Are you familiar with the upcoming changes to the payroll rules?

From 6 April 2020, there will be significant payroll updates which could impact how much you pay your employees and how you deal with national insurance and tax.
Increase to national wages
The national living wage (NLW) is available to employees aged 25 and over, this April the NLW will increase to £8.72 from the current rate of £8.21. An estimated two million full-time workers will see a £930 increase to their annual earnings.
Next year the Government intends to expand the NLW age to employees aged 23 and over, and within five years to those aged 21 and above.
The national minimum wage (NMW) rates are also increasing:

  • 21 to 24 – £8.20
  • 18 to 20 – £6.45
  • Under 18 – £4.55
  • Apprentice – £4.15 (if under 19 or in the first year of apprenticeship – otherwise refer to age bands)

As such, employers will need to increase the amount they are paying into an employee’s workplace pension.
‘Jack’s Law’ comes into force
The new Parental Bereavement Leave and Pay Regulations (Jack’s Law) will be introduced for parents of a child under the age of 18 and a stillbirth after 24 weeks of pregnancy.
This gives workers a statutory right to a minimum of two weeks’ leave for all employed parents if they lose a child. The right will be applied irrespective of how long a person has worked for their employer.
IR35 regime
The Government has confirmed that despite its plans to review IR35 (Off-Payroll tax rules) on 6 April 2020, it will still implement its legislation in the private sector.
IR35 currently, applies to contractors working with public sector clients.
Furthermore, if you use the services of a contractor or consultant through a personal service company (PSC), you are classed as an engager, and your responsibilities will be as follows:

  • Determining whether an engagement falls within the IR35 rules.
  • Applying the correct National Insurance Contributions (NICs) and tax.

This change only affects medium and large businesses, therefore they will be held accountable if HM Revenue & Customs (HMRC) fails to provide a contractor with an IR35 deemed status and account for their pay by PAYE and pay NICs.
The Government have decided to give a 12-month grace period, meaning there will be no penalties for errors relating to off-payroll unless there has been deliberate non-compliance.
Termination payments
Up to 5 April 2020, the charge on termination payments above £30,000 is limited to income tax only.
The new NIC legislation will ensure that any termination payment (from 6 April) above the balance of £30,000, chargeable to income tax, will also attract a Class 1A NIC liability at 13.8 per cent. This means only the employer will suffer NIC and not the employee.
Class 1A NIC is calculated in line with forms P11D and must be paid by 19/22 July, following the year-end. This new Class 1A NIC will be collected through Real Time Information/PAYE and will need to be paid and reported to HMRC.
If the new Class 1A NIC charge is incorrectly paid, appropriate late payment interest and penalties will be applied.
The Good Work Plan
The Good Work Plan was published by the Department for Business, Energy and Industrial which states how the Government plans to address the concerns included in the review of modern working practices (2017).
Businesses are expected to familiarise and prepare themselves with the changes.
These changes cover a wide range of issues including:

  1. Employment Allowance budget

These changes came into effect at the start of the new financial year:

  • Class 1 NICs – maximum reduction has increased from £2,000 to £3,000 (per annum).
  • Directors who are the only paid employee in their company are no longer able to claim Employment Allowance (previously those paying themselves £8,112 per annum could).
  1. Employment status

The Government stated that one of the proposed reforms to IR35, determining your employee status – whether you are an employee, self-employed or a worker – will be revised in April 2020.
This means if you are self-employed, you will most likely be determined as a worker.

  1. Holiday pay

When calculating holiday pay for employees whose pay varies (this includes those on zero-hour contractors), the mandatory reference period for this calculation will increase to 52 weeks on 6 April 2020.
This calculation method provides a payment that balances out any highs and lows of working hours throughout the years.

  1. Written contracts of employment

There will be changes to the rights to receive a written Statement of Main Terms:

  • Contracts must include employee’s key terms of employment, including pay and annual leave on day one of employment (currently employers have two months to provide it to employees).
  • Contracts must be provided to those on zero-hour contracts.
  1. Increased protection for agency workers

Swedish derogation will be banned – this is a model of employment where an agency hires a worker directly, rather than being the middleman between a client company and a worker.
These contracts proceed based on a legal loophole, to avoid the requirement to pay agency workers the same basic pay as direct recruits at the hirer organisation, after 12 weeks of an assignment. 
If you are currently contracted you will be entitled to:

  • A statement to explain the effect of the ban on your pay
  • A key facts sheet explaining the details of their payment

Additional details of the Good Work Plan will be released in the upcoming weeks.
Don’t forget to remind your team to update their Personal Tax Accounts
A Personal Tax Account can enable individuals to check their tax records online and manage their details.
Within the current tax year, individuals should update their expected income to include any bonuses, overtime or potential additional income within the current tax year – to ensure HMRC holds the most up to date estimated pay.
How we can help
Grunberg & Co is excited to announce that as part of our payroll service offering, we are introducing an online portal called BrightPay Connect! It will launch in April 2020, and the benefits are as follows:

  • Access your on-going payroll reports
  • Access employee payslips
  • Manage all annual leave
  • Company-wide calendars
  • Maintain HR and personal documents
    • Contracts of Employments
    • Staff Handbooks
  • Private Portal
  • Payroll information is securely backed-up automatically to the cloud and hosted on Microsoft Azure
  • Fully compliant with GDPR legislation
  • Makes uploading easier

 
If you want to learn more or receive professional advice then you’re in the right place! Grunberg & Co’s payroll team are available to discuss any questions you may have ahead of the transition and will be on hand to assist with any issues you may experience afterwards.

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