New Year, New Employment Law

Changes to the IR35 regime in the private sector

Private sector companies that engage contractors via certain types of intermediary, including personal services companies (PSCs) will be required to:

1. determine whether each contractor would in fact be an employee, if they were engaged directly rather than via a PSC.Companies must also make this determination where they engage a PSC via an agency or other intermediary;
2. communicate this 'status determination' to the individual and the company with which the end-user company contracts (e.g. the PSC or agency); and
3. if the answer to (1) is yes, deduct and pay income tax and NICs (via PAYE) in respect of any fees paid by the company to a PSC that contracts directly with the company.

A failure to comply may result in liability for unpaid income tax and NICs, as well as penalties and interest.

The changes will are due to come into effect on 6 April 2020. Smaller businesses are exempt from the changes.

These changes have the potential to significantly alter the way in which organisations structure their workforce. For example, businesses may decide to treat some contractors as employees or not to engage PSC contractors at all.

Preparing for the changes will involve a careful audit of existing contractor agreements and strategic decisions to be made about future engagement models. Where existing PSC arrangements are being terminated, this must be done and any outstanding fees paid to the PSC in advance of 6 April 2020.

If your business engages contractors who may be caught by the new legislation and you are not yet preparing for the changes, swift action is likely to be needed to ensure your legal and tax risks from 6 April 2020 are fully mitigated.

Written statements of particulars

Currently, new employees have the right to a written statement of terms within two months of starting work. From 6 April 2020, this right will be extended to all "workers", a category which covers a wider range of individuals than just those engaged under a contract of employment. In addition, the written statement must be provided from day one, and the categories of information that must be included in the statement are increasing, for example details of any training and all benefits provided by the employer. 

Businesses should be reviewing their template employment and worker agreements to ensure that they reflect the new requirements for any new hires from 6 April.

Agency workers

Temporary work agencies (often referred to as employment businesses) can currently avoid the obligation, under the Agency Workers Regulations 2010, to pay agency workers the same as the client's direct employees after a 12 week qualifying period if certain conditions are satisfied in relation to their treatment between assignments. This is known as the "Swedish Derogation". From 6 April 2020, this derogation will be abolished, so that all agency workers will become entitled to pay parity after 12 weeks. By 30 April 2020 agencies must inform relevant agency workers that the Swedish Derogation no longer applies.  Businesses which use agency workers should review the contractual arrangements they have in place with the agencies that supply them to ensure that any provisions relating to the supply of "Swedish Derogation" workers are updated and it is made clear that all qualifying agency workers have equal treatment rights after 12 weeks.

Holiday pay

From 6 April 2020, the reference period for determining an average week's pay for the purpose of calculating holiday pay is increasing from 12 weeks to 52 weeks. This is intended to limit the impact of seasonal fluctuations in work on holiday pay.

Termination payments

Currently, termination payments up to £30,000 can be paid without deductions or payments of income tax and employer's or employee's National Insurance Contributions (NICs). Where a termination payment is greater than £30,000, any excess above the £30,000 threshold is subject to income tax only.

From 6 April 2020, any excess above the £30,000 threshold will additionally become subject to payments of employer's NICs (though not employee's NICs).  Employers currently planning redundancies or negotiating settlement agreements should ensure that this additional cost is factored in, for any payments to be made on or after 6 April.

Parental bereavement leave and pay

It is expected that, from 6 April 2020, employees who have lost a child under 18 (or have suffered a stillbirth after 24 weeks of pregnancy) will be entitled to two weeks' parental bereavement leave.

Employees with at least 26 weeks' service may also be eligible for Statutory Parental Bereavement Pay. This will be calculated at the same rate as Statutory Paternity Pay (currently the lower of £148.68 per week or 90% of average weekly earnings).

CEO pay ratio reporting

UK quoted companies with 250 or more employees are now subject to pay ratio reporting requirements for financial years starting on or after 1 January 2019 (or 10 June 2019 for unquoted traded companies). The first reports are therefore due in 2020.

Affected companies must report annually in their remuneration reports on the difference in pay between their CEO and their UK employees whose full-time equivalent pay ranks them at the 25th, 50th (median) and 75th percentiles, and provide an explanation for the numbers.    

Other upcoming changes

We have focused on the key developments that we think will have the biggest impact for our clients. Other changes include:

• From 1 April 2020, the National Living Wage (for workers aged 25 or over) will increase, from £8.21 to £8.72. The National Minimum Wage for other workers will also increase.
• From 6 April 2020, the threshold for a valid request for an information and consultation agreement will be reduced from 10% to 2% of employees.

Employment Bill and #metoo changes

The recently elected Conservative government has proposed a new Employment Bill. This is expected to include:

• Changes to labour market enforcement, with a single body to take over certain employment related enforcement functions of bodies including current Health & Safety Executive and HMRC.
• Requirements for all tips and service charges to be passed on to workers.
• A right for all workers (notably zero hours workers) with more than 26 weeks' service to request a more predictable and stable contract.
• Enhanced protection against redundancy for women for prescribed periods both before and after maternity leave (not just during maternity leave as currently).

The impact of the #metoo movement continues to be felt, with the government consulting on various measures to combat workplace harassment, including new regulation of the use of non-disclosure agreements to restrict their misuse in cases of unlawful harassment.

With the Government and Parliament likely to be focused on Brexit throughout 2020, it remains to be seen when the Employment Bill, or any further measures on workplace harassment, will be finalised and introduced in Parliament this year, and what they will cover.

What is clear, whether or not the Employment Bill becomes a reality this year, is that employers will have plenty to do to get to grips with the imminent upcoming changes in April.  As always, HR and employment law teams will be kept on their toes.