Blog Post
January 28, 2021

UK HCM compliance forecast for 2021

In this blog, Adam Wysopal, Product Counsel, highlights some compliance changes UK employers should be aware of and what may be on the horizon.

Table of Contents

A fresh year always means new potential compliance changes for employers to manage. Between ongoing disruptions from COVID-19 and the separation from the EU now complete, it is more difficult to forecast what may occur in the UK in 2021 than in other years, in part because there will be competing legislative priorities in Parliament. That said, let’s take some time to consider what employers should be monitoring this year based on what we know so far.

The government has been providing some form of job subsidy to employers throughout the COVID-19 pandemic. The program in effect at the moment is the Coronavirus Job Retention Scheme, which is scheduled to expire on 30 April 2021. Employers may recall that this scheme has been extended more than once, and that there was a proposal to replace it with something different.

Employers will want to monitor for what happens next, especially those who have been participating under the existing scheme. It is likely that some type of program will be available to employers beyond April, but it may come with strict eligibility criteria, such as a notable decrease in year-over-year turnover, as well as a reduced monthly, per-employee subsidy amount.

Various regulations were issued in 2020, many of which remain in force today, to address COVID-19 impacts to statutory entitlements. These include regulations to enable employees to benefit from statutory sick pay on day one of following public heath guidance, such as needing to quarantine due to exposure with the virus, instead of waiting the normal three-day period. We also saw regulations issued to clarify how employers should calculate holiday pay for employees who were furloughed or had their pay reduced.

Employers can expect additional regulations in 2021, some of which may be modifying or terminating temporary measures that were put in place in 2020. They will likely address prior topics such as statutory sick pay, but there could be new topics that warrant action such as working hours and breaks for employees who are working from home due to COVID-19.

Off-payroll reporting rules takes effect this year

Off-payroll rules, often referred to as IR35, initially scheduled to come into force on 6 April 2020, were delayed until April 2021 due to COVID-19. The rules are all about ensuring that workers are properly categorised as either a contractor or employee. The growth of the gig sector economy is giving more attention to the issue of worker classification throughout the globe. Historically, the UK government had been concerned that widespread misclassification of employment status was resulting in underpayment of tax. IR35 helps ensure that when someone is working like an employee rather than a contractor, they pay the same tax and NICs as other employees.

Under IR35 rules, medium- and large sized private employers will now be responsible for deciding a worker’s status and whether the rules apply to them instead of the contractor. Employers will want to carefully assess their organisation’s readiness to comply and seek guidance if they are unsure about how the rules may apply to their particular arrangements, especially with regularly engaged vendors or contractors.

Employers will also want to understand how to manage payroll for workers that are subject to the IR35 rules. If the rules apply to a worker, the employer is responsible for deducting tax and NICs and reporting to HMRC instead of the intermediary. The worker will be assigned a “BR” tax code since they usually have a primary employment with an intermediary, which is often their own company. The tax code will help the employer, usually with the assistance of their payroll software, calculate remittances properly. Employers will want to review how this will be supported with their existing technology, in particular if an employer anticipates needing to add many new individuals into their payroll software.

Employer collection and reporting of employee data

Throughout the globe, there has been an increased interest from governments to collect employee data – such as equal pay and equal opportunity – as part of broader policy or legislative agendas. Related to this is how employers go about getting the information they need from job applicants or employees to fulfill the reporting obligations. In 2021, we may see changes to both the legal requirements to report certain data, as well as guidance for employers to collect certain information from applicants or employees.

To start with, certain UK employers are already required to submit gender pay gap data. However, the obligation to report for the 2019-2020 reporting year was suspended due to COVID-19. This relief has not been extended, so covered employers will need to be ready to submit their report by the deadline of 4 April 2021. The reporting requirements have not changed. However, updated guidance includes information for employers impacted by the pandemic, in particular relating to employees who were furloughed or claimed under the job retention scheme. In addition, there could be new legislation or regulations issued to expand the scope of covered employers. This may mean that some employers who have not been required to submit gender pay gap data in the past may be required to do so in the future.

Another area where new guidance may be forthcoming is in the context of collecting ethnicity, religion, and national identity details. Many employers endeavor to collect this information from applicants or employees, however, there is differing guidance about how to compose questionnaires when they are used in Scotland, Northern Ireland, Wales, or England. The government has developed harmonised standards for uniformity and consistency with data collection and reporting on various topics, including gender and ethnicity. Employers should monitor for updated standards this year which may include additional harmonisation. There may be opportunities for employers to participate in consultations about proposed changes.

Employers may want to explore their existing practices for collecting and maintaining job applicant and employee data to gauge their readiness to respond to new or modified reporting obligations. Preparations could include reviewing application forms or questionnaires sent as part of the hiring process, and also consulting with technology partners or vendors about what reporting capabilities exist to build reports of relevant applicant or employee data.

Post-Brexit employment legislation

Now that the withdrawal from EU is complete, the UK is not bound by EU directives or law, such as the Working Time Directive. The UK could embark on a completely different legal landscape for employers, but that is not a practical likelihood in 2021 or anytime soon. Due in part to a commitment by the UK government to maintain high labour standards in the UK relative to the EU, we are more likely to see adjustments at the edges instead of wholescale changes. In addition, COVID-19 remains the paramount concern for decision makers, and as a result it will remain a legislative priority along with lingering Brexit-related issues such as trade.

While we will not likely see major employment law changes in the UK in 2021, there are some issues to keep an eye on. Some of the bills that will or may be considered in Parliament include topics that were considered before but didn’t get adequate attention, often having to be deferred due to COVID-19. Employers will want to watch the following:

  • A consultation that started in 2015 about tips and service fees may receive renewed attention in 2021 after stalling out last year. Indeed, the potential increase of consumer-based services due to COVID-19 that have associated service fees may make this issue more of a priority today.
  • Legislation to provide workers with enhanced rights when it comes to predictable schedules and consistent hours of work was proposed in 2020, but it was unsuccessful. However, there is already an attempt to bring the bill back this year.
  • Legislation may be enacted that prohibits employers from dismissing an employee and then rehiring them, with the objective of diminishing the terms and conditions of employment.
  • A bill currently in Parliament to prohibit unpaid work that exceeds four weeks, which could see passage.
  • A bill introduced in July 2020 to prohibit redundancy during pregnancy and maternity leave did not advance last year but could get traction and enacted this year.
  • Equal pay legislation that would give employees rights to inquire about pay details of comparable workers could pass in 2021. This is separate and different from gender pay gap reporting.
  • Modifications to the student loan repayment scheme could include debt forgiveness or reductions in interest rates.
  • Right to disconnect legislation may be considered, as it has been in European countries, to provide certain rights to employees outside of their normal work hours. As more employers consider pivoting to work-at-home even after the pandemic subsides, that may serve as a compelling reason to prioritise this topic. In addition, it would help ensure the UK has similar labour standards when compared to many EU countries, which the government has indicated is important to maintain.

As with any year, employers will want to assess any new changes as they apply to their unique business. As you may have observed, a general theme for much of the potential legislation is enhancing worker rights, whether in the context of scheduling, pay, or unwarranted dismissal.

Related: What will Brexit mean for workers' rights and employer obligations in 2021?

Pension changes are coming but will be implemented slowly

The Pensions Scheme Bill that had its first reading in January 2020 passed Parliament on 19 January 2021 and will set stage for numerous changes, which will be phased in over time. Some of the topics included in the legislation are pension dashboards to give people easy access to their pension details, additional pension scheme capability, audit or reporting requirements, financial penalties, and a detailed review of public sector schemes. How these changes may ultimately impact an organisation will be unique, and much of the details are still unknown and will require additional legislative work. Employers will want to stay alert and understand how any changes impact their organisation and workforce.

Immigration changes and right to work checks

This forecast would not be complete without mentioning the UK’s new points-based immigration system, which came into effect on 1 January 2021. This separate to the Settlement Scheme, under which certain individuals may apply by 30 June 2021 to remain the UK. However, a similar issue faces employer in the context of hiring new employees who are coming to the UK under the new immigration system, or remaining in the UK under the Withdrawal Agreement: how do I check their employment status?

For now, employers are instructed to follow temporary COVID-19 guidance for right to work checks and should not be asking existing employees if they have applied under the Settlement Scheme. The Home Office has indicated there will not be any changes to right to work checks until after 30 June 2021. There have been no published proposals about what any new rules may look like.

Employers will want to carefully monitor for updates and should prepare to respond to new requirements as early as July 2021. In addition, if they have not done so already, employers will want to understand their role under the new immigration system and may want to review their hiring practices generally because there may be new opportunities to hire non-UK workers.

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