Employment law, tax law and NIC law inconsistent

Employer NIC cost drives current hiring practices, not only employment law.

Any review of the world of work needs to take into account the extent to which tax and NIC costs, especially employer NIC, drives current hiring practices, as well as employment law considerations.

ICAEW Tax Faculty expressed this view in its written response ICAEW REP 199/16 to the inquiry by The Business, Energy and Industrial Strategy (BEIS) Committee (a Parliamentary Select Committee) into the Future world of work and rights of workers launched on 26 October 2016.

Employment law imposes obligations on hirers and gives rights to workers depending on the workers’ employment status. This is a major factor for hirers in determining the best way to hire labour and the inquiry majors on this area.

However, tax and national insurance costs, which depend on the employment status of the workers as determined by tax law and national insurance contributions (NIC) law, are arguably even more important than employment law to workers, hirers and intermediaries. This is because the cost of tax and NIC directly affect hirers’ and intermediaries’ bottom lines and workers’ back pockets.

Tax law, NIC law and employment law are not always consistent.

There is also the other side of the NIC coin, namely entitlement to contributory benefits.

Increasing numbers of individuals working for multiple employers in the ‘gig’ economy are likely to remain below the NIC threshold for each of their jobs so will not pay, even at nil%, the NIC which would count towards state pension and contributory social security benefit entitlement in due course. Some of these individuals may not even be aware that they can pay voluntary NIC to make up the shortfall.

In order to such help low paid workers build up a contributions record, consideration might be given to automatically aggregating their jobs within HMRC’s systems using the data submitted by employers – this would not necessitate making the collection process for Class 1 NIC the same as PAYE income tax.