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Employment Law: What’s to come in 2021?

The government’s main focus in 2020 was, understandably, the COVID-19 pandemic. This trend has continued into the start of 2021, and as a result, there have been fewer employment law changes than expected. It remains to be seen if there will be any further delays to law changes, but this article will highlight the key employment law changes we expect to see take place in 2021.

Please note this article was published in March 2021.

Right to work in the UK post Brexit

The first notable change to come into effect is the right to work in the UK following Brexit. The Freedom of Movement for EU nationals (excluding Irish nationals) ended on 31 December 2020.

Employers should remind any employees who are EU nationals that they have until 30 June 2021 to apply to remain in the UK, under the EU Settlement Scheme. We would advise employees to familiarise themselves with the new rules before recruiting from an EU member-state, as there have been changes to the former points-based system.

In order to check someone’s right to work, employers can still rely on a passport or ID card until 30 June 2021 for EEA nationals. After 30 June 2021, employers will need to check their employees’ immigration status, relevant visa requirements and have in place a relevant sponsor licence to hire workers. The obligations will fall on the employer to show that they made the appropriate checks for the employees Right to Work in the UK. The employer will risk facing a civil penalty if they employ an illegal worker and have not carried out the appropriate right to work checks.

Extension of IR35 to the private sector

In March 2020, the government announced that it was postponing the rollout of the new off payroll working rules, known as IR35. IR35 rules prevent contractors working through personal service companies and performing similar roles to employees paying less tax and NICs than if they were permanently employed. To address the non-compliance with IR35 in the private sector, the obligation will now fall on the employer.

The off payroll working rules that apply to the public sector were extended to the 6 April 2021. This means that businesses that engage contractors will be responsible for determining a contractor’s employment status for tax purposes; and liability for the employment taxes will shift from the contractor to the business if the contractor is found to be an employee for tax purposes.

The IR35 rules include a small business exemption which applies if certain requirements are met:

  • Its annual turnover is lower than £10.2 million
  • its balance sheet total is lower than £5.1 million
  • it has less than 50 employees

The small business exemption should exclude most small businesses from the IR35 rules, but they can still be liable for contractor employment taxes when it is found that a contractor should have been treated as an employee for tax purposes.

HMRC will require employers to “make good” any tax and National Insurance shortfall unless the employer can show: (1) it took reasonable care to comply with PAYE regulations and (2) that the failure to deduct the excess was due to an error made in good faith. Even if the small business does not have to make good any shortfall in employee taxes, it may still have to pay employer National Insurance contributions.

 Getting employment status right will avoid unexpected employment tax liability. It is also important to avoid employment status disputes and employment tribunal claims which are costly and time-consuming. All businesses should therefore consider employment status when engaging contractors. Employment status disputes can be avoided by ensuring contracts are always be drafted to reflect the actual working relationship between the worker and remembering that working relationships can change over time.

HMRC published guidance on the new rules in its “prepare for changes to the off-Payroll working rules (IR35) for clients” this report sets out the changes, and the steps you may need to take.

Coronavirus Job Retention Scheme and Furlough extension

Following the announcement from Chancellor Rishi Sunak in March 2021, we wrote a separate blog post about the Coronavirus Job Retention Scheme and furlough extension, which can be found here:

Please refer to this blog post for further information.

Minimum National Living Wage

The National Living Wage (NLW) is due to rise to £8.91 as per the Chancellor’s autumn statement.

From 1 April 2021:

  • Workers aged 23 and over will expect to receive a minimum of £8.91 an hour (the new National Living Wage) that sees an increase of 19p and will reduce the age grouping by 2 years
  • Workers aged 21-22 will expect to receive a minimum of £8.36 an hour that sees an increase of 16p and to reduce the age grouping by 2 years
  • Development rate for workers aged 18-20: £6.56 an hour that sees an increase of 11p per hour
  • Young workers rate for workers aged 16-17: £4.62 an hour sees an increase of 7p per hour
  • Apprentice rate: £4.30 an hour sees an increase of 15p per hour

Redundancy Pay increase

The new legislation of The Employment Rights (Increase of Limits) Order 2021 will lay out changes due to come into force on 6th April 2021. In this legislation the maximum amount weekly pay for redundancy payment calculations will increase by £6 from 538 from 6th April 2021 for A “maximum weeks” pay for Redundancy purposes the general cap is now up to £16,320.00 from its original limit of £16,100.00

Employment Tribunal compensation has a new cap

Compensation for unfair dismissal claims is split into a “basic” award and a “compensatory” award. The basic award is calculated in the same way as statutory redundancy pay and will, therefore, increase as described above.

The compensatory award is calculated by reference to the claimant’s loss of earnings, subject to a statutory cap. The cap on the compensatory award for ordinary unfair dismissal claims will increase as of 6 April 2021 to £89,493 (or 52 weeks’ gross actual pay, if lower). These new figures will apply where the effective date of termination falls on or after 6 April 2021.

Statutory Sick Pay rates will increase

From 4 April 2021, the rate at which statutory sick pay is paid will increase to £96.35 per week.

Statutory family-related leave

The prescribed rate for statutory maternity pay, adoption pay, paternity pay and shared parental pay will increase as of 4 April 2021 to £151.97 per week. The new right to statutory parental bereavement pay will also be paid at £151.97 per week.

Find out more

If you’d like to find out anything more about this article, we’ll be happy to help. Harinder Sangha is a Senior Solicitor in Eric Robinson’s Employment Department. Harinder can be contacted by email:

See our latest Employment Law blog by reading our following article titled – Employment Law: Anticipated Future Changes