How should payments in lieu of notice be taxed from April 2018?

From 6 April 2018 all payments in lieu of notice will be taxable, whether contractual or non-contractual. Income tax and class 1 national insurance contributions will be due on the amount of basic pay that an employee would have received if they had worked their notice in full.

What are the current tax rules on payments in lieu of notice?

Currently, if you have a contractual right to make a payment in lieu of notice (‘PILON’), that payment is subject to income tax and national insurance contributions (‘NICs’).

If you don’t have a contractual right to make a PILON (because there is neither an express term in the employment contract nor an established custom and practice of making a PILON), any payment made in respect of an employee’s notice entitlement is generally regarded as ‘damages for breach of contract’ and the first £30,000 can be paid tax-free and without deduction of NICs.

What tax rules will apply to payments in lieu of notice from April 2018?

From 6 April 2018, all payments in lieu of notice will be taxable. The principle is relatively straightforward but there is a complex statutory formula for calculating the sum that should be taxed, known as ‘post-employment notice pay’ (‘PENP’). PENP is, broadly, the salary the employee would have received during any unworked period of notice minus any contractual PILON. It is calculated by reference to:

  • Basic pay only (before any salary sacrifice), disregarding bonus, overtime, commission, benefits in kind etc.; and
  • How much statutory or contractual notice (whichever is longer) the employer is required to give to terminate the contract.

PENP is subject to income tax and NICs in full. The balance of the termination payment is eligible for the £30,000 tax exemption and full NICs exemption (provided it is an ex gratia payment).

Statutory redundancy payments are exempt from PENP calculations and qualify for the £30,000 tax exemption, provided they are genuinely paid on account of redundancy.

The new rules will apply only where employment terminates on or after 6 April 2018.

There may be significant tax implications for non-contractual PILONs made from April 2018. For example:

  • An employee’s employment is terminated without notice on 30 April 2018. The employee is paid £5,000 monthly (basic pay); has a 3 month notice period; and there is no contractual PILON. They receive £35,000 compensation on termination. This an ex gratia damages payment, not linked to any contractual terms such as bonus entitlement.
  • Under the current rules, the whole compensation payment qualifies for the £30,000 exemption. Income tax is due on the balance of £5,000.
  • Under the new rules, income tax and NICs (both employer and employee) are due on the PENP of £15,000. The balance of £20,000 qualifies for the £30,000 exemption.

And from April 2019?

Currently if a termination payment qualifies for the £30,000 exemption, tax is due on any excess over £30,000 but no NICs are payable. From April 2019, employer NICs will also be due on the balance over £30,000. With employer NICs currently at 13.8% this will significantly increase the cost of some termination payments.

In practice

All employers should be aware of the new rules and think about how they might impact on any termination negotiations. It seems that PENP will need to be calculated for each employee whose employment is terminating including those with contractual PILON clauses (although we are still waiting for guidance from HMRC).

Where there is currently no contractual PILON clause:

  • Making a PILON where the termination date is 6 April or later will potentially result in significantly increased costs for both employer and employee.
  • Consider whether to exit any employees prior to April 2018 to take advantage of the more favourable tax position.
  • Think about including PILONs in contracts going forward. Having a PILON clause allows a payment in lieu of notice to be made without being in breach of contract, thereby preserving any post-termination restrictions. There will no longer be any tax benefit in not including one.

Please get in touch with us if you would like to discuss the impact of the new tax rules on your termination arrangements.

More about Protected Conversations

An employment relationship can sometimes run its course necessitating a frank conversation with an employee. It may be in the best interests of both parties to bring the employment to an end by way of a settlement agreement.

Often, the best way to start that process is by having a protected conversation.

What is a protected conversation?

The law allows an employer and an employee to have an ‘off-the-record’ conversation in certain circumstances.

If you or your employee are proposing to end your employment on agreed terms, the conversation can be kept confidential. This means that what you say can’t be used as evidence in an unfair dismissal claim. Although there are some exceptions, generally the conversation is protected.

What are the exceptions?

Protected conversations cannot be held in situations where dismissals are automatically unfair, such as those involving health and safety matters or where the protection of the Public Interest Disclosure Act is invoked. Neither is protection afforded to breach of contract or discrimination claims. This can be a problem. An employer may not know what issues are going to be raised by an employee during a protected conversation so always take advice from an HR professional and research as much of the history about the employee beforehand as you can. Recognise that in some situations having a protected conversation many not be the best route to take.

What should you do if you want to have a protected conversation with an employee?

If you’re planning to have a protected conversation with your employee, make sure you prepare in advance. You need as much information as possible. You may find it helpful to ask/research questions like:

  • Why are you proposing to terminate the employment?
  • Has the employee got a history of anything that might be relevant – grievances, disputes, sickness absence etc
  • How much are you offering and how has that been calculated? (Any notice pay would be taxable)
  • Will you expect your employee to work their notice period?
  • Will you be offering a reference?
  • What is the alternative if you don’t agree to a settlement agreement? I.e. manage their performance under an internal procedure which may result in termination for poor performance and notice pay only OR investigate an alternative role in the company?

Your employee is not under any obligation to accept any proposed settlement agreement. In fact, the law doesn’t allow anyone to accept it until they have taken independent legal advice on it (paid for by the employer usually capped at £350 plus VAT)

Ask your employee to confirm (once they have thought about it) whether they would like you to confirm the proposal in writing. This could be a draft settlement agreement or simply a letter or email. This will help you to clarify what is being offered but always ensure that any subsequent correspondence has ‘without prejudice’ in the title or heading.

Can an employee initiate a protected conversation?

Although a protected conversation is usually initiated by the employer, an employee can also request one, provided that it is with a view to agreeing a settlement agreement.

If your employee states that they’re willing to have an off the record conversation, you can go ahead with a protected conversation if you are minded to agree a settlement with them to leave. Let them know that the details of the conversation should be kept confidential because it’s with a view to reaching a settlement agreement.  Make written notes of the conversation you have had.

At the meeting, you could propose a settlement agreement yourself or you could ask your employee to make a suggestion for you to consider.

Although the most important aspect of a settlement agreement is usually the financial amount, you should consider non-monetary aspects such as:

  • a detailed reference
  • career coach support (professional help with finding another job)
  • release from anything in your employment contract that restricts you after the end of your employment
  • paying for a training course

What happens next?

You should give a reasonable period of time for your employee to consider any proposed settlement agreement. ACAS recommends 10 days, although employers rarely give this long in practice.

GDPR countdown – are you ready?

The new  General Data Protection Regulations (GDPR) come into place in May 2018, you need to start preparing now as time is fast running out.

Changes to the governance of data will have far-reaching consequences for businesses, GDPR will determine how your business does business, and particularly how it manages, protects and administers data in the future.

Europe has a plethora of different data protection regimes in each EU country. Organisations have to deal with many different sets of rules depending on where they setup their business and sell their products or services. The GDPR will harmonise data protection laws across the EU and will also apply to organisations across the world. Any company that processes personal data about EU citizens whether they reside in the EU or elsewhere in the world will need to abide by the GDPR.

European companies are still wrestling with how they are going to be compliant with the law in less than a year. Companies from other parts of the world may not have even heard of the GDPR, and therefore might not be aware of the possible impact upon them. As citizens from EU countries do business and exchange data with companies across the globe, the GDPR is something that international companies outside the EU need to be aware of and should be planning for. Failing to do this could seriously hinder their ability to market and sell their products and services in the EU.

Who needs to be GDPR compliant?

It is imperative that organisations that offer goods and services to EU citizens, and that subsequently process their personal data, are compliant with the GDPR. 

A global study by Veritas showed that businesses are worried that they will not be compliant by the May 2018 deadline. Research showed that 56 per cent of respondents in Singapore, 37 per cent in the US and more than 60 per cent in Japan and South Korea, are worried they will be unable to meet the May 2018 deadline for compliance.

More than 90 per cent of organisations in Singapore showed concern by the potential business disruption from GDPR. Around 20 per cent fear that their company may go out of business as a result.

These are alarming figures for foreign companies that do business in the EU.

The GDPR represents a shift across the world towards a culture of safeguarding personal data, especially considering the global reach of the legislation.

What you should already be considering

As the clock is ticking companies should be working towards compliance in a structured manner including:

  • rolling out GDPR awareness programmes across the business;
  • ensuring representation and input from all key business functions;
  • data mapping all personal data flows in and out of the organisation;
  • creating an information asset register; and
  • undertaking a gap analysis against the GDPR compliance requirements, including consent notices, privacy impact assessments and contractual arrangements with 3rd parties with whom personal data is shared.

These will form part of the building blocks to determining how much further work is required for the business to be compliant by Spring 2018. Many businesses will require significant changes to policies, procedures and working practices. Smaller businesses which collect process and store limited personal data may be less affected but may still need to make some changes to comply with the new legislation.

Clearly organisations that started to work towards GDPR compliance early on are ahead of the game and have a better appreciation of the level of effort that’s required to make some of the changes required to comply.













Zero hours contracts – not always a bad thing?

You may have heard a lot about ”zero hours contracts” in the last few months, be that in the mainstream media, the business press or even professional publications and Parliamentary questions. They have generally been portrayed as a “bad” thing, but is that really the case?

Certainly the TUC have raised concerns about how these contracts are being used by some businesses, where they believe that workers are being unfairly exploited and the employer is avoiding its obligations.  Typically this has tended to be in the retail and hospitality sectors where senior managers argue that tight cost margins and peaks and troughs in customer demand leave them with few other options.  Critics have said that the flexibility that this type of contract offers the employer, doesn’t necessarily give the same flexibility to the worker. Examples being cited include workers having to be available at short notice, even for anti-social working hours, and being deliberately penalised (by not being offered more work) if they turn down a shift.

For some workers these types of arrangements do cause them huge problems. Be it having an unreliable and unguaranteed income, or having little control when they work and trying to balance this with family commitments.  Certainly trying to combine several zero hours contracts to try and generate a reasonable income can be impossible.

However for others this causes less of a problem. This could be because they already have some other form of paid work that guarantees them an income and this helps to “top up” their earnings to a better level. It could be be that they are a student or are semi-retired and don’t want to actually work too many hours, aren’t solely dependent on this money to live and are happy to work “as and when”.

Perhaps it comes down to what type and level of income and what degree of certainty people need?  If you know that, as a student, for one week a year you will earn money by working as part of the Graduation Week team, then you can plan your life and finances accordingly. For the university or college they know that they have a cohort of people who are willing to work flexibly during Graduation Week and can ask them to work as and when needed. If both sides are clear on this and it’s a mutually satisfactory arrangement, where is the problem?

Interestingly the recently published Taylor Review makes some similar distinctions between the “bad” and “acceptable” types of Zero Hours contracts. Certainly the recommendation about allowing people the right to request defined, regular hours (albeit it after 12 months) has to be a good thing. Equally the recommendation that those on  Zero Hours contracts should receive at least a higher rate of the National Minimum Wage to compensate for the uncertainty of their work, has merit too. Whether companies choose to do anything about this is another matter….

At the moment the recommendations from the review are just that – recommendations. We wait to see if the government decides to do anything about them and “encourage” employers to adopt them. Watch this space.




Can you keep a secret? How about your staff?

It’s not just American presidents who can be indiscrete and share potentially sensitive information with people they shouldn’t. While recollections of exactly what was said at that meeting by Donald Trump vary, there was definitely the potential for inappropriate information sharing, even if it was dressed up as politics or diplomacy.

Now unless you work in the Security Services, the Military or are a senior Civil servant, it’s unlikely that you and your staff will be in possession of such top secret information. However that doesn’t mean that the information your staff know and / or have access to is safe and risk free.  While they might not be the next Edward Snowden or Chelsea Manning, information is a valuable commodity.

There are companies and people out there who will pay money for information and aren’t always too​ scrupulous about where it comes from. While some things such as bank details or credit card information have an obvious financial value (when misused), other personal details can be useful and valuable to “scammers”, criminals​ or even marketing and advertising companies too.  This personal information could be about your customers but not always; it could be about your staff too.

As well as personal data, there will be other information that could be useful and valuable to others. It could be information from your customer database, it could be product information or technical data, your business strategy or your research programme – the list goes on.

So why would others getting this information be a problem you might ask? If you work in a competitive, commercial industry it could potentially give your competitors a helping hand to outperform you or compete more effectively against you. You’ve worked hard to build up your customer base and you wouldn’t want them suddenly buying from your competitors instead. It might help them undercut you on price or to negotiate better deals with your suppliers than you have. All is fair in love, war and business?

As for personal data, especially the type that is “sensitive”, you and your organisation have a legal obligation to store, manage and use it in line with current legislation. (The Data Protection Act 1998) If you are found to have breached the legislation, either accidentally or deliberately, the Information Commissioner can issue a penalty notice or a fine of up to £500,000.  You also need to be mindful that the Data Protection Act is about to be updated and there will be new obligations and regulations that come into effect in 2018. While you might be compliant now, you might not be by next year.

So what can you do about this potential information minefield? While it’s great to hear that you trust your staff that isn’t enough, or certainly isn’t as far as the Information Commissioner is concerned. Here are some suggestions of what you might wish to put in place:

  • A data protection policy and guidance and a contractual clause about the employee’s duties and obligations.
  • The relevant processes and procedures that support your data protection policy are vital too.
  • An appropriately worded confidentiality clause – either as part of staff contracts of employment or as a stand alone document.
  • An appropriately worded intellectual property clause would be useful for your staff working in research and development, or any other product development area.
  • IT guidance about file sharing, downloads and uploads, emails and social media can remind staff to think about what they share and send, and how they do it.

(This isn’t an exhaustive list but hopefully gives some food for thought.)

Depending how much of a risk you potentially face, you need to put the appropriate measures in place now before a problem arises. Once the problem or data breach occurs it’s too late…. You can’t undo what’s been said / saved / sent however much you want to and however much you try to rewrite history. (Politicians take note!)

Health, Safety and Wellbeing – is it possible on a tight budget?

Small and growing businesses need to keep a tight hold on their budgets if they are to get through those first critical months and years.  One cost that is sometimes forgotten or overlooked is for ensuring that your employees and workers are kept safe, healthy and well at work.  If you have more than five people working for you, you need to ensure that you comply with all of the current Health and Safety regulations.

That sounds daunting and potentially expensive, but it doesn’t have to be. Now I’d never advocate cutting corners on health and safety to help with the cash flow, but there are ways and means to help your finances.  You could spend a considerable sum, and there may be some unscrupulous people out there who will scare you in to thinking that you have to; but that really doesn’t have to be the case.

Often the Health and Safety essentials needed by law aren’t as complicated as they sound, so you don’t need to be an absolute expert to put them in place and monitor them.   The Health and Safety Executive (HSE) have a lot of free, helpful guidance available online and your own industry association / federation may also provide free or reasonably priced guidance too.  Essentially it will boil down to how complex and dangerous your workplace is – after all, there is a big difference between working in a small office and a nuclear power station.

Some aspects of health and safety might not cost you anything apart from staff time, as long as you already have the basic skills and knowledge in place. Examples can include ensuring that you have the required welfare facilities (eg. a toilet, wash hand basin and drinking water – hopefully things you already have?), that risk assessments and safe working procedures are in place, that staff take rest breaks and staff know what to do in the event of fire / accident / incident.  If you don’t have someone with the necessary knowledge in place already (known as a “responsible person”) you may need to get someone trained or you could buy in the expertise to get you set up.

Other aspects of health and safety will cost you some money, but these could be modest amounts and will certainly be a lot cheaper than doing nothing, only for an accident to occur later.  Examples here could include providing Personal Protective Equipment (PPE) – such as warning or hazard signs, “high viz” wear, steel toe capped boots, gloves or safety goggles / glasses – having a basic workplace first aid kit and fire extinguishers.  As with most things in life, shopping around and comparing quality and prices is key, as it would be very easy to spend a lot of money when you really don’t always have to.

Health and Wellbeing is a growing area and has the potential to cost you nothing or an awful lot.  Keeping your employees healthy and well doesn’t have to involve expensive gym facilities or memberships.  Sometimes the most simple things can reap the biggest benefits.  Recent research has shown that employees who take even just a 15 minute lunchbreak and spend it having a short walk outside are happier, healthier and more productive than those who don’t.  That doesn’t cost you, the employer, a thing – especially bearing in mind that staff typically aren’t paid for their lunchbreaks.

The most successful and effective health and wellbeing initiatives are often simple yet still manage to catch the interest of staff.  I’ve worked in organisations where groups and activities, such as a running group or a meditation session, are run by passionate volunteers who are keen to involve their colleagues. Group activities and interaction can really help staff morale and wellbeing even if they aren’t necessarily “active”. A popular workplace choir in one of my former workplaces springs to mind…..

So even if you are feeling the pinch financially, I hope that you do recognise there is still a need to keep your staff safe, healthy and well.  It doesn’t have to cost a lot and I can guarantee that even by doing a little, it will help save you a lot more money in the long term.

Time for a lunchtime walk anyone?

Performance Management in 2017

Companies Must Become Active and Responsive – interacting with everyone working in their company.

Today’s workers expect change. Constantly. And feedback. Specifically, they expect to have the ability to change their goals as business and their own needs change. They also expect to make changes using technology. And any technology solution should mirror the experience they have in their personal lives – it should be intuitive, responsive, relevant, and immediate.

Not only should any technology be up-to-date, it needs to provide immediate feedback.

For example, when you deposit a cheque using your banking app, it tells you immediately whether that transaction was successful. Same when you purchase something using your tablet.

The modern workforce wants that type of feedback about their performance because they have choices to make about their careers and they know it.

Regular performance feedback isn’t a Millennial thing. Every employee wants to know where they stand; what their future is; if you rate them and what for; what the niggles and opportunities and challenges are. Don’t wait until they have resigned to tell them you saw them as a future Director. It will ring hollow no matter how sincere.

Likewise any feedback does not and should not exclude contractors, consultants and other individuals working with the company.  Today’s workforce is flexible moving very between employment and self employment to suit them. Don’t miss out on interacting with everyone that is working for you.

Active Performance Management enhances the Modern Workplace

Any Active Performance Management solution should take the best of the traditional performance management process and combine it with the needs of today’s workforce. It provides a structure that managers and employees want so the process remains fair. It can also include the documentation aspect necessary to support job changes and promotions.

By making the process technology driven, it can take the traditional performance management one step further and facilitate real-time feedback conversations that employees want to move to the forefront. It can also utilise downtime.

Real-time feedback piece is so important to everyone that wants and values it. Waiting once a year (for a performance review) doesn’t work. It’s time to move to real-time system for performance, with frequent touch points between the manager/client and employee or worker.

5 Key Elements of Active Performance Management (APM)

2017 is the right time to introduce active performance management. There are four key elements to changing current performance management processes.

  • Regular performance conversations. Most organisations have some mechanism in place requiring managers and employees to meet once or twice a year. With active performance management, employees and managers meet more often. The timeliness of performance feedback helps the employee perform at a higher level.
  • Peer-based feedback. In addition to increased manager feedback, employees learn how to provide each other with performance feedback. This can be just as valuable – if not more so – than manager feedback. Employees collaborate with different colleagues every day and need positive working relationships with their peers.
  • Focus on current and future projects. More frequent performance conversations mean less time is spent rehashing old behaviour. Workers and managers already know what happened in the past. The conversations are spent on future performance, talking about how to accomplish goals.
  • Development at every level. Every worker becomes skilled in delivering performance-related feedback. This helps them take ownership of their career development.
  • Looking to the future – The elephant in the room is often that both sides know that to truly realise ambitions the individual may not stay in the same place until retirement. Working in a new way means such ambitions can be captured and companies can stay in touch with their future talent even if they aren’t currently working for them.

When you implement active performance management into an organisation you may wish to phase-in different key elements.

Phased implementations can be very successful and embed ways of working firmly. Performance Management facilitated by technology will allow the flexibility to introduce the entire process or each piece separately.

Active Performance Management Leads to Talent Activation

Organisations must create processes that result in having the best talent in the right positions. Those processes need to include creating an environment where all their workers (current, future and past) feel empowered to ask for and give feedback and that any training/development they need to be available in a timely manner.

When employees are engaged with their work, their performance improves and organisations begin to set the pace rather than react to the pace of the market.

We all understand the opportunity cost of not being agile in business. Think of companies like Uber, Airbnb, and the new Amazon app-based grocery stores. These companies shouldn’t have been able to disrupt the way that they did had “legacy” brands kept up with or innovated within their respective spaces. Increased agility enables organizations to increase the speed at which they conduct business and innovate, which improves the bottom-line.


Employment law changes anticipated for 2017

A round up of the employment law changes anticipated for 2017, amid the ongoing uncertainty resulting from the Brexit referendum. 

Large compliance projects for data protection and gender pay gap reporting will dominate the HR agenda in 2017.

Employers are likely to see costs increase as the apprenticeship levy and additional fees for sponsoring foreign workers are introduced, and tax savings for employee benefits are significantly reduced.

Now more than ever it is important to ensure you are have good up-to-date HR practices and are employing the right people on the right terms and conditions.

  1. Data Protection Regulation compliance efforts underway

Although the EU General Data Protection Regulation (GDPR) does not come into force until May 2018, the scope of the changes under the new Regulation means that preparing for the GDPR will be high priority for employers in 2017.

Employers will need to carry out audits of employee personal data that they collect and process to ensure that it meets GDPR for employee consent. New governance and record-keeping requirements mean that employers will also have to create or amend policies and processes on privacy notices, data breach responses and subject access requests.

As the GDPR will come into effect before the UK exits the EU, organisations that are not compliant by May 2018 will risk fines of up to 20 million euros or 4% of annual worldwide turnover, whichever is higher.

  1. Gender pay gap reporting begins

Private-sector, voluntary sector and public-sector organisations with 250 employees or more will be required to publish gender pay gap information for the first time.

Employers will be obliged to release information relating to employee pay and bonus pay, as well as information on the number of men and women in each quartile of the organisation’s pay distribution.

Gender pay gap regulations for private and voluntary sector employers are still in draft form but the deadline for the first report is expected to be 4 April 2018, based on pay and bonus data from 2016/17.

Reporting requirements for public-sector employees are expected to mirror private-sector timelines and requirements.

  1. Apprenticeship levy on large employers introduced

Employers with an annual payroll of more than £3 million will be required to pay a 0.5% levy on their total pay bill starting on 6 April 2017.

Large employers will be able to access levied amounts, plus a government top-up of 10%, to fund apprenticeships from accredited training providers.

Smaller organisations that are not required to pay the levy will also be able to receive funding for accredited apprenticeships by contributing 10% towards the cost of an apprenticeship, with the Government paying the remaining cost.

This is potentially great news for employers and young people entering the workforce.

  1. Salary-sacrifice schemes significantly restricted

Employers may need to reconsider their benefit offerings as tax savings through many salary-sacrifice schemes will be abolished from 6 April 2017.

Schemes related to pension savings (including pensions advice), childcare, cycle-to-work and ultra-low emission cars will not be affected.

Schemes in place prior to April 2017 will be protected until April 2018, while arrangements related to cars, accommodation and school fees will be protected until April 2021.

  1. Changes to rules for employing foreign workers 

Employers sponsoring foreign workers with a tier 2 visa will be required to pay an immigration skills charge of £1,000 per worker (£364 for small employers and charities) beginning in April 2017.

The immigration skills charge will be in addition to current fees for visa applications.

In April 2017,the minimum salary threshold for “experienced workers” applying for a tier 2 visa will also increase to £30,000.

New entrants to the job market, and some health and education staff will be exempted from the salary threshold until 2019.

  1. Restraints on public-sector exit payments are still expected

Restrictions on public-sector exit payments, which had been expected to come into force in 2016, are still anticipated, although their implementation dates have not yet been confirmed.

Exit payments will be capped at £95,000 when public-sector employees leave their roles, including as a result of redundancy or voluntary exit.

Employees earning over £80,000 will also be required to repay exit pay if they return to any public-sector role within 12 months.

This will be a key area for the National Audit Office to look at closely and ensure that further loopholes aren’t being created.  Poor practices that included raising salaries exceptionally to benefit from Defined Benefit pension schemes, offering VR to expensive senior staff who merely wished to retire as well as agreeing terms to re-hire have been costly to the public purse.

  1. National minimum wage changes 

Cycles for national minimum wage increases – including the national living wage – will be aligned, with the next round of changes taking effect on 1 April 2017.

The next increase will see the living wage for staff aged 25 or over rising to £7.50.

Use this link to check you are paying the correct rate. Also look at current and future statutory rates for maternity pay, paternity pay, adoption pay, shared parental pay and sick pay.

  1. Trade union balloting changes to be implemented 

Employers await the implementation date for new balloting requirements under the Trade Union Act 2016.

Under the rules, a successful vote for strike action will require a 50% minimum turnout and a majority vote in favour of industrial action.

Industrial action in important public services will require a strike vote of 40% of all eligible voters.

Self-employment and other workforce dilemmas….

You may well have seen recent headlines about people whose organisation told them that they were self-employed but actually ended up not being – for example the recent cases linked to Uber, Deliveroo and Pimlico Plumbers. So what are the differences between being self-employed and employed?  Or for that matter being a “worker”?

Admittedly this can be a complex area and if you are in doubt or are being challenged by someone who works for you, you are always best to get expert advice.

However, there are some guiding principles and questions to consider when determining what someone’s employment status is. (ie. are they an employee, a worker or self-employed?)

  • Employees

Being an employee tends to be the “normal” form of employment status for many people.  They are directly employed by an organisation via a contract of employment.  This contract of employment outlines their role, responsibilities and entitlements while working for the organisation.  Legally all employees must be issued with a contract of employment (also known as a “statement of particulars”) within 8 weeks of starting with an organisation.  Failure to do this can lead to a financial penalty for the employing organisation.

Typically an employee works directly for the organisation they are employed by, in one of their workplaces, uses their equipment / facilities and is managed (or “controlled”) by them on a day to day basis.  For example, Fred has a contract of employment issued by XCo.  It outlines that he works in the office of XCo and is line managed and told what work to do by Jo, who is also employed by XCo.  If Fred doesn’t attend work, he doesn’t have to send someone else in his place.  As an employee Fred has certain entitlements or rights, such as being paid, being eligible to take paid annual leave and the entitlement to some form of sick pay if he is too ill to attend work.  These are outlined in his contract of employment – so hence it is an important document to refer to to ensure that Fred is being treated correctly.

  • Workers

In the recent cases with Uber, Deliveroo and Pimlico Plumbers the people who challenged their employment status were deemed to be “workers”.  All employees are “workers” but workers are not employees, even though there is some common ground.

A “worker” is defined as “someone who carries out paid work for an organisation but is not bound by or employed by a contract of employment”.   A simple example could be – Jane comes in to do some work tasks for your organisation during the school holidays but she doesn’t have a contract of employment with you.  She may be working via an employment agency (as a “temp”) or perhaps works directly for you.  If Jane doesn’t attend work, she doesn’t have to send someone else in her place but if she works via an employment agency, they might send a replacement. As a worker Jane has certain statutory rights such as she must be paid the national living or minimum wage (dependent on her age), she has the right to the statutory minimum paid time off and cannot be discriminated against. However, as she is a “worker” and not an “employee” she has no entitlement to unfair dismissal protection, redundancy pay or the right to request flexible working.

Confused?  There is further guidance online on the website that you might find useful.

  • Self-employed / Contractors

There is, or should be, a real difference in how self-employed people or contractors work compared to people who are employees and workers.  The fact there wasn’t a clear difference in the cases of Uber et al is part of the reason that the Employment Tribunal / Employment Appeal Tribunal ruled as they did.

The terms “self-employed” or “contractor” do not particularly make a difference when trying to determine someone’s employment status.  What is important is the arrangements for how they are “engaged” to do a task, how the task is carried and by whom, and how the work is paid for.  If someone is truly self-employed there is no contract of employment but there will be a “contract for services”.  The “contract for services” defines what work is to be done but allows the person or people fulfilling it the freedom to decide how best to carry out the work.  It may also mean that one person is substituted for another in order to fulfil the work, perhaps because they have a certain skill or area of expertise that is needed for a part of the work.

Self-employed people work for themselves and do not have a line manager in the organisation they are working for.  They typically provide their own equipment, such as tools, a vehicle or IT equipment.  A self-employed person invoices the organisation they are carrying out work for and receives the full amount of invoiced.  They have to declare this income and pay the relevant tax and national insurance contributions directly to HMRC via their annual tax return. Again this is not an exhaustive or definitive list and further information can be found at:

The big advantage for hiring organisations is that self-employed people do not have employment rights – so are not entitled to things such as the national living wage or holiday pay.  The hiring organisation also doesn’t have to pay for any employers’ tax contribution, employers’ national insurance contributions or employers’ pension contributions.  These various contributions total up to a significant financial saving for the hiring organisation, so hence why companies such as Uber used the self-employed model to reduce their costs.

This is an area that remains under scrutiny as the government believes it is missing out on significant tax revenue due to people misusing the current system.  The government has recently announced a number of reviews to look at the issue of self-employment, particularly as part of the “gig economy” and for the public sector, in more detail.  There are bound to be developments so watch this space………….

Happy 2017? Predictions for employers……

2016 was an eventful year and most people are now looking forward to a (hopefully) better 2017.  So, a few days into the year, what can employers look forward to over the next 12 months?

  • Brexit

After dominating the headlines in 2016, 2017 is also likely to be a year where Brexit is in the news.  Assuming that the government does what it has promised, then article 50 will be triggered in March 2017.  What Brexit will actually mean for employers and employees remains to be seen, but hopefully things will get clearer.  Updates to come, watch this space…….

  • Changes to work permits and the Immigration Act

This is hardly surprising given the current Brexit situation.  Some of the changes have already been announced and there will be doubtlessly more to come.

What we do know already is that employers sponsoring foreign workers with a tier 2 visa will be required to pay an “immigration skills charge” of £1,000 per worker (£364 for small employers and charities) from April 2017. The immigration skills charge will be in addition to current fees for visa applications.

In April 2017, the minimum salary threshold for “experienced workers” applying for a tier 2 visa will increase to £30,000.  New entrants to the job market, and some health and education staff will be exempted from the salary threshold until 2019.

  • Gender pay gap reporting

Or the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 to give them their full name, which will come in to force on 6 April 2017.  The government published updated guidance on these regulations a couple of days ago and has confirmed that all organisations with over 250 employees need to provide and report on gender pay gap information based on the date of 5 April 2017.  If you haven’t started planning for this, make it top of your new year “to do” list.

  • Apprenticeship levy

There has been much talk about the forthcoming apprenticeship levy and the potential opportunities it brings.  If you are an organisation with a payroll of more than £3m then from 6 April 2017 the levy will apply to you.  The Government has recently published updated guidance for employers on how the apprenticeship levy and the new funding system will work.

  • Salary sacrifice schemes – RIP

As stated in the Chancellor’s Autumn Statement, there will be significant changes to what type of salary sacrifice schemes employers will be able to offer.  Some of the current items offered, such as gym membership, will be abolished from 6 April 2017.  If you haven’t already reviewed your employee benefits scheme, then now is the time.

  • Rises in the national living wage and national minimum wage

This was another announcement in the Autumn Statement.  Rather than having different dates when there are changes in the hourly rates for the national living wage and the national minimum wage, these have now been aligned.  So the next changes will be due on 1 April 2017 and the rates are set to rise.

  • Trade Union Act 2016

We are waiting to hear exactly when this legislation will come in to force but it will happen at some stage during 2017.

Under the rules, a successful vote for strike action will require a 50% minimum turnout and a majority vote in favour of industrial action.  Strike action in “important public services” will require a strike vote of 40% of all eligible voters.

  • Pensions……

There has been a lot in the news about pensions in 2016 – whether it be related to the demise of BHS or the rise in the “gig” economy.  There are already some known changes planned for 2017, such as the final phase of pension auto-enrolment to encompass all employers and the rise in the minimum employer contribution rate.  It is likely there well may be others….

We’re sure that there will be other developments during the year ahead, so keep your eye on this blog for more updates.  Happy New Year!