Regulatory Outlook | Employment and contingent workforce | July 2018

Written on 26 Jul 2018

Current issues

Gender pay

The next gender pay reporting deadline falls on 4 April 2019. Gender pay reporting requirements require employers with 250 or more employees to publish prescribed gender pay gap data on 4 April each year based on a snapshot taken on 5 April in the preceding year.

Whilst employers may now have their process in place following on from reporting this year, employers must ensure that they are now following up on any initiatives; it will be easy to make a direct comparison between this year’s and next year’s report to see what progress has been made against diversity commitments.

CEO pay ratios

The UK government has published draft legislation, expected to come into force in January 2019 (applying to company annual reports from January 2020), which includes:

  • a requirement for a listed company which has 250+ employees to publish the pay ratio between its chief executive and its 25th, 50th (median) and 75th percentile UK employee; and
  • a new disclosure obligation on all companies with 250+ employees to report in their annual report on the action that has been taken to engage with employees.

Government response to Taylor review

In February 2018, the government published its response to the Taylor Review into modern working practices. As part of its response it issued four consultations, on:

These have now all closed and we await the outcome and any legislative proposals resulting.  Holiday pay remains a thorny issue for employers and the consultation looks at proposals to provide a 12 month reference period for calculating holiday pay.

Legislative changes anticipated, or in the pipeline, specifically affecting the use of contingent workers include:

  • new rights for agency workers and gig workers, including the right to request a permanent job after working a specific period at one end-user, a day one statement of rights and a detailed payslip setting out all deductions. Workers may also be given a right to be involved in consultations with all staff and a right to training; and
  • joint and several liability for end-users for breaches by staffing companies/platforms of certain employment law obligations, such as holiday pay and national minimum wage rights.

IR35 consultation

HMRC has issued a consultation (closing 10 August 2018) looking at reforming IR35 rules in the private sector. This follows on from last year’s reforms in the public sector.

The IR35 rules ensure that those working through a personal service company (a limited company of which the individual contract worker or consultant is the only shareholder) who would have been an employee if engaged directly, pay income tax and national insurance contributions as if they were employed. At present, if the courts decide the individual is really a worker/employee of the end-user client, it is the personal service company (not the end-user) that is liable.

Subject to the outcome of the consultation, most commentators believe that will change in April 2019 and the UK staffing market will operate more akin to the German/US markets. Users of personal service companies will need to take more care regarding their employment status or face major liabilities.

Increased risk of Employment Tribunal claims

Since the abolition of Employment Tribunal fees just under a year ago, the number of single tribunal claims has steadily been rising.  The latest tribunal statistics (published 14 June 2018) show single claims received at the Employment Tribunal following the abolition of fees have risen by 118% compared to the same period the previous year.

Businesses should note in particular the increase in employment status claims being brought by contingent workers, including temporary/contract workers and gig workers, following recent case law finding in favour of worker status. There is an increased likelihood that UK courts will find employment or worker status exists where a platform or end-user exercises control over a ‘self-employed’ worker by disciplining them or issuing financial penalties for a failure to attend.

‘Regulation 80’ determinations

HMRC is likely to send thousands of tax claims (so-called ‘Regulation 80 determinations’) in March 2019 to users of contingent workers where those contingent workers avoid tax by:

  • being paid via an offshore arrangement; or
  • being paid via sole trade arrangements.

Users will often be unaware that this is how their contingent workers are paid due to supply chains being elongated and the fact that users do not always know what entities exist in the chain between them and the worker.

Users should carry out spot checks on how and where their contingent workers are paid. Indemnities in contracts are unlikely to cover the relevant liabilities because intermediaries who give such indemnities will rarely have the balance sheet strength to pay a large tax claim.

In Focus: Brexit

Is any new EU legislation expected to come into force and effect before the end of the transition period?

No. We are not expecting any new EU legislation concerning or contingent workforce before the end of the transition period.

Is a new regulator needed, or do additional powers to be given to an existing regulator?

No. Enforcement of employment and contingent workforce regulation is carried out at a national level (for example, by HMRC in relation to tax matters), so will not change following Brexit.

Is there an existing “equivalence” or “recognition” regime for recognising Third Country regulatory regimes?

No. There is no equivalence or recognition mechanism for employment law or the regulation of contingent workers.

Does current UK government policy mean that (subject to the terms of a future trade agreement between the UK and the EU) material changes to regulation or enforcement are likely post-Brexit?

We do not anticipate material changes to regulation or enforcement impacting on employers or staffing companies/platforms as a direct consequence of Brexit. The UK government seems likely to leave any EU-derived laws unchanged – at least in the short term. The Prime Minister has indicated that she does not have any intention of reducing worker’s rights.  Whilst we may see some changes to legislation as a result of the consultations coming out of the Taylor review into modern working practices, for example to the Agency Worker Regulations and the Working Time Regulations, these are not anticipated to be material.

In relation to immigration, there are current plans for how applications must be made post-Brexit that have been laid before parliament. These set out what applications can be made, when they can be made and who they will affect.

What should businesses be doing now to prepare for Brexit?

  • Identify how many EU workers you have in your workforce and make sure that you understand their rights and status. Watch out for exchange rate fluctuations where you are paying workers in a different currency to that which you are paid in. This has always been a risk area, but the risk of fluctuations is increasing.
  • Understand what applications will need to be made by your EU workforce, when and how – there could be right-to-work implications after December 2020.
  • Identify the potential for labour shortages and the impact of increased labour costs:
    • make sure your business is able to look outside the UK and EU for skilled workers, for example, by obtaining a sponsor licence; and
    • if you are using UK contractors and agency workers in roles across Europe, and vice versa, they may cease to have the right to work if they are not employed and you may need to consider employing them. This may add to the growing trend of staffing companies moving closer (for various reasons, including tax efficiency) towards an outsourcing/consultancy model in which an element of responsibility is taken for the output of the workers.

Dates for the Diary

10 August 2018 Consultation closes on IR35
1 October 2018 Childcare voucher schemes close to new entrants
1 January 2019 Regulations on executive pay reporting are introduced
1 April 2019 National Minimum and National Living Wage 2019/20 rates apply
4 April 2019 Deadline for employers of 250+ employees to publish a snapshot of their gender pay gap data taken on 5 April 2018
6 April 2019 Employers liable to pay employer’s national insurance contributions on termination payments above £30,000.
6 April 2019 Requirement for payslips to state hours worked where pay varies