27 February 2020

Employment Law Changes in April 2020

Changes are on the way

The biggest change for most employers in April 2020 will be to employment contracts. However, there are a few other changes coming at the same time.

Holiday Pay

For many employers, the calculation of holiday pay will not change. Employees on a fixed annual salary are simply paid their normal salary regardless of whether they have taken any holiday that month.

 

Contact our Employers support team now.

 

For workers without fixed hours or pay, holiday pay is calculated based on a reference period of pay received in the last 12 weeks. From April 2020, the government is increasing the holiday pay reference period to 52 weeks. The only exception to this is during a worker’s first year of employment. For example, if an employee had been employed for 20 weeks at the time of their leave, the previous 20 weeks would be used to calculate their holiday pay.

The 52-week reference period will operate in the same way as the previous 12-week period:

• Employers must count back across the last 52 weeks that the worker has worked and received pay.
• Weeks in which no payment was received will not be counted towards the 52-week average.
• Contractually obliged overtime worked during the reference period must also be included in holiday pay.

The new change should ensure that holiday pay will more closely reflect average pay, by smoothing out busy and quiet periods in jobs with seasonal variation.

Employers will need to ensure that payroll systems and processes have been amended to take account of the change in the reference period.

Taxation of termination payments

Employer class 1A NICs will become payable on termination payments above £30,000 (which are currently only subject to income tax). Termination payments will remain completely exempt from employee NICs.

Changes to rights of Agency Workers

Agency workers have the right to equal pay with permanent counterparts after 12 weeks working on the same assignment. Currently, agency workers can agree on a contract which removes this right if the contract also guarantees pay between assignments (known as PBA’s / Swedish derogation).

From 6th April 2020, these contracts will no longer be permissible, and all agency workers, after 12 weeks, will be entitled to the same rate of pay as their permanent counterparts.
All agency workers will also be entitled to a key information document that more clearly sets out their employment relationships and terms and conditions with their agency.

IR35

Contractors often provide their services to clients through a personal service company, allowing them to structure their own affairs in a tax efficient manner.

In 2017, public sector clients became responsible for assessing the status of their contractors. If the contractor’s relationship with the client is in reality that of an employee and employer, the client is responsible for making the necessary deductions for tax and NICs, even though their contractual relationship is with the personal service company and not the individual.

From April 2020, these off-payroll working rules will extend to private sector clients. The changes will require all companies who currently use contractors to think carefully about both the documentation governing that relationship and how the relationship operates in practice and make a careful assessment on whether the contractor falls within IR35.

 

For more information contact our Employment and Immigration team now.

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About the Author
Rachel Roberts, Partner

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