What employment law changes can we expect in April 2020?
On 6 April 2020, there are several notable changes coming into effect that will impact both individuals and businesses:
Increase to holiday pay reference period
The reference period for calculating an average week’s pay is being increased from 12 weeks to 52 weeks. This will particularly benefit workers who do not work regular hours during the year, where 12 weeks may only take into account a period where their earnings are lower. To calculate the average weekly pay after the change takes effect, an employer will need to use the previous 52 weeks where the worker received pay (excluding weeks not worked or where no pay was received) as a reference period.
Written employment terms to be provided on commencement date to workers (including zero hours)
At present, employers have to provide a written statement of terms setting out basic employment terms and conditions within two months of commencement; the right is currently only available to employees. Businesses must be very conscious about whether they are in fact employing workers, particularly under ‘zero hours’ contracts, as these can be found as sham contracts where in reality the individual is either an employee or worker. A tribunal will look at what happens in practice rather than relay on what is written in the contract.
Workers are defined in the Employment Rights Act 1996 as “an individual who has entered into or works under (or, where the employment has ceased, worked under) (a) a contract of employment, or (b) any other contract, whether express or implied
and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.”
In practice, individuals are usually classed as workers if they have a contract to do work/services personally for a reward, they receive money or a benefit in kind, they have a limited right to sub-contract. Workers are entitled to some employment rights, including the right to minimum wage, holiday pay and protection from discrimination. The question of worker status is decided
ultimately by a tribunal, court or HMRC, who will take into account several factors i.e. mutual obligations, personal service, control, exclusivity. HMRC provide a useful tool to assist deciding worker status.
From 6 April 2020:
- The right to receive the statement will extend to workers in addition to employees;
- The statement will also need to be provided on the first day of employment for employees and workers; and
- Additional information will need to be included in the statement. This will include notice period, eligibility for sick leave and pay, probationary period and details of all pay and benefits.
Termination payments above £30,000 to be subject to Employer NICs
At present, the first £30,000 of a termination payment that qualifies for a tax exemption is generally free of tax and National Insurance for both parties.
From 6 April 2020, employers will be liable to pay class 1A National Insurance Contributions on the balance of a termination payment that exceeds the £30,000 threshold.
Liability changing to the end user when determining off-payroll working (IR35) in the private sector
IR35 rules are designed to reduce tax avoidance for off-payroll contractors who provide services through an intermediary (usually their own personal service company). The rules ensure that workers who would be classed as employees if they were contracted directly are liable to pay the appropriate tax and National Insurance as employees.
Currently, it is the intermediary’s responsibility to decide whether IR35 applies for each contract.
On 6 April 2020, the onus will shift to the end user to decide IR35 status for each contract entered into on or after this date, together with the responsibility for deducting the appropriate tax and NICs from contractors’ fees paid through the intermediary fees. This will apply to businesses in the private sector who meet 2 or more of the following criteria:
- Annual turnover of more than £10.2 million;
- Balance sheet of more than £5.1 million; and/or
- Have more than 50 employees.
This has applied to public sector employers since April 2017.
It is crucial for business to start preparing for these changes now by reviewing all existing contracts and pay arrangements with independent contractors to determine now if IR35 applies or is likely to apply when the changes are implemented. When the changes are implemented, there will be a requirement to keep records of each determination, whether the outcome is that IR35 will apply or not. Contracts will need to be re-assessed in the same manner if working practices change or a new contract is negotiated.
If you have any queries in relation to this please do not hesitate to contact one of our experienced Employment Lawyers on 01202 525333 for further advice.