A raft of employment law reforms are scheduled to come into force in April 2020. In our first bulletin of the new year, we provide a summary of the key changes that could affect your business in the coming months.

Agency workers

From 6 April 2020, all agency workers will have a right to the same pay as direct employees after 12 weeks of service. The current exceptions allowing differences in pay will no longer be permitted (known as “the Swedish derogation” rule). This means that your outgoings for agency workers may increase to mirror the pay of permanent employees for longer assignments.

Settlement agreements

Genuine termination payments made to employees on termination are currently tax free up to a limit of £30,000 if they meet certain criteria. Termination payments are then subject to income tax only on amounts over the threshold (and no other taxes). This will change from 6 April 2020 as payments over the £30,000 threshold will become subject to class 1A employer National Insurance contributions resulting in a higher tax bill for the employer when offering settlement to employees in excess of £30,000.

Contracts

From 6 April 2020, all workers (so not just employees) will have a “day one” right to receive a statement setting out the terms of their employment either before they begin work or on the day that they start. The new rules require additional information to be provided in the statement which includes: referring to working days and hours (and, where this varies, how this will be determined); training entitlement; paid leave (such as family-related leave); and other benefits not already mentioned. Employers should also be prepared to provide a compliant statement to existing workers after this date if they are asked to do so.

Holiday pay

From 6 April 2020, the reference period for determining an average week’s earnings for holiday pay calculation purposes will increase from 12 weeks to 52 weeks (or, if the worker has been employed for fewer than 52 weeks, the number of complete weeks for which the worker has been engaged). This is intended to ensure that workers who do not have a regular working pattern throughout the year are not disadvantaged by having to take their holiday at a quiet time when their weekly pay may be lower.

National Minimum Wage

As a consequence of the November 2019 budget being cancelled, the National Minimum Wage rates for April 2020 were delayed but have now been announced with great fanfare as they represent what the Government has called the biggest cash increase ever. The new rates are as follows:

  • for ages 25 and above, £8.72 (increase of 6.2%)

  • for ages 21-24, £8.20 (increase of 6.2%)

  • for ages 18-20, £6.45 (increase of 4.9%)

  • for under 18s, £4.55 (increase of 4.5%)

  • for apprentices, £4.15 (increase of 6.4%).

IR35

From 6 April 2020, ‘medium’ and ‘large’ private companies will be following in the footsteps of the public sector by being ultimately responsible for tax and National Insurance contributions (NICs) through PAYE if they engage workers by contracting with personal service companies (PSCs) where the arrangements amount to “disguised employment”. Currently it is down to the PSC to determine the status of the individual (and to be responsible for tax and NIC if they get it wrong) but responsibility will shift to the end-user who will need to determine whether but for the PSC, the individual would be employed for tax purposes, and then deduct tax and NICs accordingly. Assessments should be made as soon as possible and end-users will also need to set up an appeal process to enable determinations to be challenged. Those using contractors need to take immediate action.

Brexit

The UK is scheduled to leave the EU on 31 January 2020 (Exit Day). We are expected to leave with a deal and under the current proposals, EU citizens who are resident in the UK by 31 December 2020 will have until 30 June 2021 to apply under the EU Settlement Scheme for immigration status.

In the unlikely event that there is no deal, EU citizens who are resident in the UK by Exit Day will have until 31 December 2020 to apply under the EU Settlement Scheme for immigration status.

To continue living, studying, and working in the UK, EU nationals and their family members will need to apply under the EU Settlement Scheme for immigration status by the relevant date. The type of status granted depends on length of residence in the UK. EU nationals will either be granted ‘pre-settled status’ where they have been resident for less than five years or ‘settled status’ where they have been resident for five years or more.

New immigration system

A new immigration system will be introduced from 1 January 2021, but the planned immigration system post Brexit (which is expected to treat all EEA and non-EEA nationals equally) is still being finalised. There will be no changes to the way employers conduct right to work checks until 1 January 2021, when the new system is in place. For now, employers can continue to accept EU passports and national ID cards as evidence of right to work (although ID cards are expected to be phased out during 2020).