The beginning of the year is usually a good time for taking stock. However, there are three reasons why it is particularly important this year to carry out a spring clean of your staff contracts.
A working practice revolution is going on. The emergence of the gig economy has seen conventional employment roles supplemented, and in some cases replaced, by more flexible arrangements such as casual worker agreements and zero hours contracts. So far, our employment laws have lagged behind, however, changes taking place on 6 April 2020 indicate a turning of the tide.
Currently, an employer is required to provide a written contract, or more accurately a statement of particulars of employment containing prescribed information, to an employee within two months of their employment commencing. However, as of April, this requirement will apply from the first day of employment and organisations will also be obliged to provide such information to workers, a wider category of staff which includes temporary or seasonal staff, casual workers and other individuals who would not be considered employees. To further complicate matters, the information which must be provided is changing too, although transitional arrangements mean that employers do not need to update their contracts with existing employees (not workers) before the changes take effect. If you do not have written contracts for your staff, or only provide these to employees, it would make sense to start preparing for April now.
At the same time that businesses are being required to formalise their working arrangements with staff engaged directly, HMRC is cracking down on ‘disguised employment’ through IR35 – tax rules concerning individuals engaged via intermediaries, such as personal service companies. IR35 has been around for a while, however, from April the responsibility for determining whether the rules apply will shift from the intermediary to the engager, together with the liability for income tax and National Insurance contributions.
If you engage a contractor via a limited company then you need to consider whether if they were engaged by your business directly, they would be an employee or self-employed. This is not a straight-forward question and there a number of factors to take into account including whether the contractor is personally required to do the work in question and the extent to which they work under your control. If IR35 applies, tax and National Insurance contributions will need to be paid on the contractor’s earnings.
As several recent high-profile cases have shown, the reality of the relationship rather than the wording of the contract determines whether someone is an employee or a worker or genuinely self-employed. Staff contracts therefore need to be regularly updated, particularly where an individual who starts working on a casual basis is given regular hours, or a contractor ends up working predominantly or exclusively for a business alongside employees. If IR35 applies, affected contractors will understandably expect rights which reflect that they are being treated as employed for tax purposes. Ignoring employment status is not recommended as misjudging an individual’s rights can be a chastening and costly experience in the employment tribunal.
In the Employment team, we are regularly asked to help clients determine employment status, decide whether IR35 applies, and prepare contracts for employees, workers and self-employed contractors. In our view, it is better to start preparing for the forthcoming changes now as they are likely to be the tip of the iceberg when it comes to the law catching up with developing working practices.
Paul Clark, Partner and Head of Employment.