Top Five UK Workforce Issues of 2021

After more than a year of lockdowns and homeworking, vaccine rollouts provide hope of some sort of return to normality for many UK businesses during the second half of 2021. In this alert, we highlight a few critical workforce-related areas for HR and Legal teams to consider during the rest of the year.

1. COVID-19: Vaccination and Employment Issues
2. Remote Working: Cross-Border Employee Checklist
3. Contractors: Tax Misclassification Risk Increases
4. Non-Compete Clauses: New Statutory Regime?
5. Modern Slavery Act: Greater Reporting Required

1. COVID-19: Vaccination and Employment Issues

Currently there is no UK law requiring vaccination against COVID-19, although the Government is considering whether care workers should be subject to this. However, mandatory vaccinations could be problematic legally, not least under human rights laws. The statutory employers’ advisory body Acas suggests employers should encourage vaccinations, without making them mandatory.

Requiring vaccination before employees can return to a physical workplace raises many potential issues for organisations to consider. Some of these are:

• Risk of discrimination claims (potentially on the basis of age, disability, pregnancy/maternity, sex, religion or belief).
• Employees may not all be able to comply immediately: vaccinations are not suitable for everyone, and individuals must wait their turn to get a vaccine. Can an employer allow a staggered return to the workplace for different cohorts, as they move up the queue, and for those who are physically unable to have a vaccination?
• Health and safety: is it clear that mandatory vaccination is required to operate a safe workplace? Or would following Government public health guidance (social distancing / enhanced cleaning / rotas), together with voluntary employee vaccinations, be sufficient? A health and safety risk assessment should be undertaken to determine this, and employee consultation should occur in relation to any such return to work plans. Such assessments and, to a degree, consultation exercises with employees will likely need to be revised and updated in line with changes to Government guidance. Many employers see 21 June 2021 as the next crunch point in this regard.
• Practically, can employers prevent unvaccinated employees from entering the workplace? What form of proof is required to establish vaccination has occurred (given there is no UK-wide system for this)? Should employers provide paid time off for vaccinations? What happens if an employee refuses the vaccine – can disciplinary sanctions, including dismissal, be safely applied?
• Data privacy: can employers even ask employees for proof of vaccination? If so, how should this data be stored, accessed and used, for how long, and who can see it?
• Should employers implement a vaccination policy, or make contractual changes to enforce their requirements around vaccination? Could they defend any constructive dismissal claims brought by employees resigning in response to such a policy or enforced changes?  

The issues are complex, inter-linked, and extensive. Each employer’s commercial needs, workplace logistics and timing requirements will vary and so each case needs to be assessed against its particular circumstances. Specialist HR and legal advice should be taken before any mandatory vaccination policy or practice is implemented.

2. Remote Working: Cross-Border Employee Checklist

The pandemic has led to a dramatic increase in remote working, which is likely to continue long-term. Employees even wanting to work from different countries altogether has become more common, for personal/family, health or lifestyle reasons. Such arrangements are possible, but can be complex and pose a range of compliance risks for employers:

• Corporation tax: can an overseas employee create a taxable presence (a “permanent establishment”) for corporation tax for their employer? This can expose profits to a higher rate of corporation tax, or even double taxation. Senior employees also risk inadvertently moving a company’s seat of management to another country, which can have implications for the company.
• Immigration: does the employee have valid clearance to work in the chosen country? If not, the employee could be deported and the employer subject to sanctions.
• Income tax and social security: does the employer need to withhold and remit these payments to the tax authorities in the foreign country? If so, it will often need to set up a foreign payroll. Failure to remit correctly can leave the employer subject to penalties and interest, as well as the original sums.
• Employment rights: the employee will almost certainly acquire local mandatory employment protections while working abroad, and these may be more onerous / expensive for the employer. Disputes may also end up in a foreign court, rather than a UK one. Employers may need to re-assess whether contractual protections such as non-competes, garden leave, confidentiality and intellectual property provisions will work abroad as originally intended.
• Employee benefit plans / corporate insurances: will UK benefit plans cover employees routinely working from abroad, and will they still be tax-efficient? Will corporate insurances cover overseas employees, or will additional premiums need to be paid?
• Data security: given the potentially significant penalties for breaches, can adequate data privacy protections be implemented where an employee is working abroad? Will data transfer across borders be a problem or new arrangements need to put in place to achieve this? Will cybersecurity insurance cover an overseas employee? Which data privacy regulator would investigate any breach abroad, and how would their approach compare to that in the UK (particularly in relation to financial penalties)?     

Employers should vet these complex issues in conjunction with specialist advisers before authorising employees working overseas. Each situation is likely to be highly fact-sensitive, resulting in different outcomes. Any arrangements implemented should also be routinely monitored, to ensure ongoing compliance and as employee / privacy regulation tends to change regularly.

3. Contractors: Tax Misclassification Risk Increases

The UK IR35 tax regime, which can deem independent contractors operating via an intermediary company to be subject to employment taxes, was extended to the private sector on 6 April 2021. Via the ‘off-payroll working rules’, all large and medium-sized UK private sector organisations are required to determine the employment status of their contractors and, where applicable, withhold tax and social security from payments made to the contractors / their intermediary companies. Organisations will also be liable for employers’ social security contributions on such payments (and, where applicable, the apprenticeship levy), which could increase the cost of engaging a contractor by up to 14.3 percent.

The determination of employment status is by no means straightforward. The UK HM Revenue & Customs provides a “Check employment status for tax” (“CEST”) online tool but there has been significant criticism of CEST’s accuracy, and the hiring organisation remains legally liable for the determination. As such, some unavoidable risk for companies remains.

UK businesses should assess their contractor population / arrangements and ensure they are operating the new rules correctly. In particular, businesses need to be familiar with the assessment criteria so they can make an independent determination of the contractor’s status. Some companies have altered their contractor arrangements altogether to avoid liability / misclassification, including by making contractors fixed-term employees, or only engaging contractors via agencies or umbrella companies which legitimately operate payroll and withhold income tax and social security in respect of the services provided by the contractors.

4. Non-Compete Clauses: New Statutory Regime?

In December 2020, the UK Government published a consultation on potential reforms to the law on post-termination non-compete clauses in employment contracts (“non-competes”). The proposals could, if implemented, have a significant negative impact on the ability of employers across a variety of sectors to protect confidential information, goodwill, and – arguably – certain intellectual property rights.

The Government is keen proactively to address the impact of COVID-19 on the UK’s job market and seeks to "unleash innovation, create the conditions for new jobs and increase competition", by removing potential barriers to new employment and the establishment of competing businesses. Non-competes could present such barriers.

The consultation closed in February 2021. It focused on two main alternatives: (a) mandatory financial compensation for the duration of the non-compete period (potentially 60-100 percent of earnings); or (b) banning all post-termination non-compete clauses. The Government is not currently looking at reforms to confidentiality clauses or intellectual property law. Clearly, however, employers may need to consider such alternative means of protecting business interests more deeply if non-competes are outlawed entirely, or further limited in application. For further details, please see our January 2021 alert on non-competes here.

We await the Government’s response to the consultation and will provide an update once further information is released.

5. Modern Slavery Act: Greater Reporting Required

The Modern Slavery Act 2015 (“MSA”) requires commercial organisations supplying goods or services in the UK with an annual turnover of £36 million or more to publish an annual slavery and human trafficking statement. Currently, affected companies are required to report on what steps the organisation has taken in the last financial year to ensure slavery and human trafficking is not taking place in its business or supply chain, or that it has taken no such steps.

As we covered here, a 2020 UK Government consultation proposed changes to strengthen the regime and place further obligations on UK employers. These included:

• Mandating the topics that the statements must cover (as opposed to these topics being optional). These topics include : (a) organisational structure and supply chains; (b) policies on modern slavery and human trafficking; (c) due diligence in relation to slavery and human trafficking; (d) risk assessment and management; (e) the actions the organisation has taken to prevent slavery and human trafficking in its business or supply chains, measured against performance indicators, if appropriate; and (f) staff training on slavery and human trafficking.
• Requiring organisations to state clearly if they have failed to take any steps within a particular area listed above.
• Requiring organisations to publish their statements on a Government-run reporting service. This registry was launched in March 2021 but submission of statements to the registry is not yet mandatory.
• Exploring options to strengthen enforcement for non-compliance.

While the Government is yet to publish a draft bill that would implement these changes, in January 2021 the Foreign Secretary confirmed that the UK Government will introduce financial penalties for organisations that do not meet their MSA reporting obligations.

These upcoming changes are likely to require affected companies to publish more information about their due diligence on labour standards in both their direct workforces and global supply chains, with more serious repercussions for non-compliance. Companies should start considering the processes they will employ to meet the new requirements, in particular the increased number of mandatory reporting areas listed above.   

If you have any questions concerning the material discussed in this client alert, please contact the members of our Employment, Employee Benefits, and Business and Human Rights practices.