There are several practical steps which businesses should be taking now to prepare themselves for important changes to employment law which will take effect on 6 April 2020.
Statements of written particulars
The obligation for employers to give written statements of employment particulars will be changed in three key ways. The right will be extended to cover workers as well as employees. The statement will have to be issued on or before the first day of employment, rather than within two months after employment starting. It will need to cover additional information, such as probationary periods, benefits and how any variable working hours are decided.
Businesses should review their template contracts for employees and casual staff in preparation for taking on new joiners. They should assess which benefits will need inclusion as contractual benefits. They will need to determine how to articulate their flexible working patterns, for example covering shift workers or staff on zero hours contracts, in the contracts.
New rules for calculating holiday pay
Currently holiday pay for employees with variable pay is calculated by looking at the pay received during the previous 12 weeks. This reference period will be changed to 52 weeks, or the total length of employment if the employee has been employed for less than 52 weeks. The reason for this change is to ensure that holiday pay reflects the employee’s normal remuneration, and to remove anomalies in holiday pay calculations depending on the particular time that holiday is taken.
This change will affect employees who do not have normal working hours, and those who have normal working hours, but their remuneration varies with the amount of work done, or the time the work is done – which includes employees who are regularly paid overtime or sales-based commission.
Employers will need to ensure that their payroll systems are brought up to speed with the new reference period for calculating holiday pay, liaising as appropriate with their external payroll providers. They should assess whether this change to the calculation of holiday pay will have an impact on the annual costs of paying holiday pay, for example if staff typically take their paid holiday during quieter periods of the year when there is little paid overtime. They should also plan how and when to introduce this change, for example whether to implement this change from the start of their next holiday year rather than when the law changes in April 2020. It will also be a good opportunity to review variable pay arrangements across the business and to check which elements ought to be included in holiday pay calculations in order to comply with the Working Time Regulations.
Changes to the tax treatment of off-payroll working
From 6 April 2020, changes to tax legislation regulating off-payroll working (known as 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) in cases of “disguised employment”. These are where the business determines that the individual performing the services would be regarded as their employee for tax purposes if they were engaged directly and not through their PSC.
The reforms will require the client company to determine the correct position for each engagement and notify the other parties involved. The client company will also need to review its determination, if this is challenged by the individuals, or their PSC. These reforms are already in place in the public sector.
Companies should firstly check whether they will be in scope of the IR35 changes. The changes will not apply to a company which falls within the definition of a ‘small company’ under the Companies Act 2006.
They then need to undertake a comprehensive audit of all their off-payroll working arrangements. This will require a factual investigation looking at the specific working practices on the ground, as well as a review of the relevant contractual documents. The Government’s online CEST tool can be used to assist. This audit process should be started as soon as possible, to allow time to reflect on the outcomes of the audits, to obtain any necessary legal advice and to discuss the results with each PSC.
Businesses should also consider the potential for wider implications of their IR35 determination. Strictly speaking the legal test for deciding employment status for tax purposes is distinct from the similar tests for employment law purposes, however relevant factors which are considered substantially overlap. If the individual should be taxed as an employee, there is a strong chance that they could be considered as an employee or a worker for employment law purposes. This may lead to expectations from the individual that they should receive associated statutory entitlements such as paid holiday and sick pay.
In addition to the provisions highlighted above, there are further changes which will come into play from 2020 onwards. With this volume of change, preparation will be key, if businesses want to be in shape before the changes take effect and they want to minimise the financial impact of those.