We examine how the Health and Social Care Levy could affect off-payroll working, what it means for businesses and what businesses can do in the future.
There are two sides to every story (or so the phrase goes)….
On the one side, businesses face increased employment costs due to the
- Increase in NIC by 1.25 percentage points from 6 April 2022 (which will become the Health & Social Care Levy from 6 April 3023)
- Expected increases in the NMW from April 2022
- Indirect employer pension cost increases due to NMW increases and the potential need to then protect pay differentials between different grades and roles
On the other side, self-employed individuals who have their own personal service company face higher costs too due to:
- Increases to the CT rate from April 2023
- Increases to the dividend tax rate from April 2022
- Increases to NMW, NIC costs (if they employ any other workers)
So what does this mean then?
This may lead businesses to consider mitigatinge rising costs and be prudent as they look to recover from the pandemic by resourcing individuals off the payroll.
However, on the other side, given rising costs for PSCs, individuals may be seeking more security (particularly given the furlough scheme which helped employees) and employed work.
With these two scenarios potentially clashing, businesses need to take stock and plan for the future.
What can be done?
There are a number of ways to mitigate these rising costs, including:
- Perform a full review of the organisation, incorporating an activity analysis to identify areas for optimisation;
- Consider whether the balance of roles performed in-house and outsourced is appropriate;
- Analysing the roles performed and value they offer, incorporating business partnering roles, grouping similar capabilities, prioritising core activities and removing non-value activities from the business;
- Conduct a review of the off-payroll workforce, their working practices, and the nature of arrangements in order to assist in determining their correct tax status;
- Issuing guidance or a framework to staff to determine the employment status of a particular individual;
- Reviewing the written arrangements in place and future arrangements in order to ensure tax status is clear;
- Compare the benefits and costs of using off-payroll workers against either hiring external consultants or employing staff on a fixed-term contract; and
- Consider the implications of any changes for various functions in the business, such as finance and HR.
Additionally, businesses can:
- Review their reward strategy and consider introducing new benefits, changing working patterns and use of greener rewards (electric cars, bikes, home heat pumps and charging points);
- Look at how training and skills are developed - incorporating apprenticeships and utilising Government support programmes may help reduce costs, retain staff and help the business transform in the future; and
- Given the Government need to raise revenues, take stock now to enhance controls and governance in relation to expenses, benefits, employment status, NMW and CJRS compliance.
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We are helping many organisations review their organisational design, training/skills strategy and compliance with off-payroll working. Please do get in touch and contact us using the details below if you would like to discuss further.
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