In July 2017, the Government commissioned Michael Taylor, Chief Executive of the Royal Society of the Arts to produce The Taylor Review to look into work place practices, in his report he made seven key recommendations documenting ways and practices to improve the well being of employers and employees alike to address the challenges facing the UK labour market.
In 2018 in response to the report, the Government accepted the vast majority of the recommendations made by Matthew Taylor and put in place the Good Work Plan for 2020. The Good Work Plan set out the Governments visions for a future labour market that rewards people for hard work and also commits to a wide range of policy and legislative changes to ensure that workers can access fair and decent work. The plan has been put in place so that both employers and workers have the clarity they need to understand their employment relationships, and that the enforcement system is fair and fit for purpose.
In 2020 the following changes to the law are being implemented in UK in relation to the above reviews and plans with further changes expected in the pipeline:
- Changes to IR35 rules in the private sector
The law provides that where a person personally performs services under a contract for another through an intermediary, the individual would be regarded for tax purposes as being employed by the end user e.g. the client. It is the responsibility of the intermediary to determine whether IR35 applies. From 6 April 2020 all with contracts entered into or payments made, the onus will shift from the intermediary to the end user client to determine the employment tax status and whether the IR35 rules apply. Where IR35 does apply, the liability to operate PAYE and pay employers’ NICs will sit with the client. This change was brought in for the public sector in 2017 so it is a case of the private sector catching up.
The IR35 does not apply to companies that are classed as “small”. A business is considered small under the Companies Act 2006 if; the annual turnover is not more than £10.2 million, the balance sheet total is not more than £5.1 million and the total number of employees is not more than 50.
Notes for employers:
Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through personal service companies. Determine if the off-payroll rules apply for any contracts that will extend beyond 6 April 2020. You can use HMRC’s Check Employment Status for Tax service to do this. Start talking to your contractors about whether the off-payroll rules apply to their role. Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should decide and how payments will be made to contractors within the off-payroll rules.
2. Changes to the calculation of holiday pay
Under the WTR 1998, workers are entitled to be paid during statutory annual leave at a rate of a week’s pay for each week of leave, calculated in accordance with the complicated “week’s pay” rules contained in sections 221 to 224 of the Employment Rights Act 1996 (ERA 1996) (regulation 16, WTR 1998).
Currently, a “week’s pay” for calculating holiday pay for workers with variable hours or variable pay for reasons such as commission or overtime, is calculated by averaging pay over the 12 weeks prior to the worker’s holiday. From 6 April 2020, that reference period will increase from 12 weeks to 52 weeks which is believed to be a fairer assessment. This means employers will have to look back at the previous 52 weeks to work out a worker’s average weekly pay. The idea behind this is it should give a fairer reflection of a worker’s average pay by using a longer reference period. The changes are to be implemented to ensure that workers in seasonal roles or with abnormal working hours are not disadvantaged when holiday pay is calculated. This is because the 12-week period does not deal adequately with the disproportionality of work. If a worker has not worked for 52 weeks, the reference period will be the number of weeks that the worker has worked.
Notes for employers: All employees with variable hours or variable pay (overtime or commission) should have their holiday pay calculates in accordance with the 52 weeks average calculation otherwise employers could miscalculate holiday payments and face an Employment Tribunal claim.
3. Employees will be entitled to a written statement of terms from day one of employment
Currently, under s1 ERA 1996 employees must be provided with a statement of written terms of employment within two months of commencing employment. A statement of written terms is essentially a short version of an employment contract. From 6 April 2020, all employees and workers will have the right to a written statement of particulars from their first day of employment, rather than after two months.
Section 230(3), ERA 1996 defines a ‘worker’ as an individual who has entered into or works under (a) a contract of employment; or (b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.
Currently employers must provide employees with the following in writing within 2 months of starting:
- 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 decision relating to them or any decision to dismiss them.
- A person to whom the employee can apply for the purpose of seeking redress of any grievance relating to the employment and the manner in which any such application should be made.
(Section 2(4) and section 3(1)(b), ERA 1996.)
- In accordance with The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 (SI 2018/1378) additional information will now have to be included as follows:
- Normal working hours, including the times of the week when the employee/worker is required to work, whether these hours or days may be variable and, if so, how they may vary.
- Any benefits other than pay that the employee/worker is entitled to, including non-monetary benefits such as vouchers or meals.
- Any probationary period, including the duration and any conditions.
- Sick pay entitlement.
- Details of any other paid leave such as maternity leave and paternity leave.
- Any training to be provided and details of any mandatory training that the employee/worker must complete. (within 2 months of starting still)
- The notice periods for termination by either side.
- Terms as to length of temporary or fixed-term work.
- Terms related to work outside the UK for a period of more than one month.
- Terms as to pensions and pension schemes. (within 2 months of starting still)
- Details of any collective agreements directly affecting the employment.
Note for Employers: Employers need to be aware of the change and prepare so they are ready when the new right is implemented. The changes will only apply to new employees/ workers engaged on or after 6 April 2020.
4. Changes to the right of agency workers
Under the current Agency Worker Regulations 2010, agency workers are entitled to receive the same pay and basic working conditions as a direct recruit, once they have completed 12 weeks of continuous service working in the same role.
The ‘Swedish derogation’ provision currently allows employment agencies to avoid pay parity between agency workers and direct employees if agency workers are employed by the employment agency under a permanent contract are paid by the employment agency for periods between assignments.
From 6 April 2020, the ‘Swedish derogation’ will be abolished and once agency workers have satisfied the 12-week period, they will be entitled to equal pay to workers who were engaged directly.
By 30 April 2020, temporary work agencies must provide agency workers whose existing contracts contain a Swedish derogation provision with a written statement advising that with effect from 6 April 2020 those provisions don’t apply.
Note for Employers: There may be an impact on recruitment as terms and pay rates will need to be reviewed. Employers may see increased costs in hiring agency workers as the agency businesses pass on the direct costs of providing pay parity.
5. National Living Wage Increase
NLW/ NMW: From 1 April 2020:
- The NLW for workers aged 25 and over will increase from £8.21 to £8.72 per hour.
- The NMW for 21- to 24-year-olds will increase from £7.70 to £8.20 per hour.
- The NMW for 18- to 20-year-olds will increase from £6.15 to £6.45 per hour.
- The NMW for 16- to 17-year-olds will increase from £4.35 to £4.55 per hour.
- The apprentice rate for those aged under 19 or in the first year of an apprenticeship will increase from £3.90 to £4.15 per hour.
Family Rates: From 5 April 2020
The Department for Work and Pensions has placed a paper in the members’ library of the House of Commons setting out proposed increases to a number of statutory benefit payments. The following rates are expected to apply from April 2020:
- The weekly rate of statutory sick pay (SSP) will be £95.85 (up from £94.25).
- The weekly rate of statutory maternity pay (SMP) and maternity allowance will be £151.20 (up from £148.68).
- The weekly rate of statutory paternity pay (SPP) will be £151.20 (up from £148.68).
- The weekly rate of statutory shared parental pay (ShPP) will be £151.20 (up from £148.68).
- The weekly rate of statutory adoption pay (SAP) will be £151.20 (up from £148.68).
Note for Employers: Prepare for this increase!
For more information, please contact our head of Employment & HR, Tom Evans.