Moorcrofts Employment Partner Matt Jenkin outlines the key changes and helps us understand how these may impact on our businesses.
The law on holiday pay will continue to evolve with the reference period for determining an average week’s pay being set at 52 weeks. The last few years have seen a number of significant decisionson holiday pay which has resulted in the calculation of holiday pay moving from basic salary to “normal remuneration”. This has seen holiday pay increase as it now needs to include a number of elements including commission, bonus and overtime. One area that the cases failed to address was the reference period to be applied for the purposes of working out holiday pay. That uncertainty will be removed for some workers with their reference period being increased from 12 to 52 weeks. This will see employers having to look back over the last 52-weeks’ pay to establish an average week’s pay when it comes to holiday pay calculations.
Whilst the change won’t apply to all workers, this 52 week period could well be adopted for all workers, as (a) applying different rules to different categories of employees and workers is likely to be an administrative burden and (b) adopting the same 52 weeks’ reference period for all workers and employees should assist in avoiding claims that a shorter reference period is not representative. This could well see an increase in holiday pay and employers need to ensure that they have systems set up to ensure that the correct level of holiday pay is being applied.
We will also see changes to agency workers with the “Swedish Derogation” being abolished. At first glance, unless you run an employment business supplying agency workers, it may look like a minor technical change. The Swedish Derogation is a provision in the Agency Worker Regulations 2010 which allows employment businesses to avoid the required pay parity with comparable employees at the end-user client after 12 weeks so long as certain conditions are met. In practice, what this may mean is that employment business costs go up as they have to increase the rate of pay to the workers that they supply to ensure pay parity. It may well be the case, that the employment business look to pass the increase in costs on to their clients.
Any organisation that regularly uses agency workers should be querying with the agencies that they use as to how this change is going to impact on them and factor in any increased costs to 2020 staffing budgets.
IR35/Off-payroll working rules
A further strain on staffing costs is likely to be caused by the changes to IR35/Off-payroll working rules. This will impact medium and large businesses who engage consultants via an intermediary, typically the individuals who own a personal service company. Such arrangements are commonplace across a number of sectors. At the moment, for the customers and clients (the end-users) there is little tax risk – if IR35 does apply, any tax payable is an issue for the individual and their company. However, the April changes will see the risk being passed back to the client. It will need to make a determination as to whether IR35 applies, notify the consultant of the determination and if it is deemed that is “in” IR35, deduct tax and NI via PAYE as if the consultant was employed direct by them. These determinations could well see consultants either looking to increase their rates, so after tax they are still in the same net position or looking to become employees, with the increased costs associated with employee status, as there is no real benefit to the self-employed arrangements once the tax advantages have been removed.
Changes to Tax
Changes to taxation will see all termination payments above the £30,000 tax-free threshold being subject to employer NIC’s. This builds on the April 2018 changes which effectively meant that all payments in lieu of notice are now subject to tax and NIC. The April 2020 changes will mean that for a genuine termination payment, the first £30,000 will be tax and NIC free. The balance over £30,000 will be subject to tax and employers NIC, whereas at the moment no NIC is payable on the excess over £30,000. Employers planning terminations post April 2020 which will result in termination payments over £30,000 need to factor in the employers NIC as an additional cost.
Written statements of terms of employment
Employers will need to prepare for the changes to written statements of terms of employment, which for most employers will mean having to review and, if necessary, amend their contracts of employment. The changes which see a requirement to provide statements to all workers (not just employees) and to provide that statement on day one of employment. This may not be hugely problematic; however, the changes will result in additional information having to be included in the statements. This will mean employers having to review their current template employment contracts to see what changes need to be made to ensure compliance from April 2020.
Parental bereavement leave
One change that has had some publicity is the planned introduction of parental bereavement leave. This is due to come into force at some stage in April 2020. The provision will allow for two weeks bereavement leave which depending on length of service will be paid at the same rate as statutory maternity pay. The Government is still consulting on the detail of how the leave will work in practice. How big an impact the change will have is to be seen. Our experience in advising clients on this issue is that most employers are nothing but supportive to employees who find themselves in this situation.
Whilst looking at the planned April 2020 changes in isolation may not be significant, when combined, they do mean that there is plenty for organisations to prepare for, particularly with potential increase to payroll costs needing to be factored into 2020 budgets.
For Employment Law advice around any of the 2020 changes, contact Matt Jenkin.