Off-payroll workers – have you prepared?

With less than 6 months until new law comes into effect, has your business put in place plans to implement changes to the process of:

  • Engagement of contractors
  • Status classification
  • Notification of status to contractors and their intermediaries
  • Dispute processs
  • Record keeping
  • Payroll and finance readiness
  • Organising appropriate PAYE scheme
  • Identifying amounts subject to tax and National Insurance
  • Budgeting for the employers National Insurance and apprenticeship levy liabilities
  • Handling of deemed employees

PAYadvice.UK is putting together a list of resources and guidance to assist organisations in their readiness.

Some of the basics

Who does this law impact?

Some businesses engage workers through their own personal service companies (PSC). Sometimes these workers are referred to as contractors.

Does this impact the self-employed?

No, sole trader self employed individuals are not off-payroll workers. However, some individuals who form a PSC or work via an intermediary may portray themselves as self-employed, when they are legally a director or employee of their intermediary company as not a sole trader. Sometimes these intermediary organisation construct payments to the end worker as a variety of payments including dividends and offset of various expenses.

Are deemed employees actually employees?

Simply no, they are an employee of their own PSC or intermediary, they are not an employee of the engager who provides them with a service contract, but potentially a ‘deemed employee’ for the purposes of tax and Class 1 National Insurance only. They are not employed by the engager and have no employment rights. They are not entitled to holiday pay, Sick pay, statutory parental payments and are not subject to occupational pension provision under pension auto-enrolment. Those rights are the responsibility of their own PSC or intermediary based on earnings they receive from them.

Payments from the engager are not part of National Minimum Wage or Gender Pay Gap Reporting.

Does it apply to all UK employers?

Off-payroll working rules have applied to public sector employment since April 2017. From 6th April 2021 (delayed due to COVID-19 from 2020) it additionally applies to medium and large businesses. Expanded duties also apply to public sector engagers as well.

Does the engager have any additional costs as a result of the change?

Inevitably. Engagers of contractors will need to implement new processes and procedures in their engagement activity.

Costs will be incurred with:

  • Added contract and financial terms
  • Requirement to do status checking
  • Record keeping
  • Dealing with disputes
  • Finance system preparations and payroll configuration
  • Class 1 secondary NIC liability (currently 13.8% of liable payments above a Lower Earnings Limit)
  • Apprenticeship levy which is currently 0.5% of secondary NIable earnings.

Will the contract amount reduce as a result of off-payroll changes?

In some cases it is likely that former amounts available for payment will reduce. The engager will additionally now need to pay employer National Insurance Contributions as well as an Apprenticeship Levy which they previously did not incur. So some may want to restrain their overall amount to be similar as previously budgeted. On that basis contractors may find the amount being offered is reduced to cover the engagers added costs. what the engager cannot do (legally) is reduce an agreed contract payment by the amount of the engagers liabilities.

Can PAYadvice help?

PAYadvice Ltd is a registered and regulated agent and is able to provide guidance and advice especially in relation to the operation of PAYE and NI on off-payroll worker payments.

If you need help and would like to know more and how PAYadvice can assist, please feel free to make contact.

PAYadvice.UK 18/10/2020

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