Employment law changes in the US which could hit UK employers
In the UK employers can ask prospective employees at interview how much do you earn? UK employers can also ask to see previous pay slips and ask existing or former employers the same question. An employee may not answer the question and the employer is free to draw its own conclusions. But, in some US states such enquiry is now banned. There has also been a swing against the use of the gig economy. And, where the US goes sometimes the UK follows.
To help you understand the direction in the US we have set out some of the developments. If alarm bells are ringing please do get in touch. We are always happy to listen to concerns and plot a path to solution.
Banned salary questions in the US
Under law operative in California, employers cannot ask about current or past salary when considering to offer employment to any applicant. Employers cannot release salary details of any current or former employee to an employer or prospective employer unless the employee has consented in writing. The requirement for written consent may weaken the ban as of course if consent is not given inferences can be reasonably made. However, in the UK the anti discrimination laws apply at all times including job applications so care is needed.
Applicants for jobs
Applicants do not include people applying for employment within their current employer – but it is hoped that the employer would have the salary details to hand so question how helpful that provision is.
The ban applies to any processing of an application. There is no need for there to have been a job interview.
The ban applies to employment agencies and anyone involved in placement.
Meaning of employment
All categories of employment are caught from part time, temporary, seasonal workers and fixed term contracts. Independent contractors are not within the ban.
Compensation and fines
There is system of fines which if unpaid lead to civil prosecution. And the employer has to pay the employee compensation.
No way out for employers?
Some employers in the US may have been thinking of making better use of self employed contractors to get around the ban on asking about salary and other employment law rights. This is unlikely to work in a great many cases following a recent decision on the use of independent contractors in the gig economies.
New presumption that workers are employees
In April 2018 a court case in the US involving delivery drivers and the gig economy determined that there is a presumption workers are employees instead of independent contractors. The decision is ground breaking and reversed a classification test for workers vs contractors which had been previously operative for years.
The court set out a new test and failure to satisfy means that the worker will be treated as an employee.
- There is a presumption that the worker is an employee. The burden is on the employer to establish that the worker is an independent contractor.
- To meet this burden the employer must establish each of the following three factors:
- That the worker is free from control and direction;
- That the worker performs work outside of the usual course of the employer’s business; and
- That the worker is engaged in an independently established trade, occupation or business of the same nature as the work performed.
Swing against contractors in the UK
The US court decision supports the approach being taken in the UK. The use of contractors is not just a tax question in the US or the UK. Contractors classified as workers are entitled to a range of rights, hence additional costs for employers. The rights of workers in the UK include: holiday, sick pay, rest breaks as well as other benefits. The additional cost of paying holiday can be quite substantial if the costs have not been factored into the business model.
Employers can be hit in one or both of two ways:
Contractor claims in the Employment Tribunal
- The contractor can claim via an Employment Tribunal that he is in fact a worker. There are many headline cases being published on successful wins by individuals.
HMRC claims PAYE in respect of payments previously paid gross of tax to the contractor
- HMRC seek to collect PAYE in respect of payments made to contractors who are really workers or employees. There are an increasing number of challenges being made to the classification as workers of people HMRC consider are really employed. The motivation for HMRC is to expand the collection of taxes under PAYE which is administratively much more efficient for the HMRC to collect taxes placing burdens on employers rather than contractors who can be difficult to track down.
It is well publicised that the HMRC is having a crack down on the use of IR35 set ups operated via personal service companies. This exercise is run in tandem with the attack on the gig economy.
Many UK businesses should start to have a re-think.