Regulatory Outlook: Employment and Contingent Workforce
Current issues: February 2019
Businesses must ensure they are aware of the ’employment status’ of their workforce and contingent workforce. There are a number of cases before the courts looking at the employment status of so-called ‘independent contractors’ who are now claiming worker status and with it rights to minimum wage, holidays and pension entitlements, amongst other things.
Employers should review their arrangements with contractors carefully to ensure that they are comfortable with the terms of engagement and manage any risk accordingly. This will be of increasing importance given IR35 reforms due to come into force in April 2020 (see below). The government is also looking at introducing legislation to determine employment status and aligning this with tax following the publication of its Good Work Plan at the end of last year.
Businesses must contend with increasing transparency requirements – both voluntary and mandatory. On 1 January 2019, new statutory regulations came into force implementing a range of corporate governance requirements, including mandatory reporting of the ratios between CEO and average staff pay by large UK listed companies (but in practice this will not be reflected in reports until 1 January 2020 onwards) and reporting on employee engagement for all large companies, with an obligation requiring companies to describe the action that they have taken to constructively inform and consult with employees.
Employers with 250-plus employees must also report on their latest gender pay gap on 4 April 2019 and take the next snapshot of their pay data on 5 April 2019. A consultation has also recently closed on ethnicity pay gap reporting and the government has published a new voluntary framework to assist organisations with 250 or more staff to report on how many of their staff have a health condition or a disability.
#MeToo and non-disclosure agreements
The government has recently published a response to a report from the Women and Equalities Select Committee, announcing that it will be consulting on a number of matters including how better to regulate the use of non-disclosure agreements and how best to enforce any new requirements. It will also include consideration of how best to inform workers of their existing rights in relation to non-disclosure agreements.
Employers must review non-disclosure terms used in current employment contracts and settlement agreements to ensure that they are in line with the current guidance on using such provisions.
Calculating holiday pay continues to be a grey area. This year, the Court of Appeal is set to hear an appeal from the Employment Appeal Tribunal on the question of whether ‘regular and settled’ voluntary overtime should be included in holiday pay calculations. This is against the backdrop of a recent CJEU decision which suggests a potentially more restrictive approach.
Increased risk of prosecution of hirers for tax evasion by personal service company contractors and umbrella workers
The Criminal Finance Act 2017 (CFA) makes hirers of contingent workers liable for failing to prevent tax evasion in their staffing supply chain, especially where they have outsourced supply of workers to a payroll partner in the UK or overseas.
HMRC has recently made clear that it considers the staffing supply chain to be high risk for these purposes, with many aggressive and offshore tax schemes being used by workers in financial services companies, healthcare and engineering amongst others.
Infringing hirers face prosecution, large fines and serious reputational damage. HMRC action seems likely in 2019/20 in relation to some of the more aggressive schemes.
To avoid prosecution, hirers will need to have carried out regular random spot checks on an audit sample of contingent workers to check how and where they are paid, and get explanations of any apparent non-payment of tax and NICs.
Increased risk of civil liability for hirers relating to tax avoidance schemes
The Promoters of Tax Avoidance Schemes (POTAS) legislation came into force in late 2017 and makes hirers liable where they have “enabled” tax avoidance schemes to be used by umbrella workers, personal service company contractors (PSCs) and other contingent workers.
As with the CFA, HMRC action seems likely in 2019/20 in relation to some of the more aggressive schemes that have recently become prevalent in some sectors, and POTAS will be used where there is not enough evidence to justify a CFA prosecution but there is evidence that the hirer has helped workers sign up to a scheme involving artificial or contrived arrangements to minimise tax or PAYE.
Enabling can occur where hirers are involved in allowing the workers to be pushed into a particular umbrella company to keep costs down, as has allegedly often been the approach in parts of the logistics and industrial sectors.
IR35 in the private sector
Summer 2019 will see consultation about extending the new public sector IR35 regime to the private sector. This will make staffing companies and in many cases hirers liable for PAYE and NICs in respect of PSCs who fail the so-called IR35 (employment status) tests. Currently, liability where the IR35 test is failed sits with PSCs. This will change from April 2020.
Hirers will need to review usage of PSCs and may, for those PSC contractors whose skills are essential to the business, have to prepare for increased fee rates to offset any decrease in take-home pay. Alternatively, supply arrangements may need to be changed so that the PSCs fall outside the IR35 regime (for example, because they move away from a time-spent basis of charging to a “fixed price for defined deliverable” approach to service supply). This will take time to put in place and many major companies are already putting detailed plans in place to reduce the financial impact of the new legislation which for heavy users of PSCs (such as IT contractors) may end in increased workforce costs in the region of 10-40%.
“Good work”: likely increased liabilities for temporary agency workers and zero hours workers
In December 2018, the government announced its plans to improve the quality of work in the UK. Within the plans are proposals to eradicate certain practices in the use of contingent workers, including zero hours workers and lower paid temps.
Many of these proposals are predominantly bureaucratic but within the detail are proposals to eradicate certain misuses of holiday pay by staffing companies, to give zero hours workers and others additional rights, and to increase the powers of regulators in these areas.
These measures will have a cost impact on many hirers and some may come into force in 2019.
In Focus: No deal Brexit
What would be the impact of a no deal Brexit for UK businesses trading with the EU?
Whilst we wait to see whether an agreement can be reached on the UK’s exit from the EU, the UK government has made it clear that businesses should not see any significant changes to employment rights in the event of a no deal Brexit. Technical amendments have been made to allow existing employment laws to continue to work post-Brexit.
From an employment law perspective, we can expect that at least for the time being, the status quo will largely be preserved – either through the transitional period if the Withdrawal Agreement be approved or, if it is not, via the various statutory instruments the UK has been implementing to enable our existing legislation to continue where it is dependent on EU law.
The exception to this is the rules around European Works Councils (EWC). The position in relation to EWCs differs depending on whether the EWC is currently governed by UK law – in which case the law of an EU27 Member State may need to be designated to govern the EWC post-Brexit – or by the law of an EU27 Member State, in which case the primary issue will be around the status of UK delegates post-Brexit.
Employers will, however, need to understand and prepare for new immigration rules. In December 2018, the government published a policy paper on the rights of EU citizens living in the UK in the event of a no deal Brexit. The EU Settlement Scheme will continue in a no deal scenario in an amended form, meaning that any EU citizen living in the UK by 29 March 2019 will be eligible to apply to this scheme and secure their status in UK law. If a deal is ratified, EU nationals would be given the right to apply for settled status if they were living in the UK by 31 December 2020. After the end of any transition period, subject to any agreement between the UK and the EU to the contrary, any new EU workers arriving in the UK may have to be sponsored through a points-based system.
The government has published this note on workplace rights in the event of a no deal Brexit.
What would be the impact of a no deal Brexit for non-UK businesses trading with the UK?
Whilst we are not expecting any significant impact to UK employment law (see above), non-UK businesses trading within the UK will need to keep abreast of any immigration requirements impacting on business travel and longer stays by EU nationals in the UK, or vice-versa, along with the considerations discussed above in relation to EWCs.
What should businesses be doing now to prepare for a no deal Brexit?
- Businesses should ensure they understand the rights of EU citizens to work in the UK in the event of a no deal Brexit and prepare for changing workforce numbers/skill base should individuals leave the UK;
- Businesses should ensure that they are up to date on any right-to-work checks legally required;
- On a practical level, businesses should ensure that they have an up-to-date picture of their workforce and understand how these issues will impact their business;
- Businesses may also wish to consider what guidance and/or support they offer to employees who may be affected; and
- Businesses should review any existing European Works Council arrangements.
Dates for the Diary
|1 January 2019||New regulations came into force implementing a range of corporate governance reporting requirements, including mandatory reporting of the ratios between CEO and average staff pay by large UK listed companies.|
|11 January 2019||Government consultation on proposed new mandatory ethnicity pay gap reporting requirements closed.|
|1 April 2019||With effect from 1 April the National Living Wage will increase from £7.83 per hour to £8.21 per hour (for those aged 25 and over) and the National Minimum Wage rates will increase as follows:
The apprentice rate will increase from £3.70 per hour to £3.90 per hour.
|1 April 2019||Statutory maternity / paternity / adoption / shared parental pay and maternity allowance increases from £145.18 to £148.68 a week.|
|4/5 April 2019||The second deadline for gender pay gap reports to be published by private companies with 250 or more employees falls on 4 April 2019. The next trigger date for taking a gender pay snapshot is 5 April 2019.|
|6 April 2019||
We are still awaiting details of the changes to the annual award limits for ET claims which will take effect on 6 April 2019.
From 6 April 2019, new regulations arising from the Good Work Plan will see penalties for aggravated breaches of employment law increase from £5,000 to £20,000.
|6 April 2019||From April 2019:
|7 April 2019||Statutory sick pay increases from £92.05 to £94.25 per week.|
|6 April 2020||IR35 reforms in the private sector are expected to come into force.|
|6 April 2020||Parental bereavement right entitling parents who have lost a child under 18 to 2 weeks paid leave expected to come into force. We are awaiting implementing regulations.|
|April 2020||A new requirement for employers to pay employer’s Class 1A NICs on all payments above the £30,000 threshold is due to take effect in April 2020.|