers compress 40 hours into four long days they must manage rest break rules and overtime carefully.

Employers should update:

• Overtime policies

• Timesheets

• Payroll software overtime triggers

• Staff contracts

In my opinion overtime confusion is one of the quickest ways a four day week can fail operationally.

Holiday Entitlement in a 4 Day Week

This is the area that causes the most payroll errors.

Holiday entitlement is based on weeks not days. Moving to a four day week does not reduce the legal minimum holiday entitlement of 5.6 weeks.

Full time employees moving from five days to four days

They still receive 5.6 weeks. That equals:

• Five day worker: 28 days

• Four day worker: 22.4 days

This is simply 4 × 5.6 weeks.

If salary is kept the same

Holiday pay stays the same because the salary does not change. The number of paid days off changes because each day off under a four day week is worth more of the working week.

If salary is reduced

Holiday pay must be recalculated based on the reduced salary.

Payroll must adjust:

• Accrual tables

• Employee leave balances

• Variable hours calculations

• Bank holiday treatment

Incorrect holiday calculation is one of the biggest risks for four day week employers and can cause legal and payroll issues later.

Pension Contributions on a 4 Day Week

Pension contributions are based on qualifying earnings. Switching to a four day week affects contributions depending on the pay model.

Pay remains the same

Pension contributions do not change unless staff choose to alter their contributions.

Pay decreases

Both employer and employee contributions decrease.
Payroll must:

• Update pensionable earnings

• Issue updated pension letters

• Reassess staff eligibility

• Update payroll software settings

Variable earnings staff

If staff work irregular patterns then contributions may change each period. Payroll must ensure correct calculation under auto enrolment rules.

In my opinion employers often forget to reassess pension eligibility when working patterns change. This is a common pitfall.

Sick Pay and Statutory Payments

Statutory payments such as:

• Statutory Sick Pay

• Statutory Maternity Pay

• Statutory Paternity Pay

• Shared Parental Pay

depend on average weekly earnings and work patterns. Moving to a four day week can affect these calculations if pay changes.

If salary remains the same

No change to statutory payments.

If salary decreases

Average weekly earnings may fall below statutory thresholds. Payroll must check eligibility after the change.

For daily sick pay

If staff work fewer days the value of a sick day increases. Calculations must be adjusted accordingly.

This is an area where errors can easily sneak in.

Payroll Software and System Changes

Switching to a four day week requires updates to payroll software including:

• Work pattern settings

• Weekly hours fields

• Holiday accrual rules

• Overtime thresholds

• Salary amounts

• Variable hour templates

• Pension integration

• Timesheet structures

If these changes are not made payroll may continue calculating pay based on the old working week.

In my opinion software changes should be made before the first payroll cycle of the new working pattern to avoid backdated corrections.

Contractual Changes Needed Before Changing Payroll

Payroll cannot change until HR documentation changes.

Employers must update:

• Contracts

• Working hours clauses

• Pay clauses

• Overtime rules

• Holiday rules

• Break policies

• Location and working pattern rules

Payroll then reflects these changes. Changing payroll without changing contracts creates legal risk.

Communication With Staff

Payroll runs more smoothly when staff understand the change.

Employers should explain:

• How weekly hours will change

• Whether pay stays the same

• How holiday days are recalculated

• How overtime will work

• How bank holidays fit into the 4 day schedule

• How sick pay and other benefits are affected

• When the new pattern starts

Clear communication reduces payroll disputes.

Special Case: Part Time Staff and the 4 Day Week

Part time workers are impacted differently.

Part timers should not be disadvantaged

Employers must calculate pay and holiday using a fair pro rata method.

Example

A part time worker who works two days a week under a four day week model is still entitled to 2 × 5.6 weeks of holiday.

Payroll must calculate their holiday in hours to avoid inequity.

Real UK Examples

Example 1: Four day week with full pay

A marketing agency reduces weekly hours from 37.5 to 30 but keeps salaries the same.
Payroll updates contracted hours but not salary. Holiday recalculated to 22.4 days per year.

Example 2: Four day compressed week

A care provider compresses 37 hours into four long shifts.
Payroll does not change salary but overtime rules are updated to apply only after 37 weekly hours.

Example 3: Four day week with reduced salary

A retail business reduces staff to 32 hours and reduces pay by 20 percent.
Payroll updates the salary, pension contributions, and statutory pay eligibility.

Example 4: A charity with sessional workers

The charity reduces operating days but hourly workers are paid for actual hours worked.
Payroll changes shift patterns but pay remains based on hours.

Final Thoughts

Switching to a four day week affects payroll depending on whether staff hours or pay change. Salaried staff keeping the same pay need minimal payroll changes beyond hours and holiday adjustments. Hourly staff need more detailed updates. Employers must review holiday entitlement, overtime rules, pension contributions, statutory payments, and minimum wage compliance to avoid issues.

In my opinion the safest approach is to plan payroll updates early, test the new working pattern, update contracts, and communicate clearly with staff. A four day week can be successful and financially smooth when payroll is managed properly.