3 legislation changes affecting the UK engineering industry

Some major legislation changes have come into play in the UK, here is a reminder of three key changes and how they could affect engineering professionals and businesses.

IR35 reform

The reform to IR35 Intermediaries Legislation impacts public sector bodies and contractors.

The change

In a bid to make up for shortfalls in taxes paid by public sector workers, the Government is changing the tax rules which apply to contractors working in the sector. Under the reform, the responsibility for determining a contractor’s employment status will move from the individual to the public sector body which employs them.
As before, any contractor who is deemed to be ‘inside’ the IR35 rules will have income tax and national insurance contributions deducted from their gross earnings.

Impact on engineering contractors

Up to 90% of public sector contractors could be ruled as being inside IR35, according to industry estimates and due to the public sector nature of the highways and rail sectors, contractors working in these sectors are likely to be affected by the change in regulation.
Impact on public sector bodies
Of course the regulation changes mean more responsibility for employers in the public sector as they will be tasked with determining how limited company contractors should be taxed, depending on the assignment they are taking on.

Impact on the industry

With overall take home pay naturally reducing as a result of paying more tax, many public sector contractors are already seeking work in the private sector, where the legislation changes do not currently apply. As a result, public sector bodies will find it harder to recruit and retain talented contractors, especially those with skills which they can apply in the private sector like highways engineers and rail engineers. In the already skills-short engineering industry, this legislation change has the potential to further widen the gap within the public sector.
Some contractors may also consider taking up permanent assignments instead, in order to reap the benefits and security that this way of working offers.
Ultimately with the amount of movement anticipated within the public sector workforce, organisations within the sector could find their project timescales considerably impacted.

What our experts think…

Graham Day, Department Manager says:

“The impending IR35 changes have generated an understandable amount of confusion and concern from contractors within the public sector. Whilst many contractors will seek work in the private sector, there is still plenty of exciting work that remains on Government-sponsored projects that will generate contractor opportunities for years to come such as Crossrail, High Speed 2 and the Heathrow airport expansion.

“From our recent Voice of the Workforce research, we know that having interesting and meaningful work is a really important factor when engineering professionals are making important career decisions so we hope that contractors will still see the benefits of working in the public sector following the changes to the IR35 legislation.”

You can find further information about the IR35 legislation changes here.

Apprenticeship Levy

Coming into effect from 6 April 2017 for any apprenticeships starting after 1 May 2017, the apprenticeship levy is a new funding system designed to support an increasing number of apprenticeships in the UK, including a number of engineering skills-focused training schemes.

The legislation

As part of the Government’s plans to ensure the UK has the skills it needs for the future, an apprenticeship levy is being introduced to fund three million apprenticeships by 2020.
A wide range of apprenticeships have been approved, with more to be announced, including engineering-focused courses such as:

• Aerospace Engineer
• Highway Electrician Water Process Technician
• Nuclear Engineer
• Rail Engineering Technician

 

Impact on tech firms

The levy applies to any UK businesses with a payroll of £3 million or above and the government anticipates it will apply to less than 2% of businesses. Such companies will be liable to a 0.5% payroll levy and will receive an annual allowance of £15,000 to offset the levy. All other employers will be able to access funding for apprenticeships.

Impact on the industry

It is well-documented that the engineering industry in the UK is suffering from a huge skills shortage and this was confirmed in our recent Voice of the Workforce research, in which 69% of the 2,522 engineering professionals we surveyed said they believe there is a skills shortage in the sector they work in.
One major strand of the strategy to plug this skills gap is to ensure there is a steady flow of people entering a career in engineering and that’s where the apprenticeship levy comes into play. However, to ensure the UK’s more urgent and specialist skills requirements are being met in the meantime,  the skills of the current workforce cannot be neglected. Perhaps with this in mind, the Government recently announced investment of up to £40 million on retraining and upskilling the current workforce.

What our experts think…

Department Manager – Highways, Traffic & Planning says:

“The introduction of the apprenticeship levy is a significant step towards addressing the skills gap across the UK engineering industry. Matchtech’s recent Voice of the Workforce survey found that 25% of engineers believe apprenticeships are the most important factor in addressing the skills shortage. With government investing heavily in infrastructure projects, it is great to see design engineers and draughtsman on the list of approved courses and skills, along with a range of other engineering skill sets.”

For more information on the Apprenticeship Levy, click here.

Gender pay gap reporting

To highlight differences in the average wages of men and women within a single organisation, the gender pay gap reporting legislation will put equal opportunities at the top of the agenda for many UK businesses.

The legislation

From the start of the new tax year, employers with 250 or more employees will have to publish annual figures showing how big the pay gap is between their male and female employees, including bonus payments.
The legislation stipulates a number of calculations which must be undertaken, the results of which should then be made public on the company’s website and a Government website within the 12 months following 5 April 2017 and every year thereafter.

Impact on the industry

The new reporting requirements are likely to highlight more than just pay issues within the engineering sector. The Engineer 2016 Salary Survey found that the average salary for women in engineering is £10,000 less than their male counterparts and indicated that this could correlate with the lack of women in more senior positions. 24.4% of women described themselves as ‘junior engineers’ compared to just 13.3% of men.
Not only does the engineering industry lack gender diversity – in fact, the whole STEM workforce in the UK is only made up of 14.4% females – but there also seems to be a lack of women progressing into more senior positions.

What our experts think…

Grahame Carter, Managing Director says:

“The gender pay gap reporting legislation is another positive step for enhancing equality and gender diversity within engineering. In our recent Voice of the Workforce report 52% of engineers said they feel the industry is becoming more gender diverse, but the research also showed that female engineers are more likely to believe it is staying the same. With a large proportion of the workforce believing gender diversity is staying the same and male and female engineers having different perceptions, it seems that more needs to be done to attract and retain women into the industry. Any initiative which supports equal opportunities can only stand to benefit the engineering industry.”

For more information about Gender Pay Gap Reporting, click here.