Laying Off Temporary Workers, Changes To IR3520th Apr 2020
Do you employ temporary or part-time workers? Need to cut costs because the Covid-19 crisis has hit your business?
Do not assume that the pandemic will enable you to lay off temporary workers without going through the proper procedures.
Many part-time and seasonal worker contracts have clauses that entitle the employer to lay them off. But what if your contracts are missing this important clause?
Part-time workers are entitled to be furloughed if they qualify – but they must have been on the PAYE system on February 28, 2020. And there are also important regulations to be considered…
Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000
These regulations provide a gender-neutral route for tackling discrimination against part-time workers.
But complying with them may not be enough – a part-time worker may still have a claim under the Equality Act 2010.
Who Is Protected By The Part-Time Workers Regulations (2000)?
There is no qualifying period. Most of the rights under the regulations are granted to ‘workers’ as defined in the Employment Rights Act 1996.
They cover all individuals working under a contract of employment or any other contract (including an implied contract).
A part-time worker must be treated as favourably as a full-time worker under the terms of their contract. The rules apply only if any less favourable treatment:
- is because the worker is part-time
- cannot be justified objectively.
Changes To IR35
There will be significant changes to the IR35 rules that cover:
- who pays Income Tax and National Insurance Contributions (NICs)
- how they are paid to HM Revenue & Customs (HMRC).
Under the new rules, it will be the engaging company – not the individual – that decides whether that person is an employee or is self-employed for tax and NIC purposes.
IR35 applies to engagements via an individual’s personal service company. It is sector-agnostic but the construction industry is one of the main sectors on HMRC’s radar.
The rules focus on this important question: imagine a contract between the ultimate engager and the individual doing the work – would this deemed contract be one of self-employment? Or would the person be an employee?
If the individual is a (deemed) employee then income tax and NICs must be paid through PAYE. If not, then they are outside the scope of PAYE.
The last 18 months have seen a flurry of cases at the tax tribunals which addressed this key question.
Who Is Currently Responsible For IR35 Compliance?
At present in the private sector, if an engager (such as a housebuilder) enters into a contract with an individual’s personal service company then it is up to that individual to decide if they are a (deemed) employee of the housebuilder.
If they are a (deemed) employee, their personal service company must operate PAYE on the money received from the housebuilder.
If not, the normal rules apply and the individual’s company pays corporation tax on the profit it makes. It can pay small salaries to its employees, dividends to the individual (and other shareholders) and bank any surplus.
What Is Changing?
The burden of making the decision and operating PAYE will shift from the individual and their company to the engaging company (where it is a medium or large entity).
If there are more parties in the contractual chain (other than just the engaging company, the individual and their personal service company in this example), it is the ultimate engager who makes the decisions. PAYE is paid by the body immediately above the personal service company in the contractual chain.
Why Are The Changes Being Made?
The stated aim is to bring the private sector in line with the public sector (which went through these changes in 2017).
But the better answer is that compliance across all sectors has been ‘sub-optimal’. So has HMRC’s policing of the rules (by its own admission to the House of Lords Select Committee).
How Does The Construction Industry Scheme (CIS) Interact With IR35?
IR35 takes precedence over CIS. Engagers should take four steps:
- Assess – how many people are potentially affected. What is their (deemed) status? How do they provide their services? What do the contracts say?
- Action plan – keep the board and stakeholders informed. Communicate to the individuals concerned. Accept that some people should move to the payroll.
- Systems review – can your systems record what is happening on the ground?
- Budget for the cost and time involved.
In Summary
Act swiftly. HMRC had originally indicated that it would not look back at individuals and their personal service companies before the new rules were due to go live.
But this was merely a statement of intent – not a statutory exemption.
At the time of writing, both government and HMRC guidance were followed. But – now that the implementation of the reforms has been postponed until April 2021– this may well and is likely to be subject to change.
Further Information
For more information, contact employment law solicitor Hugh Reid at Coles Miller’s Poole office.
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This document is not intended to constitute and should not be used as a substitute for legal advice on any specific matter. No liability for the accuracy of the content of this document, or the consequences of relying on it, is assumed by the author. If you seek further information, please contact Managing Partner Neil Andrews at Coles Miller Solicitors LLP.
