Temporary Contracts – Considerations for employers

As a business owner or manager, there will be times when you need to engage temporary help to enable you to cover absence or a vacancy, manage peaks and troughs in activity or to engage highly specialist skills/experience (usually referred to as Contractors or Freelancers).

You can hire a temporary worker in a number of ways:

  • A zero-hours/casual contract, where you pay for the hours worked – often used where the need is variable and ad-hoc.
  • A Fixed Term Contact – similar to a permanent contract except the contract remains in force only for a specific period of time to complete a specific objective i.e., to cover Maternity leave, to fill a vacancy or to complete a project. These contracts are often best used for periods of 18 months or less.
  • Via an Agency – You transact with the agency, and they directly pay the worker. An agency assignment will become subject to Agency Worker Regulations after a period of 12 weeks.
  • Hiring an expert via a “contract for services”. The contractor or freelancer may be self-employed or work via their own limited company. When you hire a contractor/freelancer, you should be mindful of IR35 and HMRC rules for determining whether you are responsible for payment of the contractor/freelancer’s Tax and National Insurance Contributions.

Reasonable care
HMRC require the Hirer to demonstrate reasonable care when reviewing the status of contractors and freelancers. In order to demonstrate reasonable care has been taken when assessing the status of employment for tax it is important to be able to evidence:

  • The nature of the role being undertaken.
  • How the role is being undertaken
  • The contract under which the work is being undertaken, “contract for services”, to include:
    • employment status for the assignment
    • who is responsible for making payment of tax and NICs to HMRC
  • that this evidence is retained for at least 6 years.

It is permitted to apply “blanket application” of an IR35/Employment Status check by role as long as the status determination check (SDS) is provided to the contractor and their intermediary before the contractor commences work and you have provided the right of appeal. It is important each role is understood in its own right though – the Hirer cannot apply the same status determination to different roles.

IR35 applies to all incorporated organisations that meet the criteria below (and unincorporated bodies who satisfy one of the criteria for 2 accounting periods).

  • Turnover > £10.2m
  • Balance sheet total > £5.1m
  • Number of employees: 50 or more

HMRC introduced IR35 (also often referred to as ‘off-payroll working rules’/intermediaries’ legislation) to tackle what it calls ‘disguised’ employment. IR35 assesses whether contractors are (for all intents and purposes) employees when they take on work for clients. HMRC is particularly concerned with contractors operating via limited companies acting as a Personal Service Company (PSC) i.e., where the company is small in nature and provides services rather than goods, such as “consultant” roles. If an assignment is deemed ‘inside IR35,’ HMRC may deem the individual an employee and believe that the individual should be taxed accordingly via the hiring company. The Hirer is then responsible for deducting tax and national insurance at source for these contractors and paying this over to HMRC.

With effect from 6 April 2021, the legislation was extended to medium and large organisations within the private sector and requires the Hirer to produce a Status Determination Statement, before the contractor/freelancer starts work. The Contractor also has the right to appeal a determination and receive a response from the Hirer within 45 days.

In terms of risk to an organisation, if HMRC believe you have failed to pay the tax due in relation to a contractor subject to IR35, liability for any outstanding amount of tax will shift back to the Hirer and a penalty may be applied.

IR35 status depends on some key tests which are utilised to work out whether a contractor is deemed an employee for the purpose of taxation. HMRC has a tool Hirers can use to check whether IR35 applies to a contract (CEST, or the ‘check employment status for tax’ tool), and a helpline.

IR35 status ultimately falls to case law and employment legislation and is reliant on employment test cases heard in the UK courts. HMRC do commit to standing by the determination its CEST tool provides, as long as the tool has been completed honestly and in the spirit of the legislation. The HMRC test can be accessed via this link – Check employment status for tax – GOV.UK (www.gov.uk).

Hirers must review the IR35 status of each individual operating via a limited company in the event the role they are being asked to undertake changes or their assignment is extended – this may be once annually in the case of ongoing arrangements such as guest lecturers.

Self-Employment status for the purposes of tax

Where an individual indicates they are self-employed but are not paid via an intermediary (i.e. operates as an individual but not via a limited company, partnership or unincorporated association), it is important to establish that the individual is considered self-employed for the purposes of employment as this will determine whether the individual has an employee’s rights such as entitlement to national minimum wage, sick pay, holiday pay, pension etc. the risk of getting this determination wrong can mean would be required to back-pay any benefits which should have been available to the individual for the duration of their assignment and potentially going back as far as 6 years.

The employment status check can be undertaken by completing an HMRC CEST Check – What do you want to find out? – About you and the work – Check employment status for tax – GOV.UK

There are three recognised status when considering employment status:
1. Employee
2. Worker – The status of ‘worker’ does not exist for tax purposes, only employment law purposes.
i. worker – can be employed via a casual contract.
ii. dependant worker – may be self-employed (but not via an intermediary)
3. Self-employed
i. self-employed in own right
ii. or via an intermediary – limited company, partnership, or unincorporated association

The Hirer needs to establish whether self-employed individuals have some rights under employment law such as entitlement to the national minimum wage, other benefits, and some employment protection which those who are genuinely self-employed for both tax and employment law purposes do not have. Is the individual self-employed or a worker?

It may not always be clear whether the worker is an employee of the Organisation or self-employed. The Organisation and the worker cannot simply agree that the worker is self-employed because this is advantageous to both of them — the underlying relationship and contractual arrangements must support this.

An individual is probably self-employed and doesn’t have the rights of an employee if they’re exempt from PAYE and most of the following are also true:

  • they put in bids or give quotes to get work.
  • they’re not under direct supervision when working.
  • they submit invoices for the work they’ve done.
  • they’re responsible for paying their own National Insurance and tax
  • they don’t get holiday or sick pay when they’re not working.
  • they operate under a contract (sometimes known as a ‘contract for services’ or ‘consultancy agreement’) that uses terms like ‘self-employed’, ‘consultant’ or an ‘independent contractor’.

If a contractor lives and/or works abroad

The IR35 regulations may apply where a contractor lives and or works abroad. This will depend upon whether the contractor lives outside of the UK, whether their company is registered in the UK and where the work is physically undertaken. In addition to this, there may be implications for the worker if they are working remotely from another country in terms of taxation within the country they are working from. It is recommended that you seek advice in these circumstances.

HR Wise provides an employee handbook and employment contracts (incorporating a statement of particulars). They are regularly updated by an industry expert, so you don’t have to worry about keeping on top of things. If you use our handbook and employment contracts, we help you navigate potential TUPE situations.

Please get in touch if you would like to enjoy affordable peace of mind.

Contains public sector information licensed under the Open Government Licence v3.0.

The TUPE effect

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protects employees if the business in which they are employed changes ownership.

It applies to employees of any size of business in the UK regardless of where the head office is located. In addition, employees of a UK business who are based outside the UK can still be protected in certain circumstances.

The effect of TUPE (except when the business is insolvent) is that the employee’s job transfers to the new company along with their existing employment terms and conditions.

If the employer is insolvent and the business is being transferred to or taken over by another company, the protection employees get is different from a normal transfer. The employees are unlikely to be protected under TUPE if the business is closing down, there are however specific provisions available depending upon the circumstances and the requirement to consult will still apply, even if a company becomes insolvent at very short notice.

TUPE can be complex in nature and we strongly advise that employers seek professional advice before they proceed.

There are two types of TUPE transfer under the regulations:

  • Business transfers – where a business or part of a business moves from one employer to another. This can include mergers where two companies close and form a new one.
  • Service provision changes – where an in-house service (e.g. cleaning or workplace catering) is outsourced to a contractor or a current contract ends and is given to a new contractor or the work is transferred in-house by the former customer. Employees are not protected under TUPE if the contract is for the supply of goods for the company’s use (e.g. a restaurant changing food suppliers) or for a single event/short-term task (e.g. a catering company being used for a corporate event). Only the employees who can be clearly identified as providing the services being transferred are protected.

A good example of a sector that is subject to frequent service provision change is cleaning and facilities and TUPE becomes a factor when a client retenders and appoints a new cleaning or facilities provider. TUPE will usually apply, even if only one employee undertakes work for that particular client.

If there’s a trade union in the workplace, the employer must inform and consult with the representatives from the union. Employers with less than ten employees can inform and consult directly with employees. Otherwise, employee representatives must be informed and consulted. If there are no representatives they must be specially elected in accordance with TUPE for the purpose of the transfer.

Employee’s representatives must be consulted about anything that will affect employees and new Employers should try to gain agreement about any proposed changes, often referred to as “measure items”.

Four weeks before the transfer the existing employer must provide the new employer with information about employees. This normally includes:

  • name
  • age
  • main details of employment
  • disciplinary action taken against employees in the last two years
  • grievances raised by employees in the last two years
  • legal action taken by employees against the employer in the last two years
  • potential legal action the employer thinks employees might raise

TUPE regulations mean employees shouldn’t lose their existing employment rights. The new employer takes over employees’ employment contracts, including all the previous terms and conditions of employment, holiday entitlement, period of continuous employment and any collective agreements previously made. It’s a breach of contract if the new employer doesn’t meet the terms of the previous employment contract. Any failures of the previous employer to observe employees’ rights may enable employees to make a retrospective claim for discrimination against the new employer, even if the failure took place before the transfer, it is therefore usually the case that an indemnity is sought by the new employer from the existing employer prior to the transfer taking place.

Employees can refuse to work for the new employer. This is the same as resigning – they won’t normally be able to claim unfair dismissal or redundancy pay. Notice isn’t required. The employee simply tells the employer, or the new employer, that they do not wish to transfer before the transfer happens. Employment then ends at the time of transfer. But be aware that if an employee’s proposed working conditions are significantly worse because of the transfer, they can object to the transfer, or resign and claim unfair dismissal.

If an employer knows that an employee is transferring to another company, they can’t normally change the employee’s terms and conditions to make them the same as those of the new company – even if the employee agrees to the change. Also, the new employer can’t change the terms and conditions if the reason is the transfer itself.

The new employer can change an employee’s terms and conditions by agreement if it is for an ‘economic reason’ (to do with how the company is performing), a ‘technical reason’ (to do with the equipment or processes the company uses) or an ‘organisational reason’ (to do with the structure of the company) involving changes in the workforce or workplace, such as a result of redundancies or a move from a managerial to a non-managerial position.
After the transfer employers can improve employees’ terms and conditions only with agreement. For example, an increase in the amount of holiday to achieve equity.

Employees can be dismissed for an economic, technical, or organisational reason involving changes in the workforce (redundancies) and the normal rules around fair dismissal apply.

Collective agreements in place before the date of the transfer must be honoured, but the terms and conditions in the agreement can be renegotiated after one year if the change isn’t less favourable to the employee.

Employees’ company pension rights earned up to the time of a transfer are protected, but the new employer doesn’t have to continue an identical pension.

When the transfer is complete, employees should get an up-to-date written statement of employment, giving the name of the new employer and a statement that their terms and conditions haven’t changed. If their tax records are being updated, they will get a P45.

The new employer can’t make employees redundant just because they were transferred from another employer. However, the new employer can consult about redundancies before the transfer if the old employer agrees. If an employee is made redundant for an ‘economic, organisational or technical’ reason involving changes to the workforce, they may be entitled to a redundancy payment.

HR Wise provides an employee handbook and employment contracts (incorporating a statement of particulars). They are regularly updated by an industry expert, so you don’t have to worry about keeping on top of things. If you use our handbook and employment contracts, we help you navigate potential TUPE situations.

Please get in touch if you would like to enjoy affordable peace of mind.

Contains public sector information licensed under the Open Government Licence v3.0.

When ‘Banging Their Heads Together’ Doesn’t Work…

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A mediator’s guide to workplace conflict, by our Guest Blogger Emma Jenkings of Mosaic Mediation.

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“Why can’t people just ‘get on’?”

I haven’t met a single adult who hasn’t been involved with, or witnessed, workplace conflict. At some point in your working life, you will need to work with or alongside people who you don’t enjoy being around. And, at work you have little choice about who you have to interact with.

The first way to approach the issue of workplace conflict is to realise that at some point in your working life you will encounter conflict – which, most simply put, is any form of ‘disagreement’. This can manifest in the form of frustration, hurt, anger, or disappointment – all of which result from
conscious or unconscious ‘disagreement’ with someone’s behaviour, where a person doesn’t like, agree with, or understand why someone behaves as they do.

Not all conflict is negative but it may lead to hostile disagreement, passive aggressive communication, withdrawal or even physical altercations, at the extreme. Any of these behaviours WILL negatively impact the way people work together, and their individual performance at work.

One of my favourite quotes is by Blaine Lee: Almost all conflict is a result of violated expectations.”

Having realistic expectations of others could be the difference between peace and conflict. Unfortunately, in the workplace (especially if our roles are similar) we subconsciously expect people to communicate, behave and understand things the same way we do. Even acknowledging that ‘everyone is different’ doesn’t stop us from those inherent feelings of frustration if, for example, we have explained something multiple times, and the other person still doesn’t seem to understand what we mean!

Differences between colleagues can have the potential to help an organisation perform beautifully, when pulling together these different skills, insights and personalities. However, they also have the potential to cause disruption and communication breakdown if those differences are neither expected nor appreciated.

Such ‘expectation and appreciation’ may be demonstrated by developing a culture within an organisation that is equipped to prevent ‘unnecessary conflict’ and to handle reasonable conflict effectively, when it does occur.

What constitutes ‘unnecessary conflict’?

As I have already stated, at some point in your working life you will encounter conflict. What is preventable is: the degree of fallout from the conflict, the escalation of issues, and the extended length of time it can take to resolve things.

So ‘unnecessary conflict’ is where – had there been a greater level of understanding, and willingness to see a different perspective, and the awareness and knowledge to communicate effectively with behavioural tendencies that are different to their own – the degree of disruption,
miscommunication or friction would have been significantly reduced or avoided.

What can be done to prevent ‘unnecessary conflict’?

In my book, ‘The Four Pillars of Conflict Prevention’, I discuss four main areas to be aware of. Essentially, these are the areas that I look at when both helping an individual or organisation prevent conflict, or areas that I will take note of when determining what has to an already-present conflict.

These 4 areas are: Communication, Approach, Notice Change, and Trust.

1. Communication is involved in every interaction we ever have, but it truly is a skill to communicate effectively with different people in all manner of situations. Preventing unnecessary conflict is possible by developing your knowledge of communication, particularly around: listening skills, clarity of mindset, the impact of someone’s perceived identity, emotions, and different communication tendencies.

2. Having the most appropriate ‘approach’ goes beyond working on your tone of voice. If you are aiming to prevent unnecessary conflict, it helps to understand which factors should determine your approach to a conversation, to give you the greatest likelihood of your communication being received exactly as you had intended.

3. Change is often a major factor in conflict developing. So, if you notice changes in how the organisation or the team is structured – a new manager for example – it is likely you will be more prepared to tackle ‘minor niggles’ before they become major issues. Other areas of change to pay attention to include: employee’s social lives, body language, any inconsistent treatment amongst staff, an increase in critical attitudes.

4. Finally, TRUST. It is what underpins the balance and ‘health’ of all relationships – whether work or personal. If you notice a change in how people are interacting or engaging with each other, think about how much they may (or may NOT) have trust in the other person’s credibility and/or character.

If there is low trust between people, that will impact how they communicate, how they perceive the intentions of the other person and will inevitably lead to some form of conflict. Noticing which area of trust is low, will enable you to focus on what each individual can do to re-build trust in that area.

How to manage conflict effectively

Each situation is different, so the approach will need to be adjusted to match each situation.

That being said, there are some general rules which are helpful:

1. No ‘winning’ – If you are involved in the dispute, trying to ‘win’ an argument is a recipe for conflict escalation. If you are helping to support other people to resolve an issue, don’t take sides – not in reality, nor in perception. Neutrality is an essential skill as a mediator – knowing that taking sides will be a block to an effective and long-lasting resolution. When mediations are done by someone where there is the potential for perceived bias, it has a very low chance of working out. (I have done mediations to clear up previous failed mediations because of this exact issue.)

2. No apportioning of blame – I’m not suggesting that we allow people to avoid accountability; but that it is more effective to talk in less emotive terms than ‘blame’. Using different phrases, and an approach that encourages people to address their ‘contribution’ to a situation, is less likely to make people feel defensive.

3. Ask curious questions – Often, people feel they are being asked questions to trap them into an answer that will put them in a vulnerable position. Asking questions that show an intention to understand, and maybe gently challenge, will encourage more open and honest answers.

4. Don’t ignore the ‘red flags’ – Most issues don’t get resolved by time itself. Most need addressing and require effective communication about them – and if done when they are minor and new, it’s likely that they will be quickly and efficiently resolved. Issues that are ignored will fester and escalate (even if it takes a while). The longer they are ignored for, the harder it is to resolve.

5. Don’t try to resolve things too quickly – Far too often I have been brought into a situation where there has been a previous discussion where people agree to ‘move on’, without actually having discussed the key concerns or feelings involved. Moving on can only happen once there is a greater level of understanding from each person about the other. (No ‘banging of heads’ please!)

6. Encourage problem-solving – Once issues have been addressed, misunderstandings clarified and the core concerns are clear, then you can move onto to forward-thinking. Any solution that the individuals mutually agree upon and champion is going to have a greater likelihood of ‘sticking’, so get them involved in the suggestions as much as possible.

One last tip: Aim for preventing ‘unnecessary conflict’, not for avoiding all conflict! Some conflict is necessary to promote positive change.

Conflict (or ‘disagreement’) of some sort is inevitable because everyone is different – with different histories, personalities, skills, communication styles and perspectives. However, that doesn’t mean the conflict needs to be long-lasting, nor should it be damaging to individuals or the organisation.

I love being a mediator, and what I enjoy about my job is not the arguments or negativity, but seeing the positive results that come from conflict resolution. For the vast majority of mediation, the issues and discord are resolved. And, in every mediation I have been involved in, individuals discover more self-awareness and a greater understanding of others – as an inevitable by-product of the mediation process.

If you are involved in, or supporting people through, workplace conflict currently, have hope. Most conflict is ‘resolvable’, and it may lead to far more positive results than you could anticipate.

Emma Jenkings is a qualified Workplace & Employment Mediator and set up Mosaic Mediation in 2016. She has since been involved in a wide range of mediations to resolve disputes and tackle difficult conversations. She is now also a DISC assessor, conflict resolution coach, communication
trainer, and speaker on conflict and communication. Her online ‘Kindly Speak Up’ course on positive assertiveness is now available to purchase.

‘The 4 Pillars of Conflict Prevention’ ebook by Emma Jenkings can be purchased on www.amazon.co.uk . For more information on workplace mediation, coaching, training, courses and resources, please go to www.mosaicmediation.co.uk . Or, you can contact Emma Jenkings by
emailing emma.jenkings@mosaicmediation.co.uk .