Reforms to the off-payroll working rules, known as IR35, are to be scrapped from April 2023, the Treasury has announced.

IR35 reforms introduced in the public sector in 2017 and the private sector in 2021 meant that the responsibility for determining a freelancer’s worker status shifted to the organisation engaging their services. The government will repeal these reforms.

What does this mean?

From 6 April 2023, freelancers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.

Note that freelancers providing their services in their own name, as an individual, have always been responsible for determining their employment status.

Note the rules do still exist…..

This doesn’t necessarily mean it’s the end of the IR35 story – the rules will still exist and have always existed, namely:

• if freelancers are engaged in such a way that they are in reality employees, then they should be put on payroll and taxed as employees (see below on how to determine status).

• even without the spectre of IR35 looming, HMRC takes a dim view of organisations engaging freelancers when the reality is that they are working 9-5, Monday to Friday, for an indefinite period of time…

It is just that from April 2023, the responsibility for compliance and payment of tax has flipped back to the freelancer rather than on the organisation engaging that freelancer.

Someone is likely to be an employee if they….

• can be told what work to do, as well as how, where and when to do it.
• have to do the work themself.
• can be moved from task to task.
• are contracted to work a set number of hours and get a regular wage or salary, even if there is no work available.
• get time off for sickness and holidays.
• work for a business which is not their own and in which they are not a partner.

Someone is more likely to be a freelancer if they…

• agree to do the work, but could send someone else to do the job
• have several customers at the same time
• can do the work how, where and when they like
• run a business and take responsibility for its success or failure
• provide the main items of equipment or specialist tools required to do their work

IR35 reform is a huge victory for freelancers. The changes have created havoc for hundreds of thousands of independent workers, along with the businesses that engage them.

For advice on amending existing freelancer contracts or on the status of workers you engage please email nicola.goodridge@goodhr.co.uk or call +44 7917 878384

A recent UK Supreme Court case has confirmed that the 12.07% holiday pay calculation method currently found in zero hours/casual contracts is now incorrect as a method of calculating holiday pay for workers with irregular working patterns.

What was the previous position?

Until recently the method of calculating holiday pay for workers with irregular hours has been to pay at the rate of 12.07% of the hours worked. This was a calculation recommended by ACAS and widely used.

The recent decision of the Supreme Court has resulted in the ACAS guidance being updated to remove reference to 12.07% in zero hours and variable hours contracts.

The new method to use

For workers with no normal working hours, a week’s pay should be calculated by reference to average weekly remuneration in the period of the previous 52 weeks but discounting any weeks in which the worker received no remuneration (the “Calendar Week Method”).

Who does this apply to

• It applies to workers with irregular working patterns (e.g. their hours or days vary per week and/or their weeks vary per year) and pay that corresponds to those patterns. The biggest impact in practice will be on hourly paid workers who have a permanent contract but, for whatever reason, have a number of unpaid non-working weeks during the leave year.

• It does not apply to full-time or part-time workers with regular hours or workers with a fixed salary.

How to calculate holiday pay for zero hours/variable hours employees using the new method:

1. Note how many hours per week the employee worked each week over the preceding 52 weeks (if they have worked for you less than 52 weeks use the full period they have worked for you).

2. Exclude weeks where they were unpaid – in other words, unpaid weeks should not reduce the average.

3. Add up the total number of hours.

4. Divide the total by 52 (or the number of weeks they have worked for you).

5. This will provide your average number of hours worked per week.

6. Multiply your average number of hours per week by their hourly pay.

7. This will provide the average weekly pay for that worker.

Do I have to calculate the average week’s pay just once?

No, the worker’s average weekly pay needs to be calculated every time the worker takes leave as the average weekly wage based on the preceding 52 weeks (or lesser number of weeks) pay period will have changed.

What if I continue to use the 12.07% method?

If you decide to keep applying the flat rate of 12.07% to calculate holiday pay, you may face tribunal claims. In any event, employers may find themselves facing significant claims for underpaid holiday from irregular workers on permanent contracts where the 12.07% method has been used. It is worth noting that claims for holiday pay based on deductions from wages are limited to 2 years of back pay and a break of more than 3 months between payments will break any chain of deductions.

Should you review your contracts?

Yes, you should do the following:

• Review and remove from your zero hours and casual contracts any reference to the former method of calculating holiday pay and ensure your contracts are redrafted in line with the new Supreme Court decision.

• Review those at most risk from this decision, namely workers who are engaged under contracts but who have long periods of time when they are not working, and hire them instead:

o as freelancers or

o engage them on a fixed term contract or

o engage them on a zero hours or casual contract where each engagement terminates at the end of each assignment or project and then make a payment of accrued but untaken holiday on termination of each assignment/project.

If you need a newly drafted zero hours contract or an up to date freelancer agreement do email nicola.goodridge@goodhr.co.uk or call +447917878384

What makes the perfect team? The answer to that question is : psychological safety in the workplace.

Trying to build a great team is not about simply plucking the highest performers, bundling them together and telling them that they are a team. Nor is it about curating a blend of personality types or backgrounds. In fact, ‘who’ is in your team matters less than you might think. The secret behind high performing teams is psychological safety.

What is psychological safety?

At its simplest, it’s about knowing that others will not embarrass, reject or punish you or others for speaking up.

It’s easy to understand why psychological safety in the workplace is so important. If someone is worried about contributing because they expect to get laughed at, ignored or chastised, then they won’t.

A lack of psychological safety leads to imbalanced teams dominated by the most powerful or loudest people. As well as creating a stressful environment, it means that only a limited number of team members express their views and opinions – and, the loudest or most dominant person in a group doesn’t necessarily have the best ideas.

A lack of psychological safety in the workplace, therefore, quickly stifles creativity and dampens employee engagement.

Why psychological safety matters in the workplace

If team members feel wary of adding value, unsure of their contribution or afraid of making mistakes, their entire team suffers. Unsurprisingly then, there are clear benefits to establishing a sense of psychological safety in your workplace.

1. Benefits for employees

Psychological safety in the workplace creates an environment where employees can do their best work. As well as feeling that they can share their ideas without fear of being shot down or ridiculed, they feel safe in disagreeing with others. Being able to respectfully disagree with colleagues is an essential component in finding a better overall outcome.

What’s more, psychological safety allows employees to be themselves and this in turn improves a sense of belonging and engagement. They may feel safe in admitting that they don’t know or understand something or feel able to explain that they are having a tough time in their personal life. By sharing this information, they permit others to help them out – either by explaining something or by providing space and support while they work things out.

2. Benefits for leaders

Leaders who facilitate psychological safety in the workplace benefit from a team that delivers goals more effectively. Instead of dealing with conflict, slow progress or a lack of inspiration, the leader can take pleasure in the output that comes from this collaborative environment.

Further, team members will be more likely to help one another out instead of deferring to the leader for help. This leaves leaders with more time to work through their to-do lists and frees up time for more creative thought.

3. Benefits for business

With happier employees and more effective leaders, we see stronger businesses. Workplaces with good psychological safety will benefit from better ideas and more creative approaches to problem solving which, in turn, results in improved service delivery and a competitive advantage.

Psychological safety can also help with employee satisfaction. Not only can it foster improved employee resilience, but it’s a great way of helping new or junior employees learn without worrying about appearing ignorant if they don’t know something.

TEN ways to nurture psychological safety in your workplace

1. Set clear boundaries

Put boundaries in place to encourage psychological safety. Make it clear that you have a zero-tolerance approach towards discrimination, bullying and harassment to ensure employees feel safe. This should be reflected in policies, the employee handbook, inductions, and training.

2. Check in with your team

Regular check-ins with your team will create a feeling of familiarity and safety, especially where employees are working remotely. Initially, the onus may be on leaders to share how they are feeling – perhaps by sharing a problem they’ve had with a certain client or by telling the team that they’re having issues with a parent’s health. This will show that the check-ins are more than lip service and will encourage employees to become more open.

3. Be social

Socialising with your team is essential in building up the familiarity that’s needed for psychological safety. You can socialise remotely or in-person, it doesn’t matter – any opportunity to have the occasional coffee catch up or team event is time well-used.

4. Provide regular, clear feedback

Clear feedback is pivotal to psychological safety in the workplace. By respectfully and consistently providing timely feedback, you can reinforce the positive work that your employees do and course-correct them on development areas.

5. Be open to feedback

As well as being comfortable in providing feedback, it’s essential to accept feedback from others. This involves actively requesting feedback from your employees. Asking for feedback in 1-2-1 meetings is a great way to get things started. You could also send a weekly email asking your team to let you know what they thought you did well and where they thought you could have done better. By acknowledging this feedback and acting on it, you will set a powerful example.

6. Acknowledge your weaknesses

No-one can do everything – which is why you hire people who are better than you at specific tasks. So let your employees do their job and trust in their ability.

7. Ask questions

By asking questions you demonstrate that you don’t know the answers. Ask questions in the spirit of curiosity and you’ll encourage the rest of the team to follow suit.

8. Don’t make failure a dirty word

Fear of failure is a shortcut to failure. Embrace a growth mindset and let your team know they can make mistakes, and that they will be supported if they do.

9. Have regular project updates

Psychological safety in the workplace requires a sense of togetherness. This means that regular updates and check-ins are essential, especially if you’re dealing with a remote team. As well as reinforcing the team’s bond, it allows the team to ensure everything is running to plan – and to allow for course-correction if not.

10. Continue to nurture psychological safety

Developing psychological safety isn’t a one-off task. It is the small yet positive interactions that build up trust over time.

For any queries email nicola.goodridge@goodhr.co.uk or call +44 7917 878384