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Employment Status - Off-Payroll Workers – Act now!
We’re pleased to see greater focus on this topic, as we slowly move towards the new law in April 2020. Now is the time to plan for this change in the law that could affect your workers and business.
Please contact us if you want to discuss any of the issues it raises.
If you have any non-employed contractors whether engaged through an agency, service company or direct, you will soon become liable for determining whether the new laws apply and if the workers should be treated as employees.
It will soon be harder to justify engaging non-employed contractors, as the Government is seeking to ensure that workers who provide their services as a non-employed contractor are treated as employees where this would be their status if they were contracted directly.
Currently the laws exist in the public sector, but from April 2020 they are being extended to the private sector. So, what do you need to do?
1. Decide if the laws apply
Thankfully, there is currently plenty of time to review the situation and take action.
a. The first step is to see if the rules apply. There is a simplified test based on turnover, but if you cannot or do not use that test, then you will be caught if you (or your group) meet two of the following conditions:
• an annual turnover of more than £10.2 million;
• a balance sheet total of more than £5.1 million; and
• more than 50 employees.
b. The second step, assuming the rules apply to you, is to:
• determine the status of each non-employed contractor;
• inform each non-employed contractor of your determination, with reasons (we suggest in writing);
• ensure you retain detailed written records of each determination, including the reasons and fees paid; and
• put in place processes to deal with any disputes raised by your non-employed contractors.
If you determine that a non-employed contractor is an employee, then you will need to begin treating that person as an employee.
c. Thirdly, if the non-employed contractor disagrees with your determination, then you will need to understand and review their reasons for challenging your determination. Having considered their reasons, you need to decide whether to maintain or change your determination and, as always, keep a written record of your reasons and inform the worker. You have 45 days to respond to any challenge to your determination.
2. Take Action (and advice)
If you determine the worker is not an employee, then, after informing them, there should be no other immediate action required.
If you determine that a non-employed contractor is an employee, the situation must be addressed, but you will need to understand that a change in status will impact the worker, so it will be a delicate situation to ensure you convert and retain the worker as an employee.
Also, what about the past?
You need to carefully consider the point at which the worker become an employee. This will impact what you decide to do about historical payments of pension, tax and NIC and/or employment rights, including holiday pay and the right not to be unfairly dismissed. For example, if a contractor has been with you for two years or more, will s/he automatically have the right to claim unfair dismissal if you terminate their contract?
An obvious solution might be to terminate the existing contractual relationship and offer fresh employment following a break in service. This may allow you to argue that any continuity of service has been broken, but, equally, it may result in a claim, so great care needs to be taken.
Conclusion
Ultimately, this change in the law will see many non-employed contractors become employees. While this has adverse financial implications for you and the worker, we suspect the financial impact will be better than an investigation or fine from HMRC.
This area has tax and employment law considerations, so you should also seek specialist tax advice as well as legal advice.
As we move closer to April 2020, this area should continue to gain greater focus and coverage, but as we say above, now is the time to act and to start planning for this change.
If any of the issues discussed above are a concern to you, or if you would like specific employment law advice, please contact the writer, Matthew Kilgannon, via mk@kilgannonlaw.co.uk or on 01483 388 901. Nothing in this article constitutes legal advice. 9th September 2019. © Kilgannon & Partners LLP
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