HR in 2019 – turbulent times ahead – what are the key challenges?

11th January 2019

‘May you live in interesting times’…an old Chinese saying intended to be uttered as a curse upon one’s enemies. We are living in unprecedented times and 2019 is undoubtedly set to be an ‘interesting’ year for business as ongoing fallout from Brexit translates to general uncertainty and unchartered trading conditions.

Yet, against the political turmoil, business has to go on. As ever, HR plays a critical role in alerting the Board to key risks, shaping strategic direction and ensuring that HR objectives remain aligned to business objectives.

So, what key HR challenges are pinging the radar for 2019?

New IR35 rules for contractors in the private sector from 6 April 2020

Do you engage contractors? If so, you’ll be aware that changes to IR35 in relation to off-payroll working in the private sector will come into force from 6 April 2020. This is a significant ‘game-changer’ which will require forward planning.

Back in April 2017, the Government introduced changes to IR35 in the public sector so that the public authority engaging the contractor became responsible for applying IR35 (i.e. for making the decision whether income tax and employee NICs should be deducted from payments and accounting for employer NICs in line with PAYE). Put simply, if the public authority considers that IR35 applies, it (and not the contractor) is responsible for operating PAYE and NICs on the fees it pays to the intermediary company.

The Government has not yet confirmed how large a private sector organisation must be in order to be ‘in scope’ although it is likely that the threshold of 250 or more staff currently applied in the public sector will be used.

Planning ahead for the change during 2019 will need to include an audit of:

• the numbers and categories of contractors currently engaged (including those engaged through an agency)
• the terms of the contracts under which they are working
• the likely IR35 status of each individual contractor

There may need to be a review and restructure of the terms on which the company engages with its contractors not least because the new rules will lead to additional costs for both contractor and hirer. The obvious question is which party will absorb these costs? Also check that payment software/systems are able to operate PAYE and NICs whilst, at the same time, ensuring that the contractor receives the correct net payment and any VAT.

Remember too that this change deals only with employment status for tax purposes and not for employment purposes.  Payment of a consultant under the new regime will not automatically deem them to be an employee or worker.  As always, and in all other respects, companies need to remain on guard against treating contractors as if they were employees.

Ethnicity pay gap reporting

Hot(tish) on the heels of gender pay gap reporting, mandatory pay gap reporting on grounds of ethnicity could soon follow. The Government’s consultation on this (due to close on 11 January 2019) follows a number of formally commissioned reviews all of which have highlighted disparities in pay and status between ethnic minority individuals and their white British counterparts. All of the evidence points to there being a notable ethnicity pay gap in the UK and the Government has openly (since their last manifesto) committed to doing something about it.

The consultation document indicates that employers with 250 or more employees would be required to report (as is currently the case with gender pay gap reporting). It seeks views on whether broad categories (e.g. White, Asian, Black African etc) should be used or the 18 ethnicity categories currently used by the Office for National Statistics (ONS). The obvious downside of using broad categories is that the data may lack meaning but using the 18 ONS categories raises a whole host of potential difficulties.  Not least that it could result in an individual’s personal details being compromised.  Moreover, should it be the employer or the employee who gets to say which ethnicity category an employee is in? On this point, surely there is much potential for error and misunderstanding.

The consultation runs until 11 January 2019 and, Brexit permitting, it is expected that any resultant legislation would be introduced later in 2019 (with an additional year to allow employers to prepare).  Employers would be well advised to start thinking about how they would capture ethnicity pay data and whether there is an ethnicity pay gap in their own workforce that needs to be addressed.

Immigration rules following Brexit

Brexit means that employers are going to have to stay fully up to date with immigration and ‘right to work’ rules and any changes made.

The Government plans to require EEA migrants and their family members to apply for settled status under a new process. The type of status that an individual will be eligible for will depend on the amount of time they have lived in the UK and the date they arrived. Those who have acquired permanent residence will be able to swap their status directly for indefinite leave to remain or settled status.

There is, of course, a lot more to it than that and HR teams may well find themselves being bombarded with questions from concerned employees so it’s important to stay up to date. We have a dedicated business immigration team who are following developments and can assist with any queries that you or your staff may have.

Corporate Governance Reform

The Companies (Miscellaneous Reporting) Regulations 2018 come into force on 1 January 2019 and apply in relation to the financial years of companies beginning on or after 1 January 2019. More details are to follow, but given that the Regulations are requiring the publishing of a range of HR data for many companies, this may turn into a substantial piece of work that will need to be factored into HR workflows. It’s likely that HR will need to engage with executive teams on report preparation so now is the time to start thinking about who will take ownership of this.

Prioritise and maintain focus on employee engagement

Employee disengagement and attrition costs businesses heavily in lost productivity and additional recruitment overheads. It is easy to focus on ‘hard’ goals such as financial targets and regulatory compliance at the cost of one of the most important resources for a business – its people. One should also not forget its cousin, “business protection”, if you feel you are vulnerable to losing key members of staff, make sure that you have the necessary protections in place (post-termination restrictions, confidentiality provisions, IP provisions etc).

With that in mind, our final thought is this… In the inevitably turbulent times ahead, one of the key tasks for HR will be to ensure that due attention and resource is given to the retention and incentivisation of good staff.  When times are hard it is even more important not to lose sight of the importance and business benefits of a happy and motivated workforce.

If you would like advice on any of the topics in this article please contact David Smedley or Andrew Rayment.