The new IR35 rules relating to engaging staff contractors came into force for private sector employers on 6 April 2021. The reforms bring potentially significant financial repercussions where services are received from a professional service company (PSC), directly or indirectly, for example through staffing companies, umbrella vehicles or consultancy companies.
The reforms mean that liability for determining whether or not a consultancy agreement falls inside or outside IR35 shifts from the PSC to the end user (the company using the consultancy services). If the consultancy arrangement is found to fall inside the IR35 regime, then the fees payable in connection with the consultancy agreement must be paid subject to tax and national insurance contributions (NICs). If the end user fails to carry out the IR35 determination, or incorrectly categorises the arrangement as outside IR35 and pays the consultancy fees without deduction on that basis, then HMRC could seek repayment of the tax and NICs. It also has the power to issue late payment fines and interest and a further penalty of up to 100% of the tax/NICs liability. The legal costs of defending any investigation or tax assessment would also be considerable.
Responding to the coronavirus pandemic
The Coronavirus Job Retention Scheme (CJRS) is open until 30 September 2021. Under the extended scheme, the government pays 80% of wages for unworked hours of furloughed staff, up to a maximum of £2,500 per employee each month. Employers remain responsible for NICs and pension contributions. Since 1 July 2021, employers have had to contribute 10% towards the cost of the grant for unworked hours (with the government contribution reducing to 70%) and from 1 August 2021 until the scheme closes, employers must contribute 20% (with the government contribution reducing to 60%). HMRC are carefully scrutinising the use of the CJRS. Employers should consider carefully whether or not they meet the eligibility criteria and ensure that any claims are made in accordance with the scheme rules.
With the CJRS set to close on 30 September 2021, employers should also consider their workforce requirements from October 2021 onwards and what this means for their existing staff. While some redundancies may be inevitable, employers are also looking at permanently or temporarily changing terms and conditions of employment or introducing more flexible work arrangements to accommodate staff, all of which raise a number of legal and employee relations issues.
Employers should also ensure appropriate steps are taken to address other issues arising from the pandemic, including ongoing support for mental health and wellbeing (which remains prominent in many business agendas), managing performance and absence issues where an employee is suffering from "long Covid" and, as increasing travel is permitted, updating holiday policies on how requests will be dealt with and setting out the company's position where an individual is unable to return to the UK or is required to quarantine or self-isolate in accordance with government guidance.
Many employers are currently considering new permanent hybrid or remote working models in light of the advantages identified during the Covid-19 pandemic for businesses and employees in permitting some flexibility in working arrangements.
Remote/hybrid working models do expose businesses to new risks which should be carefully considered, including data protection, health and safety, and misuse of confidential information and intellectual property. Such arrangements also throw a spotlight on mental health and wellbeing issues, with trade unions calling for the government to bring in a "right to disconnect". Permitting employees to work from overseas may also bring complex immigration, tax and social security issues.
The government had indicated that it is also looking to make flexible working the default unless there are good business reasons not to (at present a statutory request for flexible working can only be made by an employee who has 26 weeks' continuous service). While there was no Employment Bill mentioned in the Queen's Speech, there has been media speculation that we may see a consultation on new rights in this respect this summer.
Impact of Brexit on recruitment
Since 1 January 2021, any EEA/Swiss national (excluding Irish nationals) looking to come to the UK to work requires sponsorship under the new Skilled Worker route (unless they qualify under another applicable category under the new rules). Employers who do not have a sponsorship licence should consider applying for one now to ensure that they are in a position to sponsor overseas workers when needed, especially given the delay caused by the amount of applications and Covid-19.
Any EEA employee in the UK before 11pm on 31 December 2020 was required to apply under the EU Settlement Scheme by 30 June 2021 for settled or pre-settled status. Those who did not do so may have lost their right to work in the UK, save in exceptional circumstances. While employers are not obliged to carry out retrospective right to work checks on EEA nationals who were employed on or before 30 June 2021 (and current guidance confirms that provided the original check was carried out validly, an employer will benefit from the statutory excuse against a civil penalty if it transpires that the employee does not have a right to work), this lack of status will have significant ramifications for the employee (and potential criminal liability for the employer where it knows that the employee does not have the requisite status but continues to employ them, as well as the possible loss of staff). Some employers are considering carrying out retrospective checks but it is important that these are carried out in a non-discriminatory manner; EEA nationals should not be singled out. Employers may wish to invite/encourage employees to use the government's online checking service but an employee cannot be forced to do so.
Right to work checks
The ability to carry out "adjusted" right to work checks in light of the pandemic will end on 31 August 2021. From 1 September 2021 employers need to ensure that an individual attends the place of work so that their original documents can be checked, unless the individual permits the employer to check their right to work using the government's online service.
Business travel after Brexit
The EU-UK Trade and Cooperation Agreement (TCA), which details the UK's trading relationship with the EU from 1 January 2021, includes a number of provisions that have the potential to affect consultancies, recruiters, staffing companies and trading companies. There are particularly important rules about deploying UK contractors and consultants into EU countries and other possible restrictions on how UK workforce solutions companies can operate across the EU. The TCA also provides that while short-term, visa-free business trips are permitted for some specific listed purposes, such as attending meetings, this is subject to national "reservations" or exceptions, which vary by EU Member State. Employers and workforce solution businesses will need to consult the detail of the TCA and the latest government guidance to check for any restrictions or requirements in relation to planned trips for work purposes.
New vehicles for engaging staff
As businesses adapt to the new legal landscape, including Brexit and the recent IR35 reforms, we are seeing businesses increasingly start to use or consider using umbrella companies/professional employer organisations (PEOs) as a model of engagement. Our workforce solutions team explore the issues that the use of umbrellas/PEO raises and our predictions for businesses here. To avoid inheriting liabilities under tax avoidance legislation from umbrellas/PEOs that use aggressive tax planning arrangements, all those in the supply chain will need to carry out spot checks that credible after tax amounts are being paid into UK bank accounts in the name of the individual worker.
Addressing the ESG agenda
Employment issues are set to play a central role in organisations' Environmental, Social and Governance (ESG) agendas. The government has announced a new labour supply chain enforcement body (see dates for the diary below). Diversity, inclusion, mental health and wellbeing all form part of the social agenda.
Recent reports and government guidance continue to highlight the important role diversity and inclusion plays in a business's success, coupled with evidence of the disproportionate impact that Covid-19 has had on different sections of society. The Black Lives Matter movement has thrown a spotlight on racial inequality, just as #MeToo shone a light on sexual harassment in the workplace.
It is critical for employers to continue to address diversity and inclusion as well as continuing to support mental health and wellbeing, as the workplace seeks to attract and retain talent post Covid-19 and potentially moves to new, more hybrid ways of working.
Future of work
The pandemic has accelerated transformation in the workplace as businesses look at increasing digitalisation and a move towards more hybrid/remote working, combined with the end of free movement between the UK and EU and organisational commitments around decarbonisation and diversity. We set out in this Insight our predictions on the future of work and the issues employers will need to consider as they embrace the challenges ahead.
Dates for the diary
5 October 2021: Gender pay reporting: Qualifying employers (more than 250 employees) were under a statutory obligation to report on their gender pay data on 4 April 2021. However, the government Equalities Office has indicated that in light of Covid-19 it will not take any enforcement action for a failure to report until 5 October 2021.
Ethnicity pay reporting: The government has previously consulted on a new ethnicity pay gap reporting obligation. We are still awaiting the outcome of that consultation. However, the recent report from the Commission on Race and Ethnic Disparities commissioned by the government stops short of recommending the introduction of mandatory reporting.
2021/2022: Skills and education: As part of the Queen's Speech it was confirmed that a Skills and Post 16 Education Bill will legislate for landmark reforms that will transform post-16 education and training. The government has also introduced a Professional Qualifications Bill to recognise professional qualifications from across the world.
Legislative change not expected before 2022: New labour supply chain enforcement body proposed: The UK government has proposed merging the Employment Agency Standard Inspectorate (which enforces recruitment law rules), the Gangmasters and Labour Abuse Authority and the National Minimum Wage enforcement section of HMRC to create a super agency to enforce compliance in labour supply chains. This step may also involve new legislation to regulate employment intermediaries such as umbrella companies.
Whistleblowing: While the UK is no longer required to implement the EU Whistleblowing Directive by 17 December 2021, Covid-19 has brought calls for our current legislation to be reformed to provide greater protection for whistleblowers.
Neonatal leave and carers leave: The government has consulted on introducing two new leave rights: a statutory paid leave entitlement for parents whose babies spend an extended period of time in neonatal care, and a statutory right for unpaid carers to take one week's unpaid leave a year to carry out caring responsibilities for individuals with physical or mental health problems, disability or issues related to old age. No draft legislation has yet been published nor a specific time-frame set out for the introduction of these new rights but they may be included in any future Employment Bill. There are also calls on the government to reform the existing Shared Parental Leave rules.
Extending redundancy protections: The government has consulted on enhancing redundancy protection to prevent pregnancy and maternity discrimination. No draft legislation has yet been published nor a specific time-frame set out for the introduction of this right but it may be included in any future Employment Bill.
Non-compete provisions: We are awaiting the outcome of a consultation on continued use of non-compete clauses in employment contracts. The government is proposing a ban on such clauses or providing for them only to be enforceable where an employee's remuneration continues for their duration.
Non-disclosure agreements: Following a consultation in July 2019, the government announced that it would introduce new legislation to tackle the misuse of non-disclosure agreements (including confidentiality clauses) in employment documentation. Although a full response to the document was published on 29 October 2019 there is no draft legislation yet and the implementation date is unknown. In the meantime, employers should understand any restrictions put in place by regulators, including those on legal advisers advising on agreements.
Sexual harassment in the workplace: The Equality and Human Rights Commission (EHRC) is expected to publish a statutory Code of Practice for employers on harassment in the workplace. This Code will have the effect that Employment Tribunals will be obliged to take an employer's non-observance of the Code into account when ruling on a claim. It is expected that the Code will reflect guidance issued by the EHRC earlier in 2020.