Make Work Pay: ending one-sided flexibility, reforms of zero hours and similar contracts – LITRG response

LITRG’s response focuses on practical tax issues arising from the proposal to require employers to make short notice payments to workers where shifts are cancelled, moved or curtailed at short notice.

LITRG welcomes measures that may improve financial certainty for low-paid workers. However, we highlight that the tax, National Insurance and benefits treatment of short notice payments must be clear from the outset. These payments may be an important source of income for some workers, but if they are taxable as employment income and subject to PAYE, workers need to understand that the amount they receive may be less than they expect and any wider impacts that the payments may have.

We recommend that the government and HMRC provide clear guidance for both workers and employers. In particular, employers will need to understand how to process these payments through payroll, including any income tax and National Insurance deductions, and how to deal with arrears if payments are missed and later paid.

We also highlight that there may be wider practical questions for employers, including whether short notice payments are pensionable, how they interact with holiday pay, statutory payments and national minimum wage calculations.

Finally, we encourage the Department for Business and Trade to discuss with HMRC how the proposals will apply to agency workers operating through their own limited companies, particularly where the IR35 or off-payroll working rules mean that income from an engagement is treated as deemed employment income.