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Employment law changes that are likely to have the greatest impact on construction businesses in 2017 are the new IR35 rules affecting self-employed workers, new regulations on the employment of foreign workers, regulations requiring gender pay gap reporting and the Apprenticeship levy. Other changes that businesses will need to be aware of include preparing for the introduction of new data protection laws and ensuring compliance with the modern slavery act introduced in 2016.
Compared to European contractors the UK construction sector has a much higher reliance on a self-employed workforce. Although some construction employers are reversing the trend by employing a permanent workforce the impact from the new IR35 rules could see a significant shift in the self-employed landscape in the construction industry.
The new rules introduced in the public sector make the public authority responsible for establishing if the IR35 intermediaries rules apply and, if they do, ensuring that income tax and national insurance contributions are deducted. Some large employers in the utility sector are considering taking a proactive approach by introducing the rules to their workforce and potentially their supply chain.
The impact will be higher levels of taxation on Ltd Company contractors and national insurance contributions that will have to be either borne through increased rates charged to employers or decreased earnings by the self-employed contractors.
You can learn more in our blog the impact of IR35 in the Construction Sector.
From April, the way apprenticeships are funded has changed. A new 0.5% levy has been applied to all UK employers with an annual wage bill of £3 million or more, whether or not they offer apprenticeships themselves.
This fundamental shift to the funding model means it's important for construction firms, who already pay into a CITB or ECITB training levy system, to understand how apprenticeship programmes can benefit your organisation. The 2018 proposal would see the CITB levy reduce from 0.5% to 0.35% to partially offset the increased costs for construction businesses.
Employers will be able to spend apprenticeship levy funding on apprenticeship training and end-point assessment (the assessment of apprentices by an independent organisation, required before they can complete the apprenticeship). The funding can be spent only with an approved training provider or an approved assessment organisation. Those not liable to pay the levy will still be able to receive government funding towards the costs of apprenticeship training and assessment.
Employers that pay the apprenticeship levy will be able to access funding through a digital apprenticeship service account, linked to its PAYE scheme. The employer must spend the funds in its digital account within 24 months of them being paid in. Employers will be notified in advance when funds are due to expire.
You can learn more about how Apprenticeship funding will work in this link.
For the first time employers with 250+ members of staff will be required to publish information relating to their gender pay gap, and how they are performing in terms of driving forward equality. This is an area of particular importance for the construction industry that lags behind other sectors and where diversity is seen as important in closing the projected skills gap.
The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 come into force in April and requires employers to publicly report on the gaps in pay between male and female workers. Employers must report specified information on their gender pay gaps by April 2018 for the previous 12 months, on a company website accessible by the public and on a Government website. Employers must publish the results of six specific calculations including their mean and median gender and bonus pay gap, on the proportion of men and women who receive bonuses, and on the proportion of men and women in each pay band quartile. ‘Employee’ includes the wider definition of both employees and workers as contained in the Equality Act 2010.
Employers must retain the data on websites for a period of three years. Although there is no specific requirement to provide a narrative with the pay gap information, employers may wish to explain the reasons behind some of the differences in pay, or to explain what steps they intend to take to investigate any discrepancies and/or action they intend to take to reduce any pay gaps.
In many cases construction employers have struggled to find workers within the UK and have had to resort to hiring European or overseas nationals with in the order of 12% of the British construction workforce being of non-UK origin.
From April 2017 it has become more costly to sponsor foreign workers from outside of the European Union under the Tier 2 points-based system with an immigration skills charge of £1,000 per worker (£364 for small employers with turnover less than £10.2 million or less than 50 employees and charities). This skills charge is payable upfront in respect of each year of the visa so an employer will pay £5,000 to sponsor an employee under Tier 2 for five years. The minimum salary threshold for Tier 2 sponsored workers will increase to £30,000 per year (from £25,000), subject to a few exemptions.
In addition to the skills charge both the main applicant and their dependants will have to pay £200 per year of their visa under the Immigration Health Surcharge. This is payable upfront and would cost a family of four on five-year visas £4,000. The employee usually pays this surcharge at the time of submitting their application, but in many cases the employer then reimburses them. If the employer does this, it is regarded as a benefit in kind for tax purposes.
In most cases, before sponsoring an employee under Tier 2, the employer must carry out the resident labour market test, which means advertising the position for at least 28 days in accordance with strict Home Office requirements.
Intra-company transfers (ICTs) within the same company will also be impacted with a minimum salary threshold increasing to £41,500 per annum. The current requirement for employees transferring under the ICT route to have at least one year’s experience is being removed, provided that the individual is paid £73,900 per annum or more. This means employers could potentially transfer senior employees recruited overseas to the UK shortly after their employment begins.
Further changes to and tightening of immigration policy are likely as Brexit impacts the labour force and the government encourages UK employers to focus on recruiting from within the UK. Construction companies will need to assess the risks associated with reduced access to foreign workers and build the additional immigration costs into their tenders.
Although GDPR does not come into force until May 2018, the scope of the changes under the new Regulation means that employers need to start preparing in 2017.
The GDPR will come into effect before the UK exits the EU and will apply to companies that fall into two broad definitions: ‘controllers’ and ‘processors’. The definitions are broader than those defined in the Data Protection Act 1998 (DPA) and there are additional requirements ensuring you have adequate systems, contractual provisions, documented decisions about processing, and training in place.
Organisations need to ensure they are explicit when seeking consent and detail how they will use the information. An individual’s silence or inactivity will generally no longer be considered as consent. The penalties that can be imposed will increase substantially with fines of up to €20 million or 4% of annual worldwide turnover, whichever is higher.
Construction businesses with a turnover of £36m or more need to ensure that they are compliant with the Modern Slavery Act 2015 by publishing statements on their websites in order to indicate the steps that have been taken to combat modern slavery and human trafficking within their supply chains.
Clients may require their supply chains to have statements in place as part of their procurement process and it is likely that this requirement will pass down to Tier 2 and 3 suppliers even where their turnover is below the threshold.
From April 2017, the national living wage for staff aged 25 increased to £7.50 per hour. Statutory family-related pay and sick pay rates increased and a new tax-free childcare scheme has been introduced. There are also statutory redundancy pay increases and changes to salary sacrifice schemes. Looking forward businesses need to plan for the potential impact of Brexit and the outputs from the Matthew Taylor review of employment practices.
Mistakes can be costly for businesses who need to ensure that they remain compliant by keeping up with what are often complex employment law changes.
A2O People are a specialist HR Consultancy, Recruitment and Training provider in the Construction sector.
If you would like to learn more about where we can help your organisation see our HR Compliance and Best Practice webpage or contact one of our team on 01278 732073.
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