We look in brief at all the consultation that was taking place in the summer of 2015 in regard to proposed new laws, and other laws that have been enacted recently that will affect SME’s, contractors and employees.

[Article updated for 2017]

The Small Business, Enterprise and Employment Act

The Small Business, Enterprise and Employment Act (SBEEA) banned exclusivity clauses in zero hours contracts, which prevent workers working for another business at the same time, from 26th May 2015. Although these clauses are now banned, the part of the Act that allows a worker to enforce the ban has not yet been enacted – the Government published the draft ‘Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015, in November, but a date for their introduction has not yet been set.

SBEEA also enables public bodies to recover redundancy and other exit payments from highly paid employees who return to work in the same part of the public sector within a short period of leaving. Consultation will start soon and the measure will be implemented on 1st April 2016.  In January 2016 it was confirmed that this duty to repay an exit payment will apply when an individual returns to any part of the public sector (not to the same part) within 12 months and will apply to an individual earning at least £80,000.

The Government has also started consulting, at the end of July, on banning 6-figure ‘golden’ goodbyes to public sector workers and capping payments at £95,000. Consultation ended on 27th August 2015 and in November 2015 draft Public Sector Exit Payment Regulations 2016 were published outlining the Government’s proposal.  The reforms will be implemented probably by summer 2017 in England (Scotland, Wales and Northern Ireland will decide whether to apply these changes) and will mean that the £95,000 threshold applies to the total amount of pay received by an individual, for loss of employment, and includes redundancy payments, voluntary exit payments and “any other payment made as a consequence of, in relation to, or conditional upon, loss of employment whether under a contract of employment or otherwise”, which would include Pay in Lieu of Notice but would exclude any outstanding holiday pay due.  In October 2016 the Government confirmed the ‘exit payment framework’ would include:

  • A maximum of £80,000 salary would be used to base the exit payment on
  • A maximum of 3 weeks per year of service that could be paid
  • A maximum of 15 months salary that can be paid as a redundancy payment.

More information to follow as it becomes clear!

SBEEA also amends The Equality Act 2010 to require employers with 250 or more employees (in the private or third sector) to publish details of their gender pay gap. The Government started its preliminary consultation in July, which closes in September, to look at what data organisations will be obliged to present and how. There is a possibility that the law will be phased in, with the largest companies being required to report first.  In November the Government announced this would extend to reporting on bonuses too.  The final version of the Equality Act 2010 (Gender Pay Gap Information) Regulations 1917 was published in December 2016, taking effect from 5th April 2016.

Although there is no sign of this yet, there is already the right in existing law for unfair dismissal rights to be limited to only employees of larger companies. The Conservatives have previously tried to exempt employers with less than 10 employees, so employees working for micro employers could not make an unfair dismissal claim. Watch this space.

The July Budget

More delight for contractors as consultation on IR35’s effectiveness was launched in July 2015. With HMRC believing that many Personal Service Companies do not comply with IR35, the consultation gives 2 options:

  • Putting the burden of determining whether IR35 applies on the engager/end-user rather than the PSC (so the engager would be liable for PAYE/NI if IR35 did apply)
    Basing the IR35 test solely on whether a 3rd person exercises supervision, direction or control over the way in which the worker provides his services (so they fall into IR35)

There is large concern that if this was implemented it may take away the tax advantages of using a PSC vehicle.

Consultation is between July and 30th September and this is expected to take effect from 6 April 2016. At the end of December it became clear that no changes will take place to IR35 legislation until April 2017 at the earliest.

The Government will legislate to restrict tax relief for travel and subsistence expenses for those engaged through an employment intermediary (umbrella company or a personal service limited company – PSC) from April 2016. Draft legislation was included in the Finance Bill 2016 and will come into force on 6th April 2016. This aims to prevent workers employed through an intermediary from claiming tax relief on the expenses they incur commuting from home to work, if they provide a service to another person through an employment intermediary. The legislation will not apply if it can be shown that the services the worker provides are not subject to supervision, direction or control. Guidance is expected to be published by the Government before April 2016, but Contractors’ engagements which fall within IR35 arrangements will fall within these new rules.

The Government has also asked the Office of Tax Simplification (OTS) to review the closer alignment of income tax and National Insurance, which was a topic in the OTS Report on Employment Status  The Government, in November 2015, have said the will take forward the majority of the report’s recomendations; so we wait to see what this actually means.

The Government also plans to:

  • Consult on abolishing Class 2 NIC and reforming Class 4 NIC (in the March 2016 budget, the Government announced that Class 2 NIC’s would be abolished for self-employed people from 2018.
  • Monitor the growth of salary sacrifice schemes that reduce employment taxes for employees and employers. From April 2017 the tax and NIC advantages of salary sacrifice schemes will be removed (so the ‘sacrificed pay’ will be subject to tax and NIC’s) – although pensions, childcare, cycle-to-work and ultra-low emission cars will be exempt from the charge.
  • Increase the National Insurance Employment Allowance to £3k (but exclude it for directors who are the sole employee) from April 2016.
  • Introduce an apprenticeship levy on all large firms. In his Autumn Statement (November 2015) the Chancellor announced that the levy would come into force from April 2017 – there will be a £15,000 threshold for employers which means this will only be paid on employers’ pay bills of more than £3million.  In August 2016 the Government announced that smaller firms with less than 50 employees taking on a 16-18 year-old apprentice will not be required to make any financial contribution towards the cost of the levy.  You can read more about the Levy here.
  • Consult on reforming Sunday Trading Laws started on 5th August and continues until 16th September 2015.  This is intended to give powers to local areas to allow larger shops to open for longer on Sundays in England and Wales.  This was thrown out by parliament in 2016.
  • Introduce the National Living Wage from April 2016.

Since the Summer Budget

Tax Free Childcare Scheme

The Tax Free Childcare Scheme, which was being introduced by the Government this Autumn, will now be delayed until early 2017. This is because of a legal appeal by organisations currently involved in the existing Employer-Supported Childcare scheme.

The new scheme will offer up to £2,000 per child, per year, of childcare costs for children up to the age of 12, to parents who both work and both earn less than £150,000 per annum. It will also be available to single parents working more than 16 hours per week and to the self-employed.

Employer supported schemes will continue to run and existing employees in the scheme can decide to stay in the employers scheme if they wish. Employees will not be able to join their employers scheme after the Government Childcare Scheme comes into existence.

Trade Union Bill

The introduction of a Trade Union Bill for strike reform. The Bill will require 50% of members to vote (the ‘turn-out threshold’) for the ballot to be valid and a majority of these must vote yes. Currently a lawful strike requires only the support of a majority of the workers voting. It will also impose a four month time limit for industrial action from the date of the ballot (currently it is indefinite as long as the dispute is still ‘live’) and a 2 week notice period of strike action. Also a requirement for pickets to be supervised by a named official.

The Bill had its first reading in Parliament in July and the Government will consult (between July and September 2015) on the introduction of a 40% support threshold in essential public services and what type of public services and the grades of workers within them who would be subject to the 40% threshold (so at least 40% of voters must vote yes for industrial action), reforming the rules and codes of practice on picketing and protests and the repeal of the ban on the use of agency workers to cover striking workers.  In November 2015 the Government confirmed they were not pursuing the majority of its proposals in relation to picketing and protests, including requiring unions to publish in advance their plans for industrial action, pickets and social media campaigns; instead the Code of Practice on picketing will be updated.

It is unlikely the Bill will be implemented until Spring 2016 at the earliest. Several trade unions have indicated they will challenge the reforms (contrary to the European Convention on Human Rights) or conduct unlawful strikes.

The Government announced at the beginning of August plans to abolish the ability for public sector workers to pay their union subscription through their salaries (called ‘check-off’). This will also be included in the Trade Union Bill.  In April 2016 the Government confirmed they were abandoning this plan.

Immigration Bill

At the beginning of August the Government announced that public sector workers “must have fluent English”. From September, the Government said that people who do not speak fluent English will be barred from public sector jobs in England, Scotland and Wales which involve working directly with the public.

The new rules form part of the Government’s Immigration Bill and will require workers to have language skills equivalent to GSCE grade C or above. The Government will issue guidance in a code of practice on how each organisation will test their staff. Existing employees who are not fluent enough may be given time to improve.

This comes into effect from 21st November 2016 and from that date customer facing staff must speak fluent English (or Welsh, in Wales). See our new Guide to this here.

Posted Workers Enforcement (of Employment Rights) Regulations 2016

In July the Government produced a consultation document on how to implement the EU posting of Workers Enforcements Directive. The directive gives construction workers who are sent to another EU country by their employer or a recruitment agency the rights to claim back unpaid wages.

The document said that one of the key provisions of the directive is a subcontracting liability to ensure ‘posted’ workers (as they are called) in the construction sector can claim back unpaid wages (up to the level of the minimum wage) from the next contractor in the supply chain. The consultation is about 3 possible options to implement this:

  • The creation of a right to bring to an Employment Tribunal a claim against the next contractor
  • State enforcement of unpaid wages
  • The creation of a financial sanction (civil penalty).

Consultation ended in September 2015 and the directive came into UK law on 18th June 2016.  This means that construction workers posted to the UK from another member EU state must be paid the UK national minimum wage (and UK businesses who contract with them must ensure they comply).

Apprenticeships

In July the Government also launched consultation on protecting the term ‘apprenticeship’ from being diluted by unauthorised training providers who provide apprenticeships that meet only narrowly focused job needs.

On 21st September 2015 the government published the outcome of the consultation and announced they are to introduce a clause in the Enterprise Bill protecting the term ‘apprenticeship’ – it will be an offence for training providers to use the term ‘apprenticeship’ or ‘apprentice’ in relation to any course or training in England unless it applies to a government-funded apprenticeship.  The new summary offence would be punishable by fine as a maximum penalty. The level of fine is currently unspecified. The offence would not apply to schemes run by employers.

Employment Tribunal Fees

A select committee of MPs have launched an inquiry into Employment Tribunal fees to assess whether or not their introduction has affected access to justice. They will look at the effects of the introduction of fees and the levels of those fees.

This is separate to the Ministry of Justice’s review of employment tribunal fees which runs from June until the end of 2015. The Select Committee will take evidence from external bodies such as tribunal users (and the Select Committee review will also cover other court fees changes).

The latest data from the Ministry of Justice shows that the number of employment tribunal cases has declined by nearly two thirds since the fees were introduced. In early August the Law Society warned that the fees were impeding people’s access to justice. The Law Society will contribute to the Ministry of Justice’s review.

Termination Payments

Another consultation launched in July is on proposed reforms to the way employees’ termination payments are taxed. The Office of Tax Simplification has concluded that the tax system applying to termination payments is confused and uncertain.

The Government is proposing a system that is easier for employers to administer and easier for employees to understand. The current position regarding termination payments:

  • Any payments that arise from the contract of employment (e.g. a payment in lieu of notice) is subject to Tax and National Insurance Contributions where there is a contractual right to make such a payment.
  • Payments which do not arise from the employment, (e.g. damages) are only liable to income tax on any amounts over £30,000. This includes redundancy and legal settlement agreements.

The Government’s proposals:

  • Redundancy payments that meet the definition of a statutory redundancy would be tax exempt (on a rising scale depending on length of service). This could also include all other payments made in connection with a redundancy – this would include voluntary redundancies.
  • Removing the distinction between contractual and non-contractual termination payments – so all payments made in connection with termination of employment, e.g. payments in lieu of notice, would be treated as earnings and therefore subject to tax and NIC’s.
  • A termination payment made after an employee resigns would be taxable, as would any termination payment at the end of a fixed-term contract.
  • Any tax free payments would become taxable and liable to NIC’s if the employee is re-engaged to do a similar job at the same company within a 12 month period.

It is likely that the tax free threshold will be less than the existing £30,000 (the consultation document suggests £6,000 as the basic limit, rising with each year’s additional service by £1,000).

For SMEs these proposals will only make it more difficult and more expensive to negotiate a mutually agreed termination package that is not a redundancy.

The consultation closes on 16th October 2015.  The Government’s response to the consultation was delayed and published in August 2016.  Another consultation on the draft legislation has now been published which is open until 5th October 2016.

UPDATE – in the March 2016 budget, no changes to taxation of termination payments were proposed apart from the need for Employer NIC’s to be paid on all termination payments over £30,000 (already subject to tax); employee NIC’s would not need to be paid.  Effective from April 2018, unless this is delayed by the calling of the June 2017 General Election.

If you are an Employer and need ongoing professional help with any staff/freelance issues, or a Contractor/Freelancer/Employee with a complicated employment related problem, then talk to Lesley at The HR Kiosk  – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.

Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.