With the sun finally shining and the holiday season underway, it’s time to get familiar with the new employment laws coming into play in April 2020.

Whether you’re making changes as part of an HR team or an employee wanting to plan your holidays, it’s important to have a solid understanding of what these changes mean and how they could affect you.

Three important changes:

  • Increased reference period for determining holiday pay
  • Employees get written terms & conditions from day one
  • Adjusted tax treatment for off-payroll labour (IR35)

To make things nice and simple, we explain what the changes are, why they are happening and how to prepare for them. 

1. Increased Reference Period for Determining Holiday Pay

What’s changing?

The reference period used to determine holiday pay will increase from 12 to 52 weeks.

Holiday pay is currently calculated using the 12 weeks worked before taking a holiday. The new laws extend this period to 52 weeks. If you’ve worked for less than 52 weeks, the reference period will be the total number of weeks you’ve worked for that client.

Why is it happening?

Holiday pay is designed to help workers maintain a steady income, even when they choose to take a holiday. Paid leave is important to maintain a balanced work/life balance and to recharge your batteries so that you can perform at the top of your game.

Many employers have found it challenging to manage the 12-week reference period while juggling the obligation to account for normal remuneration within holiday pay. With the existing legislation, employers must factor in things like commission bonuses and regular patterns of overtime into holiday pay.

The increased reference period aims to reduce the effect of seasonal work and variable income on holiday pay.

How should I prepare? 

For employers, this change should encourage consistent productivity levels throughout the year as employees will no longer be motivated by the holiday pay benefits that come with commission bonuses and working overtime in the 12-weeks leading up to a holiday.

With this in mind, it’s worth considering whether this change will affect when employees take holidays and how this could affect your business. For example, if you sell paddling pools, you don’t want all of your employees jetting off in July!

Think about when you are going to implement this change. If your business is busy during a specific time of year, consider how workers may choose to carry holiday forward into the next financial year (April 6th 2020) and how this could affect productivity.

For employees working on flexible contracts, this change is good news. The extended reference period gives a fairer representation of what holiday pay they deserve. So, they won’t have to worry about employers reducing their hours in the 12 weeks leading up to a holiday.

2. Employees Get Written Terms & Conditions from Day One 

What’s changing?

Currently, employers must provide a written statement outlining the terms of employment to any employee who works for at least one month. These written terms must be given within two months of their start day.

As of April 6th 2020, employers must provide all new employees and contractors with written terms and conditions on their first day of work. The new ruling states that, on top of the existing requirements of written T&Cs, they must cover “any other benefit provided by the employer”  including probationary periods, holidays, paid sick days, pension plans and flexible schedules.

Why is it happening?

This change protects employees and workers by giving them more security and avoiding any confusion over probation periods or holiday allowances. Hopefully, these new changes will help employees know where they stand and stop them from being mistreated.

The ruling gives both employers and the employees extra transparency from day one, so they can both enjoy the benefits of short-term or flexible contracts. 

How should I prepare? 

As part of these new changes, you’ll need to conduct an audit of all employee and non-employee contracts. 

Adapting existing contracts shouldn’t be too time-consuming, but it’s important to be aware that more complex agreements involving employees with working visas or overseas pension schemes may need more careful consideration.

Before April 6th, try to establish a clear idea of what benefits you can offer employees and workers and how these benefits are outlined in employees’ contracts. You want to avoid any vagueness or ambiguity.

3. Adjusted Tax Treatment for Off-Payroll Labour (IR35)

What’s changing?

The 2020 IR35 ruling states that individuals who offer their services to larger private sector businesses and are currently paid through a Personal Service Company (PSC), will have Income Tax and National Insurance contributions deducted through their payroll when accepting fees from a client.

The client will be responsible for determining whether an individual is genuinely self-employed or whether they should be treated as an employee of the company for tax purposes. An individual may be entitled to additional benefits, including holiday pay and pension contributions if they are deemed to be an employee for tax purposes.

Why is it happening?

A 2018 report from the National Audit Office (NAO) on the BBC's hiccup with personal service companies (PSCs) has triggered HMRC to respond with this regulatory change to off-payroll working.

The tax liability currently rests with PSCs, but as of April 6th 2020, private sector businesses will be required to establish the legal position of all contractors.

The change seeks to prevent:

  • The individual from receiving a tax benefit for receiving fees through a PSC when they are (essentially) working as an employee.
  • Private sector businesses from avoiding costs associated with onboarding a contractor as an employee.

If a worker is deemed to be ‘inside’ IR35, the client company may find themselves in a position where they must offer ‘employee-style’ benefits to the worker, which could include holiday pay. 

How should I prepare? 

The change calls for a long-overdue spring clean. By auditing your off-payroll workforce, you can start to get a better idea of what changes need to be made ahead of April 6th and how to go about implementing these changes with minimum disruption.

Try to understand what services individuals provide, in what capacity they engage with your business and how you’re paying them. You may need to seek specific accounting or legal advice to address more complex situations involving pension contributions, apprenticeship funding and the gender pay gap.

Fail to Prepare, Prepare to Fail

While these changes may not appear to be an immediate concern, it’s important to stay ahead of the game by making preparations before  April 6th 2020.

The changes to holiday entitlement and tax classifications are designed to give clarity to what were previously grey areas. Employers and employees are being given a fair set of guidelines which promote a healthy work/life balance and give us a chance to catch some much-needed holiday sun every once in a while!

Here at Change, preparations are already underway to keep our employees smiling as we continue to build exciting teams, bursting with talent and bright ideas.

Recruit or Work with Change

If you want to be part of a company who puts their employees first, take a look at some of our current job openings and learn about our company culture here. Alternatively, if you’re looking to add some exciting new talent to your company, speak to one of our dedicated recruitment consultants to find out how we can help.

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