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Budget 2017: What are the employment law implications?

During his second budget of the year, Chancellor Phillip Hammond set out the Government’s spending plans for all the important issues of the day: from stamp duty for first-time buyers and electric cars, to polystyrene takeaway containers. He also made a number of announcements which will be of interest to employers.

Employment status and the “gig economy”

Employment status is a major issue for many employers in the UK, as Employment Tribunal cases involving household names such as Uber, Addison Lee and CitySprint have quickly brought the term “gig economy” into common parlance. So it was not altogether surprising that the ambiguity surroundings its participants’ employment rights (or the lack thereof, perhaps) made its way into the Chancellor’s comments.

Mr Hammond declared that the Government would be publishing a discussion paper in an attempt to clarify the increasingly muddied waters surrounding the rights and tax obligations of those who fall either side of the worker/self-employed contractor divide. This paper will be written in response to Matthew Taylor’s Review into Modern Working Practice. This was commissioned by the Government earlier this year to explore, among other things, the current state of play for the UK’s estimated pool of 4.8 million independent workers. It would be fair to say that the report provided something of a damning critique of the lack of certainty that many of these workers currently enjoy when it comes to issues of holiday entitlement, sick pay and job security. Mr Hammond will have been quite aware of the mounting criticism being levelled at the UK labour market’s seemingly stagnant productivity levels, and may well see this as an opportunity to tighten up the position on a ‘gig’ economy that is becoming a highly accessible – and increasingly lucrative – component of our economy.

It is understood that this discussion paper will be with us before Christmas although it remains to be seen what measures can realistically be taken to simplify such a multi-faceted point of law. It will be interesting to see if any of the Select Committees’ far reaching recommendations set out in the “Taylor Review Bill” find their way to the discussion paper.

IR35 and new tax guidelines

IR35 is a mechanism used by employers to confirm whether their workers are engaged on a ‘self-employed’ basis, and thus absolving the employer of the duty to make National Insurance contributions (“NIC”). It has faced criticism by tax experts insofar as it requires a fairly developed knowledge of employment law to correctly apply the tests included within the form, and has been said to have not always been completed in the honest manner in which it was intended.

IR35 has undergone reforms throughout the public sector this year and it was explained within the budget that the Government will undertake consultation about the possibility of rolling these reforms out into the private sector. This decision will draw upon external research which has already been commissioned; the results are due to be published in 2018, after which further consultations will take place.

Also on the point of taxation, Mr Hammond explained that, for the 2018/19 tax year, the Government would raise the personal allowance to £11,850 and the higher rate of taxation to £46,350. There is a commitment that, by 2020, these figures will reach £12,500 and £50,000 respectively.

Other notable tax-based developments for employers include:

  • The Government will delay implementing any further NIC policies (for example, relating to the proposed abolition of Class 2 NICs) by a further year and upon further consultation.
  • There will be no benefit in kind charges on electricity that employers provide to charge employees’ vehicles.
  • The scale charges applied to van and car fuel benefits will be increased in line with the September 2017 retail price index figures.

Wages

The Government has also announced that the National Living Wage (“NLW”) will increase at a rate of 4.4 per cent, from £7.50 an hour to £7.83 per hour. If my calculations are correct, someone working 40 hours a week for the NLW will now pocket an extra £686.60 each year before tax. The National Minimum Wage (“NMW”) has also increased to £7.38 for 21-24 year olds, £5.90 for 18-20 year olds, £4.20 for 16-17 year olds and £3.70 for apprentices. The Low Pay Commission has estimated that as many as two million people will receive a pay rise when this takes effect in April 2018.

Whilst it’s fair to say that the NLW has had its share of critics since its implementation in 2015, the scale of these increases sits quite comfortably above the current rate of inflation (3 per cent at the time of writing). In addition, some of the NMW pay increases have jumped at a rate as high as 5.7 per cent. Nonetheless, this news has still received criticism from certain quarters, with the Living Wage Foundation claiming that the NLW is still insufficient to ‘live’ on, especially in the capital where they believe an hourly rate of £10.20 (£8.75 for the rest of the UK) would be required to live and support one’s family.

Whilst the developments set out in the budget are fairly self-explanatory and do not necessarily make for the most exciting of blogs, they do appear on the whole to demonstrate positive improvements to the working conditions of a significant proportion of the country’s workforce. It was also well received by the British press and economic pundits alike, although it will remain to be seen whether it plays as well with Mr Hammond’s own party colleagues.

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further