As we begin 2020, the uncertainties facing businesses in the UK in the legal sense are, for most of us, unprecedented. Despite this, employment law is an area where there are some certainties and anchor points throughout the year on which we can rely as inevitable and fixed. Forewarned is forearmed as they say, so let us take a look at some of what we can confidently prepare for this year in terms of employment and discrimination law.
Changes in IR35 rules in the private sector
The importance of assessing the reality of working arrangements, not just the label given to them, comes into sharp focus early this year.
Many of our regular readers will be aware of the changes coming into force on 6 April 2020 in the UK in respect of paying contractors who provide services through a personal service company (PSC). These changes will affect medium and large companies in the private sector and bring them into line with public sector employers. The PSC route has been commonly used until now, as it can be tax-efficient for contractors and clients/end-users.
These changes are expected to turn the contractor market on its head and cause many companies and contractors to look again at their working relationship. HMRC estimates £1.3 billion of revenue will be lost by 2023/2024 if these changes are not implemented.
The new rules will require the client/end-user to assess the status of contractors who provide services through a PSC to determine whether they should be treated "as if" they are employees (or inside IR35) for tax purposes. Where they are a "deemed employee", payments to them will need to be processed through payroll.
There are substantial cost implications. The new rules will add the cost of payroll taxes into commercial negotiations with contractors who operate through PSCs and who are assessed as being "deemed employees". The most substantial of these is the 13.8% employer National Insurance Contributions (NICs).
There will also be additional costs for administering the new rules. The responsibility for determining whether the contractor/PSC is a "deemed employee" sits with the client/end-user. It is responsible for the payments to HMRC. There is an (improved) HMRC online tool which can assist with this determination. While subject to some criticism, the "check on employment status for tax" or "CEST" tool gives clients/end-users some certainty. It has the key advantage that HMRC will be bound by the output of the test, unless it has been obtained fraudulently.
Importantly, this change will not give these contractors employment status for employment law purposes. This is about how payments are treated for income tax and social security benefit purposes only. Having said that, the "deemed employment" test is very similar to the employment law test. The continued focus on "employment status" cases over the last few years means that employers of all shapes and sizes are required to consider carefully the make-up of their workforce.
Lessons can be learned by looking at how the regime has been implemented and adjudicated on in the public sector. Almost identical rules have applied here since 2017. It is estimated that £500 million has been gathered by the government since then.
The Good Work Plan
The government published the Good Work Plan in December 2018, in response to the 2017 Taylor Review of employment practices in the UK. The Good Work Plan introduces a number of reforms designed to provide clarity for employers and workers, ensure fair and decent work for all and facilitate fairer enforcement.
As a result, the April 2020 changes to employment law, which implement some of the suggested reforms, will affect all employers in all sectors. Whether you engage workers or employees, you will need to increase the amount of information you provide about their terms and conditions. You will also have to be ready to provide that information on day one of the relationship.
What is changing?
As part of the government's plans to provide clarity for employers and workers, the right to a written statement of employment particulars is being extended. From 6 April 2020, written statements will have to include a number of additional particulars. The right to a statement is also being extended to workers and, from April, it will be a day one right (rather than employers having two months from the employee starting work to provide a statement).
What will need to be included in a written statement of employment particulars?
As a reminder, currently you must provide an employee with a document which provides: the names of the employer and employee; the date the employment starts and the date the employee's period of continuous employment began; pay (or method of calculating it) and interval of payment; hours of work, including normal working hours; holiday entitlement and holiday pay; the employee's job title or a brief description of the work; place of work; a person to whom the employee can appeal if they are dissatisfied with any disciplinary or grievance decision (and the manner in which any such application should be made), or any decision to dismiss them; and terms related to work outside the UK for a period of more than one month.
As of 6 April 2020, a written statement will also need to set out:
- the days of the week the worker is required to work, whether the working hours may be variable and how any variation will be determined;
- any paid leave to which the worker is entitled;
- details of all remuneration and benefits;
- any probationary period;
- any training entitlement provided by you, including whether any training is mandatory and/or must be paid for by the worker;
- the notice periods for termination by either side; and
- terms as to length of temporary or fixed-term work.
At the moment, you can refer to other documents for some of the particulars or provide a supplementary statement. That will still be possible in the case of some details, but more of the information will have to be included in the main statement from April.
Do I need to change my template contracts?
Yes. You will need to update your template employment contracts (and service agreements if you have them) to comply with the new requirements.
What about current employees? Do I need to change their contracts?
You do not have to issue new contracts to your existing staff. The new requirements only apply to new employees starting on or after 6 April 2020. However, from that date, an existing employee may request a written statement that complies with the new requirements. In that situation, you must provide the statement within one month of the request. The employee can only make this request once.
Holiday pay reference periods
The calculation of holiday will change at the same time, also as a result of the 2017 Taylor Review and subsequent Good Work Plan. Just when you may have become used to using a 12-week reference period to determine an average week's pay for the purposes of calculating holiday pay, the reference period will change to 52 weeks (or the number of complete weeks for which the worker has been employed if that is less) from April.
Two key changes for employment businesses and those who engage with them are the abolition of the Swedish Derogation and provision of a Key Information Document to agency work-seekers. These will also apply from April 2020.
The Swedish Derogation currently allows employment businesses to avoid pay parity between agency workers and direct employees if certain conditions are met. Agencies must inform relevant agency workers by 30 April 2020 that the Swedish Derogation no longer applies.
A Key Information Document must be provided to agency work-seekers before agreeing the terms by which the work-seeker will undertake work. This document must include information on the type of contract, the minimum expected rate of pay, how they will be paid and by whom, any non-monetary benefits to which the work-seeker will be entitled and an illustrative example of what this might mean for their take-home pay. The document must be succinct and easy to read. The employment business will need to be able to demonstrate that the document has been given to the worker.
From 6 April 2020, all termination payments above the £30,000 threshold will be subject to class 1A employer's National Insurance Contributions.
Always ripe for a consultation, 2020 sees various consultations on aspects of employment law and responses.
On 28 March 2018, BEIS published a consultation on parental bereavement leave and pay. Later that year, the outcome of the consultation was an announcement that parental bereavement leave and pay will be made available. This is to be taken as a single block, or as two separate weeks, and employed parents will have a period of 56 weeks in which to use their entitlement. The legislation is expected to take effect in 2020, although further details are not yet available. The consultation on the right to neonatal leave and pay, to support parents of premature or sick babies, closed in the autumn last year and the outcome is awaited.
The Conservative government included as part of its 2019 manifesto that it encouraged flexible working and would consult on making this option an employer's default position. The consultation is awaited and should clarify how this is intended to work.
The Information Commissioner's Office (ICO) has published draft guidance on data subject access requests. The consultation will close on 12 February 2020.
While some of the proposals set out in the Good Work Plan are coming to fruition (as discussed above), its suggestions for clarification of employment status remain outstanding. The government response to the consultation on this is awaited.
EU Settlement Scheme
With Brexit fast approaching, the high volume of applications under the EU Settlement Scheme is expected to continue. The scheme has been open since March 2019 and allows EU, EEA or Swiss citizens to submit an application under the EU Settlement Scheme with their family members to continue to live in the UK after 31 December 2020 when the proposed transition period will end. If their application is successful, they will be given either pre-settled status (temporary residence) or settled status (permanent residence), thus reassuring them of their status in the UK. Pre-settled status will lead to settled status once they have been in the UK for a period of five years and provided that an individual has not been absent from the UK for more than six months in any 12-month period.
A new UK immigration system is expected in 2021 when EU free movement comes to an end. Further details are expected at the start of the year after the Migration Advisory Committee has published a report, with recommendations regarding the new system. However, the government has been clear that the new system will involve a revamp of the current points-based system, with an attempt to mirror the Australian immigration system, which grants points based on an individual's skills. The new system will apply to all non-UK/Irish nationals who intend working in the UK (Irish nationals will continue to be able to live and work in the UK as they do now).