Off-payroll working responsibility
01 September 2019
This article was featured in the September 2019 issue of the magazine.
Susan Ball, UK employment tax partner, and Lee Knight, employer solutions director, at RSM, discuss who should drive procedural changes
In July 2019, the government published draft legislation which introduces new off-payroll working rules to the private sector and also amends the way the existing off-payroll working rules will apply in the public sector.
But who should take responsibility within organisations to drive the procedural changes necessary to prepare for these rules? In many cases it is likely to require a team effort.
The new rules will need to be considered from 6 April 2020 whenever a worker provides services to another party (i.e. an ‘end-user’) through their own intermediary (normally a personal service company). This will be the case even where other parties sit between the end-user and the worker’s intermediary in the labour supply chain. The effect of these rules will mean that:
end-users in the private sector will need to annually consider complex rules to identify whether they are ‘medium’ or ‘large’, and
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medium- and large-sized end-users in the private sector, and public sector end-users, will need to establish whether the worker is personally providing services. Where they are, they will then need to:
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take reasonable care to identify whether the worker is a deemed employee by undertaking a well-informed status determination
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pass that status determination and the reasons for reaching it to the worker and down the labour supply chain, and
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introduce and operate a statutory and time sensitive process for dealing with disputes (for example, where a worker challenges the status determination made by the end-user).
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...input and support of a multi-disciplinary team drawing on individuals across different departments...
End-users and other parties in the labour supply chain could be exposed to unexpected liabilities if they do not satisfy their obligations under the new rules. Furthermore, the inclusion of controversial transfer of liability provisions also mean that end-users (and certain other parties) will need to ensure the compliance of parties further down the labour supply and take steps to protect themselves from unexpected liabilities when they are not.
Who should take responsibility for complying with the new rules will very much depend on the size of an organisation, how it is departmenatilised, and where the organisation sits in the labour supply chain. .....Let’s take the example of ABC Limited, a successful business operating in the financial services sector which engages the services of many workers via their own limited companies, sometimes under a contract directly between ABC Limited and the worker’s limited company, and sometimes under a contract directly between ABC Limited and an agency. ABC Limited is an end user and as such its preparations for the new rules might include (but not be limited to) the following.
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Identifying whether it is a medium- or large-sized business by reference to its turnover, balance sheet total, and average number of employees. If it is a subsidiary or part of a group, similar considerations will need to be given to the size of its parent company and/or the group it is part of.
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Establishing the number of current workers personally providing services through their own intermediaries (whether directly or via an agency), determining how it plans to correctly assess those workers’ status, and who is best placed to do so.
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Assessing the likely cost increases due to the employer’s National Insurance contributions (NICs) and apprenticeship levy charges arising, and potential increases in workers’ rates, where current and new workers would be deemed to be employees.
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Preparing to safeguard the business from risk by understanding and undertaking due diligence on its labour supply chain where such workers are sourced through an agency.
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Designing new processes and controls which will help to ensure compliance with the new rules (which could include procurement, payroll, human resources (HR), finance, and data management processes). New IT solutions may also be needed.
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Training employees who will be responsible for operating those new processes and controls in the future.
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Communicating changes to the off-payroll workers to support them in understanding the rules and the implications.
What this demonstrates is that the preparations required to be compliant with the new rules are wide-ranging and are likely to require the input and support of a multi-disciplinary team drawing on individuals across different departments (for example, from HR, payroll, finance and legal teams).
Given the potential size of the task in many cases it will be appropriate to form a working party of key personnel from various departments to discuss the new rules and develop an action plan which will help drive forward the procedural changes necessary to be compliant.
Organisations should, however, ask themselves if they have the appropriate internal resources and expertise to implement the changes required and to seek specialist help and advice where it is appropriate to do so. This is particularly the case in respect of the making of status decisions which require a thorough understanding of the underlying working arrangements and of the tax rules for determining status.
A proactive approach is certainly recommended – organisations should not underestimate the potential challenges ahead.