Employment Law Coffee Break: Autumn Budget, the right of substitution and employment status our HR pensions spotlight for October

What does the Autumn Budget and Spending Review 2021 mean for employers? 

The UK chancellor, Rishi Sunak, this week (27 October) delivered the government's latest Budget and Spending Review that sets out how it intends to "begin the work of preparing for a new economy post Covid" and deliver on the prime minister's "economy of higher wages, higher skills, and rising productivity". 

The vaccination programme, support provided to families and businesses and the Plan for Jobs in response to the Covid-19 pandemic are all identified as having "led to a stronger than previously anticipated recovery in economic activity and the labour market across the country". The Office for Budget Responsibility is now forecasting that "the economy will return to its pre-Covid level at the turn of the year". 

In light of this and with emergency support, such as the Coronavirus Job Retention Scheme, now ended, the government made clear its focus on "building back better"; investing in strong public services, driving long-term growth, leading the transition to net zero and supporting people and businesses. The government has previously announced a temporary increase in the National Insurance contributions rate and the introduction of the new Health and Social Care Levy. Particular points for employers to note from the Autumn Budget and Spending Review 2021 include: 
 
Wages

•    Demonstrating its commitment to "the high-wage, high-skill, high-productivity economy of the future", the government has accepted the Low Pay Commission's recommendation to increase the National Living Wage to £9.50 an hour (from £8.91) from April 2022. The national minimum pay rates for younger workers will also increase as follows: from £8.36 an hour to £9.18 an hour for those aged 21 to 22; from £6.56 to £6.83 for those aged 18 to 20; from £4.62 to £4.81 for under 18s; and from £4.30 to £4.81 an hour for apprentices.

•    For the lowest paid, as well as increasing work allowances, the rate of the Universal Credit taper, which withdraws support as people work more hours, is being reduced from 63% to 55% meaning that for every £1 someone earns, their Universal Credit will be reduced by 55p rather than 63p. The government has committed to bringing these changes in no later than 1 December.

•    Public sector workers will see "fair and affordable pay rises" with a "return to the normal, independent pay-setting process".

Innovation

•    Recognising that "an economy built on innovation must be open and attractive to the best and brightest minds" the government has announced a new Scale-Up Visa which will make it "quicker and easier for fast-growing businesses to bring in highly skilled individuals". A new Global Talent Network "will identify, attract and relocate the best global talent in key science and tech sectors". These announcements will be welcome news for businesses looking to meet their people needs in the current war for talent. Further detail is awaited but the new visa is expected to be launched in Spring 2022. 

Skills

•    Building on the government's previous commitments to create "high-skilled and high-paid jobs across the UK", the Autumn Budget "invests in the most wide-ranging skills agenda this country has seen in decades" with skills spending over the Parliament increasing by £3.8billion. Commitments include an expansion of T levels, building Institutes of Technology, rolling out the prime minister's lifetime skills guarantee, upgrading further education colleges and quadrupling places on skills boot camps. The number of artificial intelligence scholarships have been doubled. A new UK-wide numeracy programme will also be introduced to improve basic maths skills. How far the government will involve businesses in ensuring these programmes match the future demands they require remains to be seen, with much scepticism in the media about whether the programmes will make a real difference. This is an area where employers will, need to keep a careful watch that the pipeline of new recruits has the skills required. We may see a growth in private training providers offering tailored solutions, such as increase in hire-train-deploy companies who recruit and train individuals to supply to end-user clients; the government may, at some stage, look to regulate such companies following previous criticism of some operators. 
 
•    Funding for apprenticeships will increase to £2.7billion by 2024-25. The government will continue to meet 95% of the apprenticeship training cost for employers that do not pay the apprenticeship and will deliver apprenticeship system improvements for all employers, including: supporting flexible apprenticeship training models to ensure that apprenticeship training continues to meet the needs of employers, introducing potential changes to give employers more choice over how the apprenticeship training is delivered, and introducing a return on investment tool in October 2022 to ensure employers can see the benefits apprentices create in their business. The government is extending the £3,000 apprentice hiring incentive for employers until 31 January 2022. Again there is scepticism in the media about whether the programmes will make a real difference

Employers will also benefit from a number of other measures identified in the Autumn Budget and Spending Review 2021, such as the commitments to investment in a "bigger better trained workforce" for the NHS to provide 50 million more primary appointments supporting individual health and wellbeing, and specific funding for early-years providers supporting childcare needs. They will also benefit from the government's commitment to "this economic recovery being green", which will be underpinned by the recently published Net Zero Strategy that includes commitments on green jobs and skills. In meeting their own green targets, businesses will also benefit from the government's commitments to investment in infrastructure including funding for buses, cycling and walking. 

As highlighted in last week's Coffee Break, with Covid-19 infections rising and media speculation as to whether we may see measures under Plan B being introduced, the Spending Review 2021 specifically addresses the government's current intentions. While remaining "mindful that risks remain from Covid-19", it confirms that "the government is monitoring the data closely and will only introduce further measures if needed…should Covid-19 cause a rise in hospitalisations that would put unsustainable pressure on the NHS". The government remains mindful of the social and economic disruption of reintroducing restrictions, such as homeworking for employees who are able to. However, employers should note that some local authorities are encouraging homeworking for individuals living in their areas where cases are rising and vaccination uptake is low and should remain ready to adapt their working arrangements as appropriate. 

For more information on the announcements made on 27 October, please see our insight Autumn Budget 2021 | What tax measures were announced?

Court of Appeal highlights risk of overreliance on substitution in IR35 status determinations

The existence of a "personal service" element is a key factor in determining whether a particular working arrangement is likely to be seen as akin to employment for IR35 purposes. A recent Court of Appeal decision in Stuart Delivery Ltd v Augustine has confirmed that the right of substitution is unlikely to remove personal service element in determining working arrangements. A right of substitution cannot, therefore, be relied upon to remove the personal service when determining IR35 status. Other factors such as an absence of end-user control and evidence of being in business on one's own account are now more important indicators of self-employment. (Please read more on the Court of Appeal decision and what this means for users of personal service company arrangements here.)

Our specialist contingent workforce team are continuing to advise clients on the application of the new IR35 rules that came into force in April 2021. These rules bring potentially significant financial repercussions where services are received from a personal service company (PSC), directly or indirectly; for example, through staffing companies, umbrella vehicles or consultancy companies. The reforms mean that liability for determining whether or not a consultancy agreement falls inside or outside IR35 shifts from the PSC to the end user (the company using the consultancy services). If the consultancy arrangement is found to fall inside the IR35 regime, then the fees payable in connection with the consultancy agreement must be paid subject to tax and National Insurance contributions (NICs). If the end user fails to carry out the IR35 determination, or incorrectly categorises the arrangement as outside IR35 and pays the consultancy fees without deduction on that basis, then HMRC could seek repayment of the tax and NICs. It also has the power to issue late payment fines and interest and a further penalty of up to 100% of the tax/NICs liability. The legal costs of defending any investigation or tax assessment would also be considerable. 

Please contact partner Kevin Barrow if you would like to discuss any arrangements you currently have in place and to discuss which options and contract models are viable based on your workforce engagement requirements and which will help manage risk best. 

HR pensions spotlight for October | Auto-enrolment: are you compliant?

The Pensions Regulator's Compliance and Enforcement Bulletin for the first six months of this year has revealed that the regulator issued more than 77,000 enforcement notices for non-compliance with automatic enrolment duties. Nearly half of these notices were compliance notices, requiring the employer to take certain steps to comply with breaches of the duties. The next largest category was for fixed penalty notices, and around 10% were escalating penalty notices imposing a daily fine for continued non-compliance (which can quickly mount up to thousands of pounds).  The bulletin does not include details of the non-compliance, but we would expect them to include inadvertent breaches as well deliberate ones.  

Recent issues we have come across include a failure to automatically enrol an employee who had said they did not want to join a pension scheme.  In very limited circumstances (which include, for example, a registered company director, an employee with lifetime allowance tax protection or an employee in their notice period), the employer can choose whether or not to automatically enrol the employee. Where an exception does not apply, however, the employer must enrol, and it is for the employee to opt-out if they so choose. In another case, the employer certified their workplace pension against the Tier 3 contribution structure, which is based on total earnings, but failed to pay and deduct pension contributions on discretionary bonus payments awarded.  

Compliance issues of this nature tend to be identified by routine audit or when enquiries are made by a potential purchaser or investor. In many cases, it is possible to report the non-compliance to the regulator at the same time as confirming the remedial steps being undertaken to ensure compliance. Provided the remedy is swift and complete, the regulator tends to be satisfied and less inclined to take enforcement action. This may be more expensive for the employer than compliance from the outset, if a swift and complete remedy also means funding employee contributions it has failed to deduct.  

Employers need to declare their compliance to the regulator every three years to coincide with their re-enrolment duties. If they use a Tier 1, Tier 2 or Tier 3 contribution structure (or different tiers for different staff groups), they must also certify that their workplace pension arrangements comply with the chosen tier(s) at least every 18 months. Certification requires the employer to check the rules of the workplace pension scheme and also how contributions are calculated. It is good practice to use these occasions to conduct a review of how automatic enrolment is working and to identify potential compliance issues, particularly where changes have been made to employment and remuneration practices which may have implications for automatic enrolment.

Employers who are unable to avoid enforcement action are entitled to ask the regulator for a review if they receive an enforcement notice and disagree with it. A review is worth making and should be requested swiftly. Of the nearly 5000 reviews completed during the first six months of this year, 4,077 resulted in the enforcement notice being varied, substituted or revoked. If the review does not go the employer's way, the employer has just 28 days to lodge an appeal, so swift action is again required. Recent appeals have achieved limited success. Nearly 2,000 appeals were made to the Regulator's Tribunal Service during the first half of this year, of which just over half were defended. Of these, all save 62 of the appeals were struck out, dismissed or withdrawn. Prevention and the early identification and remedy of any shortcomings is a better approach.

Please do speak to partner Claire Rankin or your Osborne Clarke pensions team contact for further support.