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Employment Law update for UK Construction Businesses 2018

 

Construction industry rules, regulations and working practices are constantly evolving. Our annual Employment Law blog summarises the key changes that construction businesses need to consider for the year ahead.

 

Summary of the key 2018 employment law issues

  • Changes in ‘gig economy’ case law and IR35 legislation
  • Updates on the sentencing guidelines for Health & Safety breaches
  • The impact of Brexit on your business
  • GDPR compliance and the need to embed systems for auditing & updating your data
  • Gender pay gap reporting and taking action to reduce any pay gap into the future
  • Making use of your Apprenticeship and CITB Levy
  • Ensuring your business and supply chains are compliant with the Modern Slavery Act

 

Gig Economy Taxation and IR35 Rules on Self-employed Workers

2018 will see industry consultation following the Taylor Review of Modern Working Practice, new IR35 rules in the public sector and legal appeals from Pimlico Plumbers and Uber among others. These are likely to develop new ‘worker’ definitions, rules for certain types of contract including zero hours contracts, and introduction of IR35 regulations in the private sector.

IR35 rules were introduced to the public sector in April 2017 putting the onus on employers to determine if freelancers / contractors are genuinely self-employed. The government has started their consultation on extending the IR35 working rules into the private sector. A potential date for introduction has been muted as April 2019. You can read more about the background to the IR35 regulations in our article the impact of the IR35 regulations in the construction sector.

A recent ruling in the construction industry found that a Quantity surveyor working through their own Ltd Company was not ‘treated as an employee’ successfully appealing an HMRC ruling that sought to prove that the working relationship was one of employment under the IR35 tax rules. 

HMRC decided that the IR35 should apply and argued that ‘control’ by an end client is the most crucial factor. The Ltd Company argued that despite working times and locations being set by the Client, this did not constitute control, as all construction sites are run in this way. While the contractor was required to report to a project manager, they were still able to organise their own tasks, and were only visited weekly by a supervisor. The tribunal agreed that the client did not exercise any more control on the site than they would over an independent contractor. The contract also had no notice on the termination of the contract or entitlement to severance pay, and the contractor paid for their own travel, hotels and other expenses. 

The tribunal agreed that the requirement for personal services and lack of financial risk point to an employment relationship, however, the nature of the payment arrangements, a flat rate per day with no notice period and no entitlement to any employee benefits are inconsistent with employment and the contractor was not treated as an employee.

As HMRC and the tribunal looked at the same factors and came to different determinations, it highlights how difficult it will be for clients, recruitment agencies and Ltd Company contractors to determine the correct approach should IR35 be extended to the private sector.

 

Health & Safety

Since the new sentencing guidelines were introduced in 2016, there has been an increase in the number of prosecutions for health and safety offences and gross negligence manslaughter cases. Non-fatal cases, which would have previously been dealt with in a magistrates’ court, are now receiving fines in excess of £1m. 

Planned changes to sentencing rules could result in longer jail terms for people whose gross negligence results in a fatality on site. Under these proposals, jail sentences for gross negligence manslaughter, the category of manslaughter that most construction fatalities are prosecuted under, could be as long as 18 years. The proposals cover four different types of manslaughter: unlawful act manslaughter, manslaughter by reason of loss of control, manslaughter by reason of diminished responsibility, and gross negligence manslaughter. The latter is the offence most applicable to construction fatalities, and occurs when the offender, who could be any employee, but most often a company director, is in breach of a duty of care towards the victim. At the moment, the minimum custodial sentence for gross negligence manslaughter is one year, but it can be anything up to 12 years. The average sentence in 2014 was four years. The new guidelines are intended to clarify what the sentence should be, by setting out a matrix of factors for the judge to take into consideration.

In February, the Supreme Court ruling in HM Inspector of Health and Safety v Chevron North Sea Ltd offered clarity on how businesses respond to prohibition notices. The decision means organisations can now launch an appeal against a notice if they are confident they can gather the evidence needed to show that there is no serious risk of personal injury, even if this evidence is not available at the time the appeal against the notice is issued. Filing an appeal means a postponement in the posting of the prohibition notice on the HSE’s public database pending the outcome of the appeal.

 

Brexit

Brexit is likely to impact on immigration and the employment of EU nationals after March 2019. The UK government has confirmed that EU migrants arriving during the transition period will gain the same rights to settle in the UK as those who arrive before Brexit. What happens beyond the transition period is still subject to negotiation, with the next withdrawal agreement deadline set for October this year, and the government will then publish a white paper on immigration by the end of 2018.

The predicted impact of Brexit on employers varies depending on the sector. According to the Construction Industry Training Board, around 45 per cent of the UK’s 270,653 migrant construction workers are from EU countries.

Since April 2017 employers who sponsor skilled workers under tier 2 of the points based system have had to pay £1,000 per certificate of sponsorship. During the three months to the end of February 2018, the cap for skilled migrant tier 2 visas was hit every month, stopping employers from hiring because visas could not be granted. Further issues impacting on sourcing EU workers include the ending of reciprocal social security arrangements and the devaluation of the pound causing EU workers to see the UK as less attractive with wages around 17 per cent less than before the referendum.

What are the likely scenarios post-Brexit?

  • Similar to Norway’s relationship with the EU: The UK is still a member of the single market so can trade relatively smoothly, and its citizens are granted freedom of movement within the member states. Under this model, UK workers would be unlikely to need a visa to work in EU countries and vice versa.
  • More like Canada’s relationship with the EU: The UK is outside the single market but with reductions on goods tariffs. This scenario does not include freedom of movement, but a post-Brexit visa system for EU citizens coming to work in the UK could be an extension of the current one for non-EU migrants, where there is a salary threshold and preference given to certain shortage occupations. Another option is a ‘points based’ system applied to all migrant workers, similar to Australia, again, this would mean that certain sectors would have greater access than others to EU workers.
  • No deal: The UK builds unilateral relationships with EU states based on World Trade Organization terms. In theory, this means no freedom of movement for either UK workers looking to work in the EU, or EU workers coming here.

Employers should audit their workforce plans to understand the impact Brexit could have and consider what action plans they can put in place to fill potential skills gaps.

 

Regulations Surrounding Employment of Foreign Workers

In the order of 12% of the British construction workforce are of non-UK origin. Foreign workers from outside of the European Union need a Tier 2 visa which is a points-based system which ranks requests on factors like salaries, education level and whether there is a known shortage of UK workers for a particular role.  Tier 2 visas have been oversubscribed throughout 2018 creating significant restrictions on companies looking to hire overseas staff.

The European Parliament has approved rules which will require EU employers to give workers sent temporarily to other member states the same minimum pay as those in the host country. Employers will need to pay for travel and accommodation. Postings will be limited to 12 months, with the possibility of a six-month extension. Member states have two years to enforce the rules. Examples have been cited in the UK construction industry where posted workers were paid as much as £5 per hour less than their UK peers.

Construction companies will need to assess the risks associated with reduced access to foreign workers and build immigration and recruitment costs into their tenders.

The right to work legislation already applies in the UK so Employers should check that they have the paper trail to confirm that the checks have taken place. The UK government has produced an employer's guide to the right to work checks.

 

GDPR

The General Data Protection Regulation (GDPR), comes into effect on 25 May 2018. Actions for construction companies include updating policies, privacy notices and procedures, and ensuring that you have a legal basis for processing personal data. Penalties for non-compliance are severe, being in some instances a multiplier of turnover.

The Information Commissioners Office produces useful guidelines and self-assessment tools that help Employers ensure that they comply with the legislation.

 

Gender pay gap reporting

Employers with 250 or more employees had to submit their first gender pay gap report by 4 April 2018, display the report on their website and upload the results to the Government’s reporting website.

The outcome of gender pay gap reporting has shown construction to have the biggest gender pay disparity of any UK industry, with a median pay gap of 25 per cent. Among the top 10 contractors by turnover, the figure is even higher at 30 per cent.

 

Modern Slavery Act

The Modern Slavery Act 2015 applies to large businesses (total turnover in excess of £36 million) who have to prepare a slavery and human trafficking statement. Construction clients may require their supply chains to have statements in place even where their turnover is below the threshold.

It has been recognised that workers in the construction sector are at particular risk of exploitation. The Construction and the Modern Slavery Act report provides a useful overview finding that business models based on aggressive costing can create an environment in which unethical procurement and recruitment practices could occur.

 

Training and skills

From April 2017, a 0.5% levy has been applied to all UK employers with a wage bill in excess of £3 million per annum.

Construction firms already pay into a CITB or ECITB training levy system. The 2018 proposal would see the CITB levy reduce from 0.5% to 0.35% to partially offset the increased costs for construction businesses. CITB’s new Grants Scheme came into effect from 1 April 2018 that supports more standardised training that can be transferred as a worker progresses within the industry.

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.

You can learn more about how Apprenticeship funding will work in this link.

 

Abolition of tribunal fees 

The removal of employment tribunal fees since July 2017 has already resulted in an increase in the number of employment claims. Statistics released by the Ministry of Justice in March 2018, for the period October to December 2017, showed that claims had increased by 90 per cent.

Construction businesses need to be more aware of potential employment claims from their workers and that taking calculated risks hoping that they would not be taken to tribunal is now far more uncertain.

 

Financial Legislation

A new criminal corporate offence of failing to prevent facilitation of tax evasion came into effect on 30 September 2017. The offence covers organisations that fail to prevent instances when their associates, including employees, agents and service providers, facilitate tax evasion. Companies need to put in place reasonable preventative procedures such as risk assessments, due diligence assessments and fraud prevention policies and procedures. The Government has published guidance to assist organisations.

From 6 April 2018, the tax-free Dividend Allowance has been reduced to £2,000 from £5,000, in effect reducing the director-shareholders’ and Ltd Company contractors tax free allowances.

From 6 April employers may need to increase the contributions they pay into their automatic enrolment workplace pension scheme. Some employers are now required to contribute a minimum of 2% on qualifying earnings, which has increased from the previous figure of 1%. A further increase to 3% is set to take effect from 6 April 2019.

Employers that dismiss employees for redundancy must pay those with two years’ service an amount based on the employee’s weekly pay, length of service and age. The weekly pay is subject to a maximum amount. This amount is £508 from 6 April 2018.

Taxation of termination payments legislation effective from the 6 April 2018 changes the rules so that all payments in lieu of notice, whether contractual or not, are taxable and the £30,000 exemption does not apply to any payments in lieu of notice. The proposed introduction of employer national insurance contributions on termination payments in excess of £30,000, will now be introduced from 6 April 2019.

The national living wage for workers aged 25 and over increases to £7.83 per hour on 1 April 2018. The weekly rate of statutory maternity, paternity, adoption and shared parental pay increases to £145.18 for pay weeks commencing on or after 1 April 2018. The weekly rate of statutory sick pay increases to £92.05 from 6 April 2018.

IFRS 15 specifies how an in-scope company will recognise revenue and the information to include in financial statements. IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018.


 

Shane Keaney is a director of A2O People a Recruitment Agency, Training Provider & Business Consultancy specialising in the UK Construction sector.

A2O People produce a regular series of blogs designed to keep people informed about the Construction Industry, the UK Energy Sector, the UK Nuclear Sector, and major projects such as the Hinkley Point C project.

Feel free to follow or connect with me on LinkedIn and visit our website www.a2opeople.co.uk.

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