Recruitment Agencies – Tax & Employment Considerations for 2022
Key changes that are likely to impact you as a business:
Rises in National Insurance (employees & employers)
Increases in National Minimum & National Living Wages
Changes in Right to Work Checks
National Insurance Increases
Despite recent political pressure to scrap these increases in response to rising living costs, the National Insurance (NI) percentages for both Employee’s (Primary) and Employer’s (Secondary) are expected to increase by 1.25 percentage points from 6th April 2022.
- Employee’s NI will rise from 12% to 13.25% for earnings above the Primary Threshold and from 2% to 3.25% for earnings over the Upper Earnings Limit
- Employer’s NI rises from 13.8% to 15.05%
- In relation to contractors operating via PAYE Umbrella, best practice is that contractors’ assignment rates should increase by 1.25% to cover the Employer’s NI increase. If rates are not increased, Umbrella contractors will effectively take a “double hit” on the NI increases.
Regardless of any rises in assignment rates, unfortunately most (if not all) employees of any description will see a drop in their take home pay after 6th April due to the Employee NI rising too.
National Minimum/Living Wage Increases
The National Living Wage (NLW), which applies to anyone over the age of 23, will increase to £9.50 per hour from 1st April 2022.
The National Minimum Wage (NMW), which applies to various age brackets, will also increase respectively from 1st April 2022.
For contractors who we supply on assignment rates that are close to or at the National Minimum/Living Wage, the minimum assignment rate will have to increase to include both the NMW/NLW rise from 1st April and the Employer’s NI percentage rise too. Associated employment costs such as Holiday Pay, Apprenticeship Levy and Pension will all proportionally rise as well, increasing the minimum assignment rate to Sapphire to £12.37/hour* *(assumption: Aged over 23, enrolled into the pension, 28 days holiday and a £20 margin)
Where the contractors’ assignment rates have previously mirrored the permanent equivalent (rather than being much higher) these rates must be reassessed to ensure the contractor is still AWR compliant. If not, requesting a rate increase from the client may be necessary.
Digital Right to Work Checks
Initially planned to be a temporary measure to assist businesses facing the challenges of recruiting during the pandemic, adjusted right to work checks were introduced in March 2020 when face to face checking of right to work documentation was unable to occur in many cases.
Under the temporary measures, employers have been able to conduct virtual right to work checks and establish a statutory excuse against any illegal working penalty without physically seeing the individual (or their ID documents) in person.
From 6 April 2022, the right to work checks are changing. Employers will be able to check a job applicant’s right to work status by:
- Undertaking a Covid-adjusted check (such as a scanned copy of RTW document);
- Checking an applicant’s original documents manually in-person (in line with the “traditional” approach); or
- Checking an applicant’s right to work online (via Home Office Checking Service or using the new digital identity checking service.).
Other Right to Work Changes
One other significant change is the phasing out of Biometric Residence Permits and Biometric Residence Cards.
From 6 April 2022, holders will only be able to evidence their right to work using the online Home Office service. Importantly, employers will no longer be permitted to accept physical cards as evidence of right to work in the UK, even if the card/permit shows a later expiry date.
Helpfully, however, retrospective checks will not be required by any employer who has relied on a Biometric Residence Permit presented to them before 6 April 2022 to satisfy the right to work checks in line with the guidance in force at the time.
Employers who fail to carry out the checks properly potentially face civil penalties (up to £20,000 per illegal worker), criminal penalties (unlimited fines and up to five years in prison), naming and shaming, reputational damage and the loss of any sponsor license.