HR and employment law update 12 September Paul Scope, Katie Adams, - - PowerPoint PPT Presentation

Newcastle | Leeds | Manchester

Paul Scope, Katie Adams, James English 12 September

HR and employment law update

Newcastle | Leeds | Manchester

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Housekeeping

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• Employee
• Worker
• Self-employed

Recap on employment status

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• Off-payroll working rules - designed to combat tax avoidance
• Targeted at individuals who are providing services through their
• wn limited companies or partnerships and who may not be paying

the tax that they should be – workers considered in the eyes of HMRC to be “disguised employees”

• Contractors working via limited companies are not liable to pay

NICs on income taken as dividends, resulting in far less tax to the Treasury

• IR35 exists to ensure that those working in this manner pay the tax

they should

What is IR35?

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• Is an arrangement caught by IR35? (“inside” / “outside”)
• The legislation applies when the following three conditions are met:
• a person individually performs services for a client (or is obliged to do so);
• those services are provided under arrangements involving an ‘intermediary’; and
• the circumstances are such that if the arrangements had been made directly between

the individual and the client, the individual would be regarded as employed by the client for NIC and income tax purposes

When does the legislation apply?

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• If IR35 applies, the sums received by the intermediary

are, in effect, treated as employment payments by the intermediary to the worker for tax and NICs purposes and will therefore be subject to PAYE.

• In other words, if IR35 applies, the relevant tax and NICs

consequences fall on the intermediary, not on the client.

Consequences if the regulations apply

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• New rules - 6 April 2017
• Responsibility for determining the IR35 status of a contract shifted from the contractor to

the public sector client.

• If a contract is considered “inside” (caught by) IR35, the party paying the worker’s

company will have to deduct PAYE and NI before making payment to the PSC.

• The contractor will be left with the net payment in their PSC.
• Dramatic increase in tax and NI yield for HMRC.

Public sector: off-payroll working

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• At present, in the private sector, it is the responsibility of the contractor to ensure

compliance with the legislation.

• 6 April 2020
• Extension of the public sector off-payroll regime to the private sector in order to remove

the disparity between the public and private sectors

• Responsibility for operating the off-payroll working rules will shift from the individual's PSC

to the organisation that the individual is supplying their services to

Private sector reform

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• If IR35 applies, the liability to operate PAYE and pay employers' NICs will sit with the entity

that pays the PSC (the "fee payer")

• Expected to affect 5.5 million private businesses
• Likely to have an adverse impact on efficiency in the sector, in terms of increased costs

and administrative burden.

Private sector reform (2)

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• Tyne Home Improvements sub-contracts the fitting of windows and doors to Fred's Fitters

Limited.

• Fred is the owner, director and sole employee of Fred's Fitters Limited and provides the

fitting service to Pennine himself.

• If the IR35 legislation applies, despite the fact that Fred (the worker) is providing his

services to Tyne (the client) through Fred's Fitters Limited (the limited company), Tyne would be liable for income tax and national insurance contributions on the payments made to the limited company.

Example

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• Exemption from the new rules for small businesses
• For the exemption to apply, a company must satisfy two or more of the following:

Small business exemption

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Annual turnover not more than £10.2 million Balance sheet total not more than £5.1million Not more than 50 employees

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• Whether the worker would be regarded as employed by the client if the arrangements had

been made directly between the individual and the client is a key question in the legislation.

• The answer to the above question determines whether or not IR35 applies.
• Status is only strictly relevant under IR35 for tax purposes – but employees have more

extensive statutory rights than workers.

• Factors taken into account to establish status include: Personal service, mutuality of
• bligation, right of control, financial risk, provision of equipment, right of substitution and

benefits.

Employment status

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IR35 tax ruling

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• Lorraine Kelly - TV presenter
• Personal service company, Albatel Limited
• HMRC claimed there was direct contract

between her and ITV Breakfast

• Tax tribunal ruled in Lorraine’s favour

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• Christa Ackroyd - BBC Look North
• Operated through her own company CAM Limited
• Tax tribunal ruling - inside IR35
• Right of control over the work

IR35 tax ruling (2)

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• Audit
• Identify potentially affected contractors across your

business

• Determine the status of off-payroll workers
• CEST – HMRC employment status checker for

tax purposes

• Communication – liaise with affected workforce

Preparing for April 2020 – what do you need to do?

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• Assess the financial impact of

IR35

• Spring clean contracts
• Consider employment status
• Seek support
• Ward Hadaway toolkit

Preparing for April 2020 – what do you need to do? (2)

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Case law update

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• Different tests of ‘employee status’ – employment tribunals and HMRC cases. Similar underlying

principles.

• Albatel Limited v HMRC (2019): Lorraine Kelly (or supply of her ‘brand and personality’)
• LK used a PSC to supply her services. If there had been a contract between her and ITV, it would not

have been a contract of employment. Her work went beyond merely presenting shows. IR35 did not apply.

• Atholl House Productions Ltd v HMRC (2019): Kaye Adams.
• KA had other engagements without requiring permission, so was a ‘freelancer’. IR35 did not apply.
• Kickabout Productions Ltd v HMRC (2019): H, Talksport Radio.
• Very narrow range of services, looser arrangement. Again, IR35 did not apply.

IR35 and Employee Status Cases

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• R was a not for profit company, which provided out of hours GP services.
• C was a GP who provided her services initially directly but from 2015 through a limited company (PSC).

She did not tell R about this, only giving them the bank details. She did not send invoices.

• Following a disagreement, R terminated the arrangement. C brought a number of claims including

unfair dismissal, discrimination, and holiday pay.

• The Employment Tribunal held that she was a ‘worker’ but not an employee. R appealed.
• The Employment Appeal Tribunal rejected the appeal.
• There was no ‘mutuality of obligation’ required to create an employment relationship, but this did not

rule out the possibility of an over-arching or umbrella contract between assignments. In addition, C was ‘integral’ to R’s operations.

Community Based Care Health Limited v Narayan [2019]

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• A senior executive had a restrictive covenant preventing her working for a competitor for 6 months from

termination of her employment.

• The employee argued that the wording of the covenant “or interested in any business carried out in

competition” would prevent her from having a minor shareholding in a competitor, which was a wider restriction than necessary (in which case the whole clause could fail – the ‘blue pencil’ rule).

• Note the importance of geographic or temporal limitations on these type of clauses.

Court of Appeal

• The word “interested” would restrict the employee from having a shareholding in a competing business.
• That was unreasonable and exceeded the employer’s need to protect its legitimate interests.
• As “interested” could not be ‘severed’ from the clause, so the whole clause failed.

Tillman v Egon Zehnder Ltd [2019] (1)

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Supreme Court

• The word “interested” was an unreasonable restraint of trade.
• Beckett Investment Management Group Ltd v Hall [2007]
• Guidance on the ‘blue pencil’ rule. To be severable:
• A provision has to be capable of being removed without adding to the remaining wording, and
• The removal should not cause major change in the restraint’s overall effect.
• In this case, the wording could be severed from the clause.

Tillman v Egon Zehnder Ltd [2019] (2)

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• C was a primary school teacher. It was alleged that she used unreasonable force towards two difficult

pupils.

• C was suspended pending investigation. She claimed this was a breach of contract (the ‘implied duty of

trust and confidence’) and brought civil court proceedings. County Court

• The school was ‘bound’ to suspend and there was no breach of contract.

High Court

• The school adopted suspension as a ‘default position’ and ‘knee jerk reaction’, in breach of contract.

London Borough of Lambeth v Agoreyo [2019] (1)

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Court of Appeal

• Whether there has been a repudiatory breach of the implied term is “highly context-specific”
• When assessing whether suspension has breached the implied term, the test is not of necessity but

whether the employer had ‘reasonable and proper cause’.

• The school had reasonable and proper cause in this case because of the safeguarding interests of the

young children.

• Suspension by an employer is not a neutral act (and questioning this position is not helpful).
• Suspension should be viewed as a last resort and the purpose of suspension should be made clear to

the workforce.

London Borough of Lambeth v Agoreyo [2019] (2)

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• C was a visiting music teacher under a permanent contract on a zero hours basis – term-time only (and

therefore a part-time worker). There was no obligation to provide a fixed minimum amount of hours and C was only paid for those hours she worked.

• C’s holiday leave was taken during school holidays. She was paid her holiday pay in three equal

instalments at the end of each term (at one-third of 12.07% of her earnings).

• C brought a claim of unlawful deduction from wages: her holiday pay should be calculated according to

her average earnings over the 12 week period immediately before holiday was taken. This would have been 17.5% of her annual earnings.

• Employment Tribunal: rejected her claim, and accepted the principle behind the 12.07% rule.

Harper Trust v Brazel [2019] (1)

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Employment Appeal Tribunal

• Rejected the 12.07% rule and upheld the strict statutory scheme.
• There was no requirement to ensure that full-time workers were not treated less favourably than part-

time workers – the principle is not to treat part-time workers less favourably, not the other way around (as yet). Court of Appeal

• The Working Time Regulations make no provision for ‘pro rating’. They require a simple calculation of a

week’s pay multiplied by 5.6. Attempting to build a pro rating accrual system would be substituting a whole new scheme.

Harper Trust v Brazel [2019] (2)

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Brexit

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• The UK is due to leave the EU on 31 October 2019
• It is still not clear whether the UK will leave with no deal – the PM is trying to achieve a

deal but says he will leave with no deal if needed, rather than missing the deadline

• The PM has suspended Parliament for 5 weeks to start a new session from 14 October
• The Irish backstop remains a contentious point

Where is Brexit right now?

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• Currently embedded in the Equality Act 2010 with is UK primary legislation
• It is unlikely the EqA 2010 will be repealed post Brexit
• Possible changes post Brexit include:
• A cap might be imposed on discrimination compensation;
• The Government could change the law to allow for positive discrimination in favour of

under-represented groups in a way currently not allowed under EU law

Discrimination law

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• The UK’s membership of the ECHR is unaffected by Brexit
• The Conservative Government did discuss a desire to replace the Human Rights Act 1998

with a British Bill of Rights however the Government has now pledged to remain a signatory to the ECHR whilst the process of withdrawing from the EU is ongoing

Equality and Human Rights

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• TUPE can attract negative press but it is generally useful and is incorporated into many

commercial outsourcing agreements

• Post Brexit, Government could make changes to make TUPE more business friendly, such

as making it easier to harmonise terms following a transfer

Transfer of Undertakings

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• A repeal of the Working Time Regulations is unlikely but the following changes may take

place post Brexit:

• Limited rights to accrue holiday whilst, for example, on sick leave;
• Retain a right to holiday pay based on basic pay only;
• Remove the cap on maximum weekly working hours.

Holidays and working time

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• The Agency Workers Regulations which embed the EU Temporary Workers Directive are

a possible candidate for repeal

• The AWR are complex, generally unpopular with businesses and not yet sufficiently

embedded to make them difficult to remove

• No intentions on this suggestion or an alternative have been given yet

NB: As of April 2020 next year under the Good Work Plan, the ‘Swedish Derogation’ will be removed for agency workers, so that all agency workers have the right to pay parity

Agency Workers

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• The Data Protection Act 2018 implements the GDPR
• The Data Protection Privacy and Electronic Communications (Amendments etc.)

Regulations 2019 will merge the GDPR and the applied GDPR into the “UK GDPR”, amending the DPA 2018, to establish a UK framework that will function after exit day.

Data Protection

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• Many UK nationals live and work in other EU countries and many nationals from other EU states live

and work in the UK

• After Brexit, EU nationals will no longer have an automatic right to work in the UK

Deal

• Free movement will continue throughout the ‘implementation period’
• EU citizens who have lived for 5 Years in the UK by the end of the ‘implementation period’ (31 Dec

2020) can apply for ‘settled status’ and those under 5 years can apply for ‘pre-settled status’ under the EU Settlement Scheme

• EU citizens who already have permanent residence in the UK will need to swap this for settled status
• Irish citizens will not need to apply for settled status

Freedom of movement

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No Deal

• The Government will seek to end free movement as soon as possible
• There will be a transitional period until the UK’s new skill based future immigration system comes into

force on 1 Jan 2021

• Government agrees to protect the rights of EU citizens and their families who live in the UK by exit day
• The EU Settlement Scheme would continue to run for those resident in the UK by exit day, not 31 Dec

2020 as there would be no implementation period

• During the transition period EEA and Swiss nationals and their families will be able to come to the UK

for up to 3 months without applying for immigration status or a visa

• European Temporary Leave to Remain (ETLR) applications

Freedom of movement continued..

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