U.K. Employment Law Update: Statutory Changes, New 'Section 1 Statement' Requirements and IR35 Tax Changes

Statutory Changes to U.K. Employment Law

National Minimum Wage 2020

The minimum hourly wages will increase from 6 April 2020:

• The National Living Wage for those aged 25 and above will increase from £8.21 to £8.72 per hour
• The National Minimum Wage:
  • For those aged 21 to 24 will increase from £7.70 to £8.20 per hour
  • For those aged 18 to 20 will increase from £6.15 to £6.45 per hour
  • For those under 18 will increase from £4.35 to £4.55 per hour
  • For apprentices will increase from £3.90 to £4.15 per hour

Change to Holiday Pay Reference Period

From 6 April 2020, the reference period for calculating average weekly pay for holiday pay purposes will be the 52 weeks preceding the holiday, or such time as the employee has worked for the employer if less than 52 weeks. Prior to 6 April 2020, the reference period for such calculations was the 12 weeks preceding the holiday.

Parental Bereavement

From 6 April 2020, employees who suffer the loss of a child under 18 or a stillbirth after 24 weeks of pregnancy will be entitled to two weeks’ statutory leave at statutory rates (which from 6 April 2020 to 5 April 2021 will be £148.68 or 90% of weekly earnings if lower). To qualify, employees must have at least 26 weeks’ service and meet certain other criteria.

Tax on Termination Payments

Currently, on termination payments over £30,000, neither employee nor employer National Insurance Contributions (NIC) are payable. From 6 April 2020, an employer NIC of 13.8% will be payable on termination payments above £30,000. Employee contributions will remain exempt.

Changes to ‘Section 1’ Statements

Section 1 of the Employment Rights Act 1996 requires employees to be given a written statement setting out certain terms of their employment, known as a “section 1 statement.” Significant changes to the section1 statement will come into force from 6 April 2020. Notably:

• Both employees and workers will be entitled to receive a statement.
• All workers have the right to receive a statement irrespective of how long their employment will last.
• The statement must be given on the first day of employment.

From 6 April 2020, the following additional details must be included in the main s.1 statement:

• Days of the week the employee is required to work, and if the hours are variable.
• Any other remuneration or benefits provided.
• Notice periods for termination.
• Details of any probationary period.
• Details of any compulsory training provided by the employer, and any other required training for which the employer will not bear the cost.
• Terms as to length of temporary/fixed-term work, if relevant.
• Terms relating to work outside the U.K. for a period more than one month.

The provisions will apply to all new employees and workers who start work on or after 6 April 2020. Existing employees do not need to be given a new statement, but can request an updated statement up to three months after their termination date, which must be provided within one month of such request. Existing workers engaged before 6 April 2020 will not have the right to a statement.

IR35: Is Your Business Ready?

The U.K. government has confirmed that changes will be made to the current off-payroll working rules (colloquially known as “IR35”) effective from 6 April 2020. These changes will affect contractors working through personal service companies (PSC) as well as companies that contract with the PSCs.

As a result of these changes, medium and large private sector companies that contract with PSCs for services that are provided by a contractor will (if certain conditions are met) have to deduct income tax and national insurance contributions through PAYE prior to making payment to the PSC. These rules will apply if the contractor providing the services would be deemed to be an employee of the client company for tax purposes if they were working directly under a contract with the client company.

The responsibility for determining whether the contractor would be a deemed employee will fall on the client company. HMRC has created a Check Employment Status for Tax service (CEST) which is available online. There is no obligation to use CEST, but HMRC is bound by the results of the CEST service provided it has not been manipulated. The client company must inform the PSC of the outcome of the status determination, and the PSC and the contractor will have the right to ask for reasons and to challenge the determination.

Companies likely to be affected by the new IR35 rules should review their current processes, which should include carrying out an audit of any contractors who may be caught under the new rules, reviewing and updating the relevant contractual arrangements and documentation as necessary, and, if applicable, changing the model through which the contractors are hired and/or put in new systems to manage the IR35 process.