Today’s alert contains a summary of key employment law changes in force this April, including the changes to off-payroll working rules (aka IR35).
The new off-payroll working rules, also known as IR35, came into force in the private sector from 6 April 2021 and are likely to have a major impact on the way contractors are hired by businesses where they operate through an intermediary (such as their own limited company). The reform means the onus has shifted from the contractor to their engaging organisation to determine whether tax/NI should be deducted from their pay. Medium and large-sized private sector clients must now assess workers’ or contractors’ status. As a result, medium and large-sized private sector clients are now responsible for determining the employment status for tax of the worker or contractor and communicating this to the worker and the organisation below them in the supply chain.
The reform was originally meant to be rolled out in April 2020 but was pushed back by 12 months to give businesses struggling with the fallout from the Covid-19 pandemic more time to prepare, and now brings the private sector in line with the public sector, where the rule has been in force since 2017.
This reform was put into place to ensure that contractors were not utilising intermediaries in order to evade paying the same level of Income Tax and National Insurance Contributions that they would if they were hired directly by the client, which the government estimates will cost the Exchequer £1.3bn a year by 2023-24.
This change has proved controversial among private sector employers and, due to the shift in responsibilities, some companies have stated they would no longer be using contractors to avoid making this decision. Furthermore, many businesses do not fully understand the potential implications of the changes to off-payroll rules.
A new HMRC requirement that employers take ‘reasonable care’ when assessing contractors’ status has been specifically designed to ensure firms make fair, well-considered determinations instead of blanket IR35 decisions that group workers either inside or outside IR35 irrespective of their actual status.
The government has responded to concerns from both businesses and the self-employed by announcing that firms that accidentally fall foul of the rules will not face fines during the first year of the new rules. Businesses engaging contractors through intermediaries should be completing status determination tests now for all contracts. HMRC will stand behind any determination arrived at using their “Check Employment Status for Tax” (CEST) tool, provided it is completed accurately and the arrangements are not contrived to achieve the desired outcome.
Other Employment Law Updates from April 2021
1. Employment Tribunal Compensation Awards and Rates
Employment tribunal compensation rates increased from 6 April 2021. From this date, the maximum week’s pay for redundancy pay calculation purposes has increased from £538 to £544. Statutory guarantee pay has remained the same at £30.
This is important for the purposes of tribunal claims because it means that the maximum statutory redundancy pay, as well as unfair dismissal basic award pay, will both now be £16,320. The unfair dismissal compensatory award, which is set to compensate the claimant for past and future loss attributed to the dismissal, is a maximum of 52 weeks’ pay, subject to a new maximum of £89,493.
The maximum amount of additional award for unfair dismissal, set to compensate claimants when employers fail to adhere to a tribunal instruction to re-engage them, taking into account average weekly earnings, has risen to £28,288.
2. Statutory Sick Pay
Statutory Sick Pay (SSP) is paid for up to 28 weeks. It is currently available to people who are self-isolating, either because they or someone in their household has COVID-19. Outside of this, SSP is available for employees from the fourth day they are sick.
To be eligible for SSP, an employee must earn an average of £120 a week minimum and have been ill, self-isolating or shielding for at least four days in a row (including non-working days).
As of 6 April 2021, the rate is now £96.35 per week, a rise from £95.85. The lower earnings limit in relation to eligibility to statutory payments has remained at £120 per week.
3. Family Leave
The weekly rates of statutory family leave – e.g. maternity/paternity leave, etc. have increased by 77p per week as of 4 April 2021, from £151.20 per week to £151.97 per week.
4. Minimum wage rates
From 1st April 2021, the national minimum wage rates have increased to new hourly rates as follows:
- Workers aged 23 and over (National Living Wage) – £8.91
- Workers aged 21-22 – £8.36
- Development rates for workers aged 18–20 – £6.56
- Young workers rate for workers aged 16–17 – £4.62
- Apprentices under 19, or over 19 and in first year of the apprenticeship – £4.30.
The National Living Wage (NLW) threshold has lowered to include all those aged 23 and over. Currently, the NLW is payable only to people who were aged 25 and over.
If you have any queries, please contact our Employment team on 01228 552600 or 01524 548494.