Business Transfers, Takeovers and TUPE: What Employers Need to Know
When employees move from one employer to another due to a business transfer or change in service provision, TUPE aims to protect their existing employment rights and ensure continuity of service.
When a business changes owner, or when a contract for services changes provider, the Transfer of Undertakings (Protection of Employment) Regulations ("TUPE") may apply. TUPE is designed to safeguard employees’ rights when their employment transfers to a new employer, including many aspects that link directly into payroll such as continuity of employment, pay, and certain contractual benefits. Understanding the basic principles of TUPE and how it affects payroll is important for employers planning or undergoing a transfer, so that employees are paid correctly and statutory entitlements remain intact.
What TUPE Is
TUPE protects employees when the business they work for transfers to a new employer, or when there is a relevant change in the provision of services, for example when a contract is awarded to a new provider. In most cases, employees assigned to the transferring business or service will move automatically to the new employer on their existing terms and conditions, with their continuity of employment preserved.
For payroll purposes, this continuity of employment is particularly important. It means that employees’ service dates do not restart on transfer, and the new employer takes on responsibility for pay and benefits based on the employees’ existing contracts. This includes salary, contractual allowances, holiday entitlement, and other pay-related terms that must be carried across to the new payroll arrangements.
Employment Contracts and Continuity of Employment
When TUPE applies, employees’ contracts of employment transfer automatically from the old employer to the new employer. The employees become employed by the new organization on the same terms and conditions as before, unless and until those terms are lawfully varied. The new employer effectively steps into the shoes of the old employer.
From a payroll perspective, this means:
Employees’ existing pay rates and contractual allowances should be honored after the transfer.
Working hours, holiday entitlement and other pay-related terms must remain consistent with the transferred contract.
The employees’ original start dates are preserved, rather than being reset to the transfer date.
Because continuity of employment is maintained, statutory and contractual entitlements that depend on length of service continue uninterrupted. Payroll records therefore need to reflect the employees’ original start dates and service history, even though the employer name and PAYE reference will change.
Information About Employees During Transfers
TUPE requires the outgoing employer to provide specified information about the transferring employees to the new employer before the transfer takes place. This information includes the identity of the transferring employees, details of their employment terms and conditions, information about any collective agreements that apply, and details of any disciplinary action, grievances or legal claims that may transfer.
For employers and their payroll providers, timely access to accurate employee information is essential. It allows the new employer to set up employees correctly on their payroll system in advance of the transfer date, reflecting the correct pay rates, working patterns and contractual entitlements. Having complete data reduces the risk of pay errors in the first payroll after transfer and helps ensure employees are paid in line with their existing rights.
Consulting and Informing
Both the old and new employers have duties to inform, and in some cases consult, affected employees or their representatives about the transfer. This includes giving information on the fact that the transfer is taking place, the approximate timing of the transfer, the reasons for the transfer, and any measures the new employer envisages in relation to affected employees.
While this is primarily a legal obligation, it has important implications for payroll. Employees will want to know whether anything will change in relation to their pay, benefits, or practical arrangements such as pay dates and payslip format. Clear communication helps manage expectations and reduces the likelihood of queries or disputes when the first payroll is processed under the new employer.
Where the new employer intends to introduce measures that affect how employees work or are paid, these should be explained in advance as part of the informing and consulting process. Any agreed changes then need to be reflected accurately in the payroll configuration from the appropriate date.
Redundancy
TUPE offers protection against dismissals where the sole or principal reason is the transfer itself. However, redundancies may still arise for genuine economic, technical or organizational reasons involving changes in the workforce. In those circumstances, the normal rules around redundancy consultation, selection and payment will apply.
For payroll, the main implications include:
Calculating statutory redundancy pay based on the employees’ continuous service and pay.
Ensuring notice pay and holiday pay are calculated correctly up to the termination date.
Reflecting the appropriate termination date and final payments in the payroll.
Because continuity of employment is preserved under TUPE, redundancy pay and other termination payments must be calculated using the full length of service, including time worked for the old employer. Accurate service records and pay data are therefore essential for compliance and for ensuring employees receive the correct sums.
Insolvent Businesses
Where the outgoing employer is insolvent, special rules apply to how TUPE operates. In some cases, certain employee rights may be met through statutory insolvency arrangements, and there may be more flexibility for the new employer to vary terms and conditions following the transfer.
From a payroll standpoint, employers need to understand which outstanding payments, such as arrears of wages or holiday pay, are covered by insolvency provisions, which ongoing pay obligations transfer to the new employer, and how and when any changes to terms will take effect. Clear records of what liabilities transfer, what is dealt with through the insolvency process, and what new terms apply from the date of transfer will help the new employer and their payroll provider to pay employees correctly and avoid duplicating payments.
Employees Working Abroad
TUPE can apply to employees who work outside the UK where there is a sufficient connection to UK employment law. Transfers involving overseas employees often raise additional considerations, such as foreign tax regimes and local employment protections.
For employers, this means identifying any overseas employees who transfer, reviewing existing payroll arrangements for those employees, which may include local payrolls or shadow payrolls, and aligning new payroll processes with both TUPE requirements and the relevant local rules. The underlying principle remains that employees’ rights and obligations transfer to the new employer, but the payroll implementation needs to be tailored to the particular jurisdiction so that pay continues smoothly and compliantly.
Help and Advice
TUPE can be complex, and this blog has focused on the areas that most directly impact payroll when employees transfer between employers. However, wider employment law considerations will also arise, and employers may need to seek further guidance where issues go beyond pay and statutory calculations.
If a business is planning a transfer, takeover or change in service provision, it is advisable to engage with the payroll provider at an early stage. Sharing information about the proposed transfer, the employees involved and the timescales will help to ensure that payroll setup is completed in good time, that continuity of employment and entitlements are respected, and that employees are paid correctly from the point they move to the new employer.
Useful Resources:
https://www.gov.uk/transfers-takeovers
https://www.gov.uk/transfers-takeovers/consulting-and-informing
https://www.gov.uk/transfers-takeovers/transfers-of-employment-contracts
https://www.gov.uk/transfers-takeovers/redundancy
https://www.gov.uk/transfers-takeovers/information-about-employees-during-transfers
https://www.gov.uk/transfers-takeovers/insolvent-businesses
https://www.gov.uk/transfers-takeovers/employees-working-abroad