5 Legislative updates you shouldn’t miss in 2020Aashiel Shah
Employment laws in UK are complex. Time to time updates and changes are constant. So businesses need to keep themselves aware of the changes consistently.
But in the face of the complications of Brexit, the Government has delayed several developments in labor legislation in the United Kingdom. Still, there are some major changes that organizations should get prepared for.
So what’s new for businesses in 2020?
Here we are looking at five key changes to labor law that will be implemented in 2020, effective from 6th April 2020.
1. IR35 Changes to Private Sector
Currently, different rules are applicable for public sector and private sector contracts
Public Sector – The contracting authority (hirer) shall determine whether the contractor falls within or beyond IR35. If the hired person, agency and other third party paying the contractor falls within, he must deduct and report taxes and NICs to the HMRC.
Private Sector – IR35 rules currently apply where an individual (worker), through an intermediary (PSC in a private contract), performs services personally for another person (client) and where services have been provided in a direct contract, the worker is considered to be employed by the client for tax purposes. It is currently the responsibility of the intermediary to determine whether IR35 is applicable.
Changes in IR35 regulations to medium-sized and large private sector companies will be implemented from 6 April 2020.
In line with the new proposal, the burden is shifted from PSC (Personal Service Company) to the end-user for all contracts concluded or payments made on or after 6 April 2020 in order to establish a status. Accounting for taxes and NICs shall be transferred to the party that pays for the services of the individual, known as the ‘ fee-payer’. In brief, the burden to enforce the off-payroll rules is transferred from individuals to organizations.
In consideration of this, medium and large businesses must assess their independent contractors to check the contracts and payment agreements to determine whether the new rules under IR 35 apply. The changes will not apply to small businesses.
2. New right to a written statement of terms
An employer should provide a “written statement of employment particulars” to the workers if their contract of employment extends at least a month or longer. This is not a contract of employment, but it will include the primary working conditions. It should be provided within 2 months of the start of employment.
The employees appointed on or after 6th April 2020 will be provided a written statement of employment particulars. They must be given the written statement on or before their first day of employment.
Additional details that the written statements need to contain includes:
- The hours or days of the week the employee has to work, whether it’s variable and how
- can be eligible for a paid leave
- any other benefit not included otherwise in the written statement
- particulars of probation period if any
- The detail of the training programs offered by the employer.
As the new law requires to provide details on ‘ Day 1, ‘ employees will need to initiate planning during the hiring period of the updated statement of particulars to ensure that all aspects of the new requirement are included. Employers will have to examine who may be qualified as an employee, issue employment contracts only to employees and use a separate template to issue employee details.
3. Taxation on Termination Payments
Currently a generous exemption from tax is available for the employee which allows up to £30,000 to be paid tax-free as part of the compensation payment when their employment is terminated.
New legislation has amended the tax treatment of payments in lieu of notice (PILON) by making the PILON completely taxable and subject to national payments (NICs) both for employees and employers, irrespective of whether the PILON clause exists in the employment contract.
The updated law divides the termination payment into two sections:
- Post-employment notice pay (PENP) is the basic salary that the employee would have earned if he had finished his notice period. Even if a contractual PILON exists the payment is regarded as earnings and will be taxable.
- Payment balance up to £30,000 in tax-free. Income tax is imposed on any excess amounting to £30 000.
4. Agency Workers Regulations – Good Work Plan
The Agency Worker Regulations 2010 (AWR 2010) allows workers to receive the same compensation as direct recruits following 12 weeks of continuous work in the same role.
But, Pay between assignments contracts (also called the Swedish derogation), exempts workers from the right to equal salaries if they work under a permanent employment contract with the temporary work agency and are paid by the agency between jobs.
The Swedish derogation shall be removed from 6 April 2020. After workers have completed a qualifying period for 12 weeks, they have a right to equal pay for employees who are directly employed by their company.
Agency workers whose existing contracts contain Swedish derogation clauses will, on or before 30 April 2020, be notified in writing of their ineffectiveness by the agency.
Moreover, every employee of the agency must be given a key statement of facts from 6 April 2020 that states the terms and conditions of the work.
5. Holiday pay reference period adjustment
Calculating holiday pay for workers without fixed hours or pay is complex. The current holiday pay reference period is based only on effective performance over up to 12 weeks.
The holiday pay reference period to calculate a ‘week’s pay’ will be extended from 12 weeks to 52 weeks starting 6 April 2020.
In order to calculate average weekly earnings, employers will need to look back on the previous 52 weeks, excluding all the weeks when not worked or a payment not received.
This change is expected to help to reduce the variation in wages for employees, especially those in seasonal and bizarre roles.
Hope this article help to give you a better insight into the upcoming changes and prepare yourself to acquaint with the changes seamlessly.