off payroll labour

2020 Vision

As we go into peak holiday season, next year might seem like a long way off, but there are some key employment law changes which will come into force in April 2020 that businesses should be planning for now.

Three key reforms relating to holiday pay, off payroll labour and written particulars are outlined below along with some really good advice on what businesses should be doing.

New reference period rules for calculating holiday pay
The reference period used to calculate holiday pay for workers with variable pay is changing on 6th April 2020.

Ever since the European Court of Justice ruled that holiday pay must take into account ‘normal remuneration’ such as contractual or regular patterns of overtime, pay allowances and certain commission payments, the 12 week reference period has been difficult. Fluctuations in pay can lead to higher holiday pay if leave is taken immediately following peaks and lower holiday pay if it is taken following troughs.

Currently, it is pay that a worker receives during the 12 weeks worked prior to taking a holiday. But as of 6th April 2020, the reference period will be changed to 52 weeks, or the number of weeks of employment if a worker has been employed for less than 52 weeks.

You need to…….CONSIDER WHEN AND HOW YOU MAKE THE CHANGE
With regards to holiday pay, many firms begin their year on 1st January. If that is the case in your business, you need to decide whether to change the way you calculate holiday pay on 6th April, or at the start of your holiday year.

Of course, Christmas can bring high levels of overtime in some sectors and this could have repercussions on holiday pay if you decide to move to the new system in January. It could also mean that people who work the same hours receive different holiday pay, simply because of the dates that they take leave. If your financial year ends after 6th April, the value of accrued but untaken holiday will increase, meaning you may wish to limit how much holiday can be carried forward.

You need to…….ADJUST YOUR HR SYSTEMS
In some situations, the 52 week reference period will need to be altered. However, the good news is that employers do not have to look back any more than 104 weeks prior to the holiday.

You should review your variable pay policy, if you have not started to include variable pay in your holiday pay, now is probably a good time to do so. If you decide to tackle this, it is important to assess what pay components you will cover and whether this could trigger claims for backdated holiday pay.

Changes to the tax treatment of off-payroll labour
From 6th April 2020, changes to tax legislation regulating off-payroll working (IR35) also come into effect.

These new rules will require larger private sector businesses to deduct income tax and National Insurance contributions via payroll from fees for services paid to a personal service company (PSC). This is where the individual performing the services would, but for the PSC, ordinarily be regarded as an employee of the ‘client company’ for tax purposes.

The treatment of individuals who are directly engaged by the client company, for example ‘John Smith’ rather than ‘John Smith Limited’, remains the same. The correct tax treatment of the fees paid to these workers will depend on whether they are an employee of the client company for tax purposes, or if they genuinely are self-employed.

At present, the tax liability rests with the PSC. The change will be accompanied by obligations on the client company to determine the correct position for each engagement and notify the other parties involved. It pays to be prepared for this reform; when similar changes were introduced in the public sector two years ago, many organisations were caught out.

You need to…… AUDIT YOUR OFF-PAYROLL LABOUR
It is a good idea to start doing this as soon as possible because the audit process could take some time. It is likely you will need to make individual decisions and have different communications with each PSC.

The audit will be a factual investigation, looking at what each individual does in practice, how they do it, what contracts they’re engaged under and how they are paid and so forth. This may also be a good time to audit any off-payroll labour that is not provided through a PSC.

You need to…… CONSIDER THE KNOCK-ON EFFECTS
The audit is likely to have knock on consequences that may require legal advice.
As well as determining employment status, you may need legal advice to amend or draft contractual documentation, to advise on the effects on pension liability, and to consider how this change works with rules around immigration, the apprenticeship levy and with gender pay gap reporting. In addition, if liabilities are identified or a revised model of working is required, your accountant may be needed to quantify the position.

Written particulars becoming a ‘day one right’ for workers and employees
The requirement to give written particulars will be altered in the following 3 key ways:

  1. It will become a ‘day one right’ for those employed after 6th April 2020.
  2. It will cover workers as well as employees.
  3. It will need to cover additional topics, such as probationary periods, any variation in working hours, and ‘any other benefit provided by the employer’.

You need to……. REVIEW YOUR CONTRACTS
Begin by revisiting all contracts used to engage employees and workers in readiness for new starters arriving after 6th April 2020. Most of the new areas are straightforward but some thought will need to be given to areas that are more complex.

You need to……. CONSIDER THE IMPACT ON FLEXIBLE WORKING
If your workforce includes flexible working patterns, such as shift workers or zero hours workers, you will need to consider how your approach might vary and you should build this into your terms.

You need to……. ASSESS YOUR BENEFITS
To cater for the ‘any other benefit’ requirement, you will need to decide what types of benefits should be covered and their contractual status.

Summary

At first sight, these legal reforms may seem fairly minor, however they do mean that you will need to review key processes and possibly make important changes that will have legal and financial consequences.

As ever with employment law issues, preparation is key. Organisations that start work on these changes now will be in a good position going into 2020. We hope that this article is useful and that it provides clear advice on what you need to do now.

Of course, Borders Employment Law can provide all the help and assistance that you need to make sure you are fully prepared and compliant with the changes.