The Chancellor of the Exchequer, George Osborne, presented his Summer Budget to Parliament on 16th March 2016. Amongst other topics, the Budget included plans which may have an impact on employment law. The main ones include changes to termination payments, apprenticeships, shared parental leave, salary sacrifice schemes and trivial benefits in kind.
The term ‘termination payments’ mainly refers to redundancy pay and settlement agreements. The current rules are that payments above £30,000 are subject to tax only, but the government plans to tighten the laws on taxation for these larger payments. From April 2018 termination sums over £30,000 will not only be subject to tax, but also subject to employer’s National Insurance Contributions (NICs). The law on payments below this threshold will not change – there is no need to pay tax or NICs. All sums will remain free from employee’s NI contributions.
Salary sacrifice schemes are another area which will be affected, as the government is considering implementing a limit on the types of benefits which can be offered through salary sacrifice. This was proposed due to a 30% increase of such arrangements since 2010. Despite this proposed limit, the government has expressed its intention to keep salary sacrifice schemes relating to pensions, childcare and health-related schemes, such as Cycle to Work, exempt from tax and NICs.
Apprentice Levy top up
The Budget also revealed more about the proposed apprenticeship levy which was announced in last year’s Autumn Statement. The levy will apply to employers in the UK from April 2017 but only to those with annual wage bills larger than £3 million. The employers which fall within that description will have to pay 0.5% of that wage bill into a separate account solely to fund apprenticeships within their organisation. For employers in England the government will offer a 10% “top-up” of their total monthly contributions which will be added to the same digital account.
Shared Parental Leave
The Chancellor announced the government’s plan to launch a consultation on Shared Parental Leave in May 2016. The consultation will aim to establish how Shared Parental Leave should be extended to grandparents from 2018 to allow parents to return to work sooner after having a child. The consultation will also look at simplifying the process around the entitlement, mainly focusing on the eligibility and notification requirements.
Trivial Benefits in Kind
Finally from 6th April 2016, trivial benefits in kind, up to a maximum of £50 value, will no longer be subject to income tax and Class 1A NICs (paid by employers). This will extend to Class 1 NICs (paid by employees) later this year.
- National Living Wage introduced from 1 April 2016 – not a choice! National Minimum Wage or National Living Wage have different names but they mean the same thing – a legally required minimum level of pay related to a workers age. The penalty for failure to pay either of these will also increase from 100% of the underpayment to 200% of the underpayment on 1 April 2016.
- National Minimum Wage increases have been announced for October 2016.
Age 25 and over: £7.20 – (This is the National Living Wage effective from April 2016 and so will not increase in October 2016)
Age 21 – 24: from £6.70 to £6.95
Age 18 – 20: from £5.30 to £5.55
Age 16 – 17: from £3.87 to £4.00
Apprentice rate: from £3.30 to £3.40
Please note – from 2017 the date for all minimum wage increase will be changed from October to April each year. This is to bring National Minimum Wage increases in line with National Living Wage increases.
- New ACAS Guidance on Workplace Investigations
ACAS has published new detailed guidance on conducting workplace investigations covering all aspects of the process, including how to choose the investigator and handling reluctant witnesses.
Unfair dismissal cases are often lost because the employer did not carry out an investigation that was good enough in the circumstances. All employers must have written rules and procedures for investigations, disciplinary, grievances and appeals.
This all forms part of the legal floor that employers rely on whenever there is an issue with an employee and is essential to obtaining a fair dismissal.
- Increases To Unfair Dismissal Compensation from 6 April 2016
The maximum compensatory award for an unfair dismissal claim will increase from £92,585 to £93,332. This is because the maximum basic award is increasing to £14,370; and the maximum compensatory award is increasing to £78,962.
- Sunday working update
The Government plans to give power to local councils to extend trading hours in large shops on Sundays has met with strong opposition from both Conservative ministers and other parties and was subsequently vetoed.
The Government has recently taken additional steps in order to reduce the risk of illegal working taking place in businesses across the UK. One of the measures it has implemented is an increase to the financial penalty applied for employing an illegal worker which is now £20,000 for each illegal worker and also if you knowingly employ an illegal worker, you could also face up to 2 years imprisonment.
All employers should be checking every single employee, that means even someone you think is British and believe was born in the UK. If you are just checking employees that have a different colour skin, accent or foreign sounding name, then that itself can be classed as discrimination.
The Government has published a list of documents which are considered suitable to prove that an individual is eligible to work in the UK. Don’t worry, you won’t be asked to go on a course at the local passport office to qualify to do the checks! Just common sense is needed and really, this should form part of your recruitment process and become a habit. This is also the paper trail that you will rely on as defence if accused of employing an illegal worker – so get it right.
As an employer make the correct document checks before employment commences. You should be looking at original documents, not photocopies, check that they are valid and belong to the individual who is applying for work. If the names differ, request additional documents certifying the change of name, for example a marriage certificate. You will need to make copies and keep a record of the date you undertook the “right to work” check.
The process you adapt within your business should be water tight and will help defend you if you find that you have employed an illegal worker. You must also remember to re-check any employee who only has a limited right to work in the UK when the permission that they currently have expires.
To check if a worker is eligible to work in the UK a useful tool can be found at:
On 1st February 2016, health and safety legislative guidelines underwent one of the biggest updates since the introduction of the Health and Safety at Work Act back in 1974. In what has been described as “the most dramatic change seen to health and safety legislation in more than forty years”, the Sentencing Council has published definitive guidance for health and safety offences.
This means, that for the first time, courts will have comprehensive sentencing guidelines covering common regulatory offences and continues the trend of significant increases in the level of punishment for health and safety offences. The guidelines are intended to ensure a consistent approach to sentencing and will apply to organisations and individuals on all health and safety, corporate manslaughter and food and safety hygiene cases.
These are fines that will have a genuine and substantive impact on those organisations that fall foul of the law. We’ve already seen a trend towards higher fines for health and safety offences – fines of £1m and £2m have become increasingly common. The new guidelines will take this to a different level. Large organisations could face fines as high as £20 million and SMEs may well fare worse than larger companies, in relative terms.
Business clients of Wolfson Associates have free unlimited telephone access to CCH's health and safety support line. Advice can also be sought on a consultancy basis from Peninsula on 0844 892 2785.
on 1 April 2016 every single employer will need to make sure that they are paying any employees that are aged 25 or over and not in the first year of an apprenticeship, at least £7.20 per hour. Any employee below 25 years of age should be earning at least their age appropriate National Minimum Wage rate.
What employers should remember is that this change isn’t a choice. It is the law and will be enforced as strongly as the current National Minimum Wage and by that I mean back pay, fines, prosecution, naming and shaming, etc.
Employers should also consider that the Government have made a promise to increase the figure every year, which means we may see the first increase as soon as this October.
The taxation rules for contractors will change. Currently, end users (a simple definition is businesses who engage the service of a subcontractor via a service company) can rely on IR35 to avoid employment and tax implications arising on payments made to contractors trading via a personal service company.
The government intends to reduce the benefits of operating personal service companies in addition to proposing changes to IR35 regime that will shift the tax and national insurance compliance burden of IR35 from the personal service company to the businesses who engage them – the end user.
Businesses who formally did not need to concern themselves with the tax position of contractors providing services via limited companies will now have to be very concerned.
The government closed a consultation into IR35 in September and is now reviewing consultation responses. The planned implementation date is unknown as of yet but it could be in 2016.
HMRC does not wish to abolish IR35. Instead it wishes to introduce changes which will bolster its powers. HMRC wants contractors to be taxed as if they were employees and for PAYE to be operated. HMRC no doubt see the end user as a more expedient tax collection mechanism than the contractors.
Key proposed changes:
The end user will have the obligation to operate IR35 on behalf of individual contractors operating via personal service companies. This means that it will be the end users who will carry the administrative burden of complying with IR35 and who will be exposed to investigations by HMRC seeking to collect income tax and national insurance under PAYE. This is unlike the current position where HMRC investigates the personal service company but not the end user in most cases.
Simplifying the tests for IR35 by focusing on the level of end user supervision, direction and control over the contractor. This means that potentially more people will fall under IR35.
Introducing a minimum working time requirement. The new legislation would require that the contractor works a certain minimum amount of time to be considered an employee. The government has not yet specified what the minimum would be.
Extending IR35 to other types of intermediaries, not just personal service companies. Even though the scope of this change is unclear as the government did not elaborate on what other intermediaries are intended to be affected by this change it is evident that the IR35 net is cast wider and wider and the changes can affect for example, umbrella companies.
The use of contractors is wide spread. Even though the consultation document does not specify whether the law will be retrospective I is accepted that the new rules will be of wide application. There will be change and the inevitable increase in costs due to the PAYE compliance. Many businesses will decide the risks are too great and move to fixed term employment contracts in place of contractors. However, with fixed term employment contracts comes the cost of complying with employment law legislation such as holiday pay, maternity/paternity, work place pensions, etc. Employers will require professional advice in drafting fixed term contracts to ensure the employer is suitably protected.
Reducing the benefits of using a personal service company
The July 2015 Budget contained several announcements that will have implications for contractors. These include:
- Removing the NIC employment allowance for companies whose sole employee is a shareholder and a director;
- Taxation of travel expenses to and from any assignment where an individual is working under control and supervision; and
- Abolishing tax credits on dividends and substituting it with the new dividend allowance. This change applies not just to contractors. The change increases the tax payable by everyone receiving dividends.
The government has indicated that additional funds will be made available to HMRC to tackling IR35-related tax avoidance in order to collect tax which would have been paid had the individuals been properly classified as employees.
Automatic enrolment duties include increasing the amounts Employers and their
staff pay into the pension over a number of years.
This is known as 'phasing'. The date the minimum contributions were due to be increased has changed in order to align with the tax year. So now, instead of contributions increasing from 2% to 5% in October 2017, and from 5% to 8% in October 2018, they will now rise in April 2018 and 2019.
Despite what some press articles may have implied, this is not a delay to automatic enrolment, and employers' staging dates will remain the same.
Aligning the contribution increases with the tax year will reduce the amount of admin required. It should also help individuals who are used to seeing changes in their take home pay when the tax year changes. Find out more about what you will need to pay and when.
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