The concept of vicarious liability means that if an employee injures someone in the course of their employment, that injured person may sue the employer for damages, i.e. recovering compensation for death or injury caused by alleged breaches of health and safety. Therefore, an employer can be liable for a civil wrong committed by an employee during the course of his or her employment. This happens given the relatively limited financial resources of most employees compared with their employer, who will have proper insurance cover.

In the recent case of Cox v Ministry of Justice (2016), the Supreme Court has restated and expanded the principles that apply to the concept of vicarious liability. This case did not directly involve an employment relationship, but the general principles laid down by the Supreme Court are clearly applicable to employer and employee.

The Facts of the Case

The facts were that Mrs Cox was employed by the Ministry of Justice (MOJ) as the Catering Manager at Swansea Prison. She was responsible for all aspects of catering, including the operation of the prison kitchen. She supervised prisoners who worked in the kitchen, alongside civilian staff. She told some prisoners to take supplies to the kitchen stores. A prisoner accidentally dropped a sack of rice onto her back, injuring her. She brought a claim against the MOJ.

At first instance, the claim was dismissed on the basis that the prison service was not liable because the relationship between the prison service and the prisoner was not that of employer and employee. The Court of Appeal reversed that decision.

The Final Ruling

The Supreme Court upheld the Court of Appeal’s decision and stated there were five factors which made it fair, just and reasonable to impose vicarious liability on a defendant, where the defendant and the person guilty of the tort (the wrong) were not bound by a contract of employment.

  • The first factor is that the defendant is more likely to have the means to compensate the victim, and can be expected to have insured against the possibility of vicarious liability.
  • The factor that the wrongdoer will have been under the control of the defendant, no longer has the significance it used to have. In modern life, it is not realistic to look for a right to direct how an employee should perform his or her duties as a necessary element in the employment relationship.
  • The other three factors are: the tort (the wrong) was committed as a result of activity being taken by the wrongdoer on behalf of the defendant; the wrongdoer’s activity is likely to be part of the business activity of the defendant; and the defendant will have created the risk of the tort.
  • In considering each of the requirements, it was held that prisoners were integrated into the operation of the prison, so that that the activities assigned to them formed an integral part of the activities which the prison carries on in the furtherance of its aims, i.e. in providing meals to its prisoners. Prisoners were placed in a position where there was a risk of them committing a variety of negligent acts, and the work was done under the direction of prison staff. The five requirements were met, and so the prison service was vicariously liable to the claimant.
  • A relationship other than one of employment is, in principle, capable of giving rise to vicarious liability where harm is wrongfully done by an individual who carries on activities as an integral part of the defendant’s business, and for its benefit and, where the commission of the wrongful act is a risk created by the defendant by assigning those activities to that individual.
  • The defendant need not be carrying on activities of a commercial nature. The benefit which it derives from the wrongdoer’s activities need not take the form of a profit. It is sufficient that there is a defendant carrying on activities in the furtherance of its own interests.
  • Defendants cannot avoid vicarious liability on the basis of arguments about the employment status of the wrongdoer.
  • The prison service places these prisoners in a position where there is a risk that they may commit a variety of negligent acts, which is recognised by the provision of health and safety training. Mrs Cox was injured as a result of negligence in carrying on activities assigned to him, and the prison service was, therefore, vicariously liable.
  • Lord Reed was particularly impressed by the desire to protect members of today’s workforce who do not have a contract of employment but are, in practice, working for others. So, defendants who have got around actually employing staff will not be able to shield themselves from vicarious liability based upon technicalities. If the reality is that the worker is working on the defendant’s behalf, and for the defendant’s benefit, vicarious liability will follow. Therefore, organisations engaging people on contracts which are not employment contracts should now beware!

The Basic Principles

The Cox case further developed the principles stated by the Court of Appeal in the key case of Majrowski v Guy’s and St Thomas’s NHS Trust (2005), which was about harassment by a Manager. The Court of Appeal found that the employer was liable, and made the following points.

  • Vicarious liability is a legal responsibility imposed on an employer, although the employer is free from blame, for a civil wrong committed by an employee in the course of his or her employment.
  • True vicarious liability is liability for an employee’s unauthorised, or not negligently permitted, unlawful mode of doing an unauthorised act in the course of employment.
  • For such liability to apply, the act must be so closely connected with what the employee was authorised to do, that it would be fair and just to regard it as a mode, even of an improper one, of doing it.
  • In deciding whether the connection is sufficiently close, the Court has to balance the social interest in furnishing an innocent victim with a remedy against a financially responsible defendant, with the need to avoid foisting an undue burden on a business enterprise.
  • An employer cannot avoid vicarious liability by showing that the employee was guilty of intentional wrongdoing, or that the act was criminal, or that the employee was acting contrary to express instructions, or that his or her conduct was the very negation of the employer’s duty.

Implications

This means that an organisation can now potentially be held vicariously liable for the actions of not only its employees, but also to all types of workers, unless they are truly independent contractors, whose activities are entirely attributable to a recognisably independent business of their own. It may also cover volunteers. It is apparent that short shrift will be given by the Courts to technical arguments about the employment status of the wrongdoer.

The judgment also confirms that the doctrine is not limited to defendants carrying on activities of a commercial nature; it is sufficient that there is a defendant which is carrying on activities in the furtherance of its own interests, which do not have to be economic. Such interests could be charitable, or the interests of a religious institution. Or, they could be the interests of complying with a statutory duty in the case of a public authority or hospital.

The Supreme Court recognised that extensions to the vicarious liability doctrine are necessary to maintain protection for victims. It may not be welcomed by employers, but it is a welcome development for innocent injured parties, who should not be left at the mercy of arbitrary distinctions between different categories of worker, when a defendant has created the risk of their injury.

Practical Steps:

Many employers struggle with the fairness of vicarious liability, but it is well established, so all that good employers can do is to work hard at maintaining a healthy and safe working environment. So:

  • Undertake good quality training, not only for employees, but for a wider group of workers for whose actions the organisation might be vicariously liable.
  • Deliver robust disciplinary sanctions for employees and workers who depart from expected standards of conduct and competence.
  • Conduct rigorous background checks, without contravening your policy/the law on the rehabilitation of offenders.
  • Consider revising your policy documents on interfacing with the public/ customers/stakeholders etc., stressing the need for safe working and considerate conduct.
  • Think about how to impart good practice standards to your general workforce – not only those with conventional employment contracts, but agency staff, contractors, work placement schemes and volunteers etc.
  • Ensure that genuinely self-employed contractors have appropriate third party insurance.
  • The key is to ensure that only trained personnel undertake any activity that could be dangerous to the health and safety of others.

 

 

Our Consultants would be pleased to advise you on any element of the issues arising from this newsletter.

According to the Met Office we are already into the summer as of 1st June. True to form as the weather heats up those of us who spend all of our time indoors at work will, in our spare time, be heading out into our gardens or up the coast in an attempt to stop ourselves looking lily white any longer. In contrast those employees that spend large amounts of time working outdoors have the opposite problem of making sure that their skin is not over exposed and they keep well hydrated especially when doing physical work. So what do the experts tell us about this periodic British opportunity of a potentially decent summer?

The Met Office has published a range of new web pages entitled Get Ready for the Great British Summer, teaming up with a number of partners, such as Cancer Research UK and PDSA to encourage us to be prepared for and enjoy the summer. The web pages include a new safety section with tips about sunscreen and hats from Cancer Research UK. Sunscreen (factor 15 or higher is recommended) should be the last line of defence to help protect skin from sunburn. It’s really important to use shade and clothing too. Factor 15 or higher sunscreen can help protect parts of the body you can’t cover with clothes, but no sunscreen, whatever its SPF or star rating, can offer 100 per cent protection from UV rays. And to get the level of protection written on the bottle it’s important to apply enough (about an ice-cream scoopful to cover your whole body if wearing a swimsuit) and reapply regularly. There is even some helpful advice from the PDSA on how to make sure that your pets (working and domestic) don’t suffer heatstroke. Typical symptoms being excessive panting; extreme salivation; distress and collapse. It goes without saying that all pets need access to clean drinking water, they too should not stay out in the sun for long and not left in cars unless under complete shade with adequate ventilation.

The Health and Safety Executive (HSE) considers matters within the work place reminding organisations and managers responsible for workers whose job keeps them outside for most of the day. Their relevant leaflet INDG337: Sun Protection: Advice for Employers of Outdoor Workers gives advice on reducing the health risks for employees when they are working in the sun.

The leaflet advises outdoor workers to follow the sun protection six-point code:

  1. Keep tops on to act as a barrier from the rays of the sun.
  2. Wear a suitable hat especially one with a brim or flap that protects the ears and back of the neck.
  3. Stay in the shade wherever possible, especially at break times.
  4. Use a high factor sunscreen on any exposed skin.
  5. Drink plenty of water to avoid dehydration.
  6. Check skin regularly for any unusual moles or spots and see the doctor promptly if anything is changing in shape, size or colour, itching or bleeding.

Employers or manager responsible for outdoor workers should:

  • Make their workers aware of the above points and especially.
  • Include sun protection advice in routine health and safety training, as well as informing workers that a tan is not healthy but a sign that skin has already been damaged by the sun.
  • Make sure that they drink plenty of water to avoid dehydration, siting water points and rest areas in the shade.
  • Encourage workers to keep covered up with hats and long sleeved shirts during the summer months, especially at lunch time when the sun is at its hottest.
  • Encourage workers to use sunscreen with a sun protection factor (SPF) of at least 15.
  • Consult with employees and take their views into account when introducing any new sun safety initiatives.

The HSE says, “UV radiation should be considered an occupational hazard for people who work outdoors” so this needs to be considered as part of any generic workplace risk assessment undertaken.

Other workers that need to be considered are those that work in hot conditions all year round but when there is additional summer heat their environments can get even hotter. These can range from professional kitchens, bakeries, laundries and boiler rooms through to heavy industrial processing activities such as smelting or welding. These workers are at risk of heat stress which is when the body’s means of controlling its internal temperature starts to fail. Air temperature, work rate, humidity and work clothing are all factors that can cause heat stress; the problem being is that it is not an obvious risk to people that are only passing through rather than actually working there. Factors to reduce risks include:

  • Control the temperature e.g. fans or air conditioning.
  • Provide mechanical aids to reduce work rates.
  • Regulate the length of exposure e.g. job rotation.
  • Prevent dehydration encouraging people to drink small amounts frequently during and after working.
  • Provide training about heat risks, symptoms of heat stress, safe working practices and emergency procedures.
  • Make sure first aiders know about what to look out for and what treatment to provide as well.
  • Allow workers to acclimatise to their environment and asses whether they are fit to work.
  • Identify those who may be more susceptible due to illness, a medical condition or medication that can bring on early onset of heat stress e.g. pregnant women or those with heart conditions.
  • Monitor the health of workers at risk and seek OH advice if necessary.

There is some useful information on managing temperature at work at: Temperature

Finally, for those that are simply suffering the heat in an office environment, there is no upper temperature limit that employers must adhere to. However, the Workplace, Health, Safety & Welfare Regulations do require that working areas should be adequately ventilated with clean fresh air draw from a source outside of the workplace with suitable circulation. That can mean either opening windows to switching on the air conditioning. Don’t forget that those air conditioning units need to be periodically serviced so that filters can be cleaned to reduce the risk of legionella. High quality drinking water must be readily available to all workers. Even workers that spend many hours in a vehicle driving can suffer with heat exhaustion increasing the risk of accidents to make sure that they carry plenty of fresh drinking water in their vehicles, switch on the air conditioning, and take appropriate rests especially when driving at the hottest time of the day.

So check that your risk assessments cover this welcome advent of the sun and make sure that your control measure are adequate for all of your workers, indoors and out, and anyway in between!

The annual increase in compensation limits has just been announced. The limits apply to dismissals (redundancies or detriments etc.) occurring on, or after 6th April 2017:

  • £489.00 – the maximum amount of a week’s pay for calculating statutory redundancy pay, and the basic award; (up from £479.00)
  • £14,670.00 – the maximum statutory redundancy payment or basic award, i.e. 30 weeks; and
  • £80,541.00 – the maximum compensatory award which can be made for unfair dismissal (up from £78,962.00), or one year’s gross pay whichever is the lower

These increases mean that the maximum total unfair dismissal award is now £95,211.00, although uplifts can add a further 25%.

It is crucial to follow good practice in your HR procedures; considering carefully all dismissals, and ensure that the handling of appeals is conducted fairly and thoroughly. It is important to remember that there is no cap at all on the awards that can be made in many cases, including discrimination claims. Consequently, please seek advice from your HR Consultant, at the earliest opportunity, if you are considering terminating anyone’s employment, for whatever reason, and regardless of their length of service, so that they can ensure that you minimise any potential risks.

If you have started any redundancies, then you will need to update any calculations if the redundancy will take effect after 6th April 2017.

Employees may be entitled to receive guarantee payments for up to five days of lay-off, in any three-month period. The maximum amount of such a statutory guarantee payment will increase to £27.00 (from £26.00) for any one day.

The National Insurance employer threshold and employee threshold will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on earnings above £157.00 per week.

The personal allowance for tax will increase to £11,500 in April 2017, and will be £12,500 by 2020. The new threshold Upper Earnings Limit (UEL) for higher-rate tax will be £45,000.

Our Consultant would be pleased to answer questions on any of the above, or you can find much of the data on our website, by clicking on Frequently Asked Questions.

Competent and Competence
The Oxford English Dictionary defines “competent” as being adequately qualified or capable and effective. Competence is considered a legal requirement under English common law. The general requirements for competent persons came from the general duties imposed on an employer in s.2 of the Health and Safety at Work Act 1974. Regulation 7(5) of the Management of Health and Safety at Work Regulations 1999 went on to state that, a person is deemed to be competent if he or she has an adequate combination of training and experience, or knowledge. Regulation 7(8) also requires employers to consider appointing a (nominated safety) competent person within their employment, in preference to one who is not in their employment. This means the employer cannot completely delegate safety to a third party, but must appoint in-house and, if necessary, must provide adequate training to help that person become competent. Certainly, when I talk to a client about who would be the best person to appoint in-house as the nominated competent person for safety, I usually point out that someone who has a good grasp of the organisation’s activities, but is also well versed in understanding the operational side of the business, is usually best placed to become the competent person, providing they still have the thirst to want to learn more.

However, purely from a common sense viewpoint, the prevention of injury and ill-health in the workplace inevitably depends on the presence of competent people at all levels in any organisation. Competence was referred to in the case of Wilsons and Clyde Coal Co Ltd v English (1938), which defined the duty of care that an employer owed to its employees, and this included the need to employ competent people.  Subsequent case law has indicated that to be a competent employee, people must have a positive attitude to health and safety at work, and behave responsibly in the workplace, and, that competence is more than just the possession of qualifications, but also involves having sufficient and relevant experience.

The Management of Health and Safety at Work Regulations 1999, and the Approved Code of Practice, (ACOP) to the now withdrawn CDM 2007 Regulations, stated that to be competent, an organisation or individual must have:

  • sufficient knowledge of the specific tasks to be undertaken and the risks which the work will entail;
  • sufficient experience and ability to carry out their duties in relation to the project; to recognise their limitations and take appropriate action in order to prevent harm to those carrying out the designated work; or those affected by the work;
  • specific knowledge about the tasks they will be expected to perform, and the risks associated with these tasks; this may come from formal or “on the job” training;
  • appropriate experience; people are more likely to adopt safe working practices if they understand the reasons why they are necessary; and past experience should be a good indicator of the person’s/organisation’s track record;

The HSE has been concerned for some time that the approach to the appointment of competent people has subsequently become over bureaucratic and costly. It has recently tried to set a different and less prescriptive approach. In the Guidance document L153 Managing Health and Safety in Construction of the CDM 2015, the focus now is that organisations must have the capability to ensure the health and safety of those involved in the work/project.  Competence should be seen by employers as a long-term issue, building on the basics of selection, training, management of experience and life-long learning and ensuring people have the capacity in terms of time, resources, managerial and supervisory capability to deliver the project.  Furthermore, a (construction) workforce should be able to demonstrate competence through qualifications based on agreed national standards.

In other words, when appointing competent people, employers must take reasonable steps to ensure that those persons have the necessary skills, knowledge and experience appropriate to the role they are appointed.

Reasonable steps need to be proportionate and not over-bureaucratic, and will depend on the complexity of the project/work/sector, and the range and nature of the risks involved. This means, in practice, that those appointed should be capable of understanding how to:

  • identify the significant risks are likely to arise within the workplace, and
  • prevent those risks or manage or control them to acceptable levels;

Put simply, competency describes the behaviour that lies behind competent performance, such as critical thinking or analytical skills, and describes what people bring to the job. In contrast, competence describes what people need to do to perform a job, and is concerned with effect and output, rather than effort and input.

In the HSE’s Managing for Health & Safety (HSG65), competence is defined as “the ability to undertake responsibilities and perform activities to a recognised standard on a regular basis. It combines practical and thinking skills, knowledge and experience”. However, two terms of competent and competency are now very much interchangeable as job performance requires a mix of behaviour, attitude and action.

As part of the review, HSG65 makes some suggestions as to what to look for on ineffective management in relation to competence, including:

  • Lack of awareness of key hazards/ risks.
  • Employees lack the skills, knowledge and experience to do their job.
  • Health and safety advice and training is irrelevant, incompetent or wrong.
  • No standards of performance are set; and people are not held accountable.
  • Only knee-jerk reactions follow incidents/near misses.
  • The organisation does not know what it needs to do to move forward.

I think I would add a couple more common failures I have observed within quite a few SMEs especially. Very few job descriptions have written into them the need to demonstrate health and safety awareness and accountability at all times, and fulfil all necessary health and safety requirements. Likewise, another mistake is thinking that the safety competent person has to be formally trained in safety, when really the key criteria is a full understanding of how the business works, and a practical grasp of what the real safety hazards and risks are.

Competency Frameworks in Health and Safety

Organisational capability is effectively the in-house policies and systems that set acceptable health and safety standards, to ensure not just legal compliance, but identifies the resources and people to make sure standards are delivered and health and safety is effectively managed.

An organisation’s policy on health and safety, therefore, needs to include consideration to the level of competency required throughout the organisation, to ensure there is a competent workforce. Determining competency levels and then identifying, maintaining and monitoring the knowledge, skills, and attributes necessary to meet and maintain those levels can be a challenge, so the development of a competency framework can assist in managing this key element of the management system.

Competencies are essential in securing a competent workforce, and describe both the functional skills and knowledge that enables an individual to perform a technical task, as well as the softer skills in terms of how individuals are expected to behave. Competencies can, therefore, be seen as forming the building blocks for competence.

As such, a “competency framework” can be described as a structure that sets out and defines each individual competency (i.e. the behaviours, knowledge, skills and technical attributes) required by individuals at every level of the organisation, so as to achieve and maintain a competent performance to the required standard.

A well-developed health and safety competency framework that defines the necessary skills, knowledge and behaviours can be used for a number of purposes. By identifying the necessary key health and safety competencies of individual roles, these can be used as part of the organisation’s recruitment and selection procedures, through the inclusion of the competencies in job specifications and consequent selection procedures. This will enable the prospective employee’s current competencies to be identified, and whether any areas lacking are capable of being developed if recruited.

Perhaps the most obvious purpose of a competency framework is to assist in the identification and analysis of employees learning and development requirements. The aim is to understand the amount and types of learning and development that will be needed (typically through information, instruction, training and supervision) to ensure that all employees have the right knowledge, skills and behaviours to perform the jobs they do.

By setting competencies at the appropriate level, the employer can then benchmark against the framework to identify and remedy any shortfalls between the current level of competency possessed by the workforce, the required level and what learning and development, if any, will be necessary to bridge the gap.

Employers need to ensure that the competence performance levels required are being met and that any information, instruction, training or supervision provided has been effective in terms of enabling such performance to be undertaken.

As such, the key competencies identified can form part of an employee’s performance review or appraisal process. Through discussion and employee feedback, this may assist in identifying any key areas of concern or gaps, and enable planning for additional activities to bridge the gaps.

For many organisations, some form of organisational change is inevitable, so as to respond to dynamic internal and external influences. Change can be brought about by changes in technology, legislation, and business demands, etc., all of which have the potential to change the organisation’s competency requirements. By mapping competencies on a framework, this can be adapted and changed to track any organisational changes, thereby enabling the necessary new or revised competencies to be identified, and gained through appropriate means. Change can also mean having succession plans and/or transferring knowledge, skills and responsibilities to other employees.

A competency framework will provide clarity to Managers and workers alike, as to what is expected of them, and can provide a clear focus for future development of all employees.

Developing a Competency Framework

According to the Chartered Institute of Personnel and Development (CIPD), many Managers and individuals find it hard to use the frameworks to help achieve their goals and, therefore, the goals of the organisation. Typical criticisms include that they are often lengthy, complex, misunderstood and not user friendly. They can also be seen as just another paper exercise, with little value to real-world application.

Developing a competency framework can take effort and should be carefully planned. The following steps can be followed when developing the framework.

Prepare by defining the purpose and scope of the framework (e.g. organisation-wide, department or job specific).

  1. Collect the relevant information from job safety analysis, observations, interviews, good practice guidance, National Occupational Standards, etc.
  2. Build the framework by determining competency levels, identifying the competencies required and validating them against specific roles.
  3. Implement the framework through good communication and awareness processes that explain the purpose, benefits and utilisation of the framework.

In respect of the actual template and content of the framework, this will depend upon organisational circumstances and scope of the framework, but will normally include some form of matrix linking roles/functions to the competency, typically through a “competency statement” along with required behaviours or skills necessary to fulfil the competency. Some organisations combine levels of competency with various layers of the workforce, for example, Level 1 refers to all workers with Level 4 being Senior Managers.

As a simple example, a specific job role could be that they are trained as an emergency first-aider. Generated from legislative requirements, the competency statement could be “to provide employees with immediate attention and emergency first-aid treatment if they are injured, or taken ill at work”. From this, the competency behaviours and skills can be described, and will include having the necessary level of knowledge of first-aid treatment appropriate to the risk and needs assessment. This can be described as a technical skill, which is required to ensure the first aider is competent when giving basic first aid treatment.

However, many employees require certain key behavioural competencies, such as having “strong communication skills with the emotional resilience to cope regularly with stressful and angry callers, staying calm and pleasant at all times”. Physical competencies may require “undertaking manual handling activities on an hourly basis.”  Having identified these, the organisation can then use the framework to ensure it selects the most appropriate individuals to cope with the demands and competencies of the job role, as well as ensuring any training is commensurate with the job risk.

Retaining Competence

The main barriers to retaining competence are a lack of practice and changing circumstances. This is why certain training, e.g. first aid, needs to be refreshed at regular intervals to keep up that competence.  Also, we can all develop bad habits over time, so key messages need reinforcing, e.g. manual handling training, advanced driver training, forklift truck training to name but three.

Knowledge may be refreshed or increased by attending training courses or workshops, which also helps develop contacts made and provides the ability to discuss issues with other people. Knowledge can be simply re-reading in-house safe systems of work, or reading industry-related publications.

Developing experience can vary from taking on more job responsibilities, through to external networking meetings with people in similar jobs, as, in the less formal gatherings, anecdotal evidence can provide guidance on a good, or bad, means of approaching a problem. Certainly, we know from our public training events that many delegates feel they gain from listening how other delegates approach specific matters, as well as learning by working with others in interactive exercises that require them to problem solve in a supporting learning environment.

Finally, the issue of developing any employee’s personal qualities can be addressed through a more formal performance review process or appraisal system across an organisation. Effective performance reviews can be a very efficient means of enhancing personal qualities, but conversely remember that a poor review can damage, and even dis-empower, a competent person.

A safety competent person can develop through a mixture of formal training, as well as networking, and possibly having access to someone that can coach them on more of the safety requirements.

Summary

Many organisations have a tendency to compartmentalise health and safety, rather than recognising that not only does it need to be a key business priority, but that health and safety competencies are required in all jobs, to a greater or lesser degree. Identifying early on in the recruitment process what key health & safety competencies are required for each job role, will help appoint people who are better able to fulfil the subsequent job demands, be they physical or mental.  Using key business competencies as part of performance reviews will help further establish job requirements, increase job productivity and will focus training and development needs.  Fulfilling health and safety requirements should always be an aspect of job performance which should be regularly assessed, especially at Management level.  Remember, the duty of care becomes greater the higher within an organisation someone sits.

Defining competence and training competent people is what helps organisations to thrive, and be better able to cope with constantly changing demands, as well as reducing health and safety accidents/incidents to a minimum. A good health and safety culture is a guarantee to a successful business, so start thinking about introducing a competency framework that goes beyond just legal heath and safety requirements, and you may find that this in one safety initiative that has positive and far reaching outcomes.

Our Consultants would be pleased to advise you on any element of the issues arising from this newsletter.

The wonderfully titled Employers’ Duties (Implementation) (Amendment) Regulations 2016 change the dates, set out in the 2010 Regulations, for increases in the minimum level of contribution for pensions auto-enrolment (AE). The scheduled dates are changed to align the increases with the beginning of the tax year.

As a result, the increase that was planned for October 2017 to 5% minimum contribution (2% employer), is postponed to April 2018, and the planned increase from 5% to 8% due in October 2018 will be postponed until April 2019. The Government estimates it will save £390m in tax relief costs in 2017/18, and £450m in 2018/19 through delaying auto-enrolment rate increases.

The Government has said the change will benefit the smallest employers in particular. Some commentators have linked it to an attempt to reduce the pressures on businesses as a result of the new national living wage. The good news for employees is that, aligning to the tax year will make it easier for some employees to plan their retirement saving for the year ahead.

The latest Compliance and Enforcement bulletin was released by The Pensions Regulator (TPR) at the end of July, based on figures reported at the end of June 2016. It tells us that:

  • More than five million people have been auto-enrolled into a pension, which is 66% of all employees in the UK compared with 47% in 2012
  • The average employer contribution into a new AE scheme is 3%
  • To the end of June 2016, 110,000 employers have completed their Declaration of Compliance, and nearly 60,000 of these employers are either small or micro employers
  • Opt-outs have been low, which means that the number of people saving for their retirement is at its highest point since 1997

Action against companies failing to meet auto-enrolment requirements has increased by 300% to 8,812 occurrences, as smaller employers have struggled with their requirement to sign their staff on to pension schemes. The report also attributes the increase in enforcement to smaller employers inevitably being less prepared. Nevertheless, the first group of small and micro-employers subject to pensions auto-enrolment deadlines, achieved a compliance rate of above 95%, said the watchdog. Of the employers who still face auto-enrolment deadlines, approximately 57% are micro-employers and 42% are small employers.

The Pensions Regulator’s formal powers include issuing compliance notices, conducting inspections, and issuing penalty fines to employers. Escalating penalties can be given to businesses that fail to comply with initial warning penalties; they accrue at a daily rate of £50 for micro-employers, and £500 for small employers.

Whilst the delay in contributions is good news; with an aging population and increasing life expectancy, auto-enrolment can only succeed if people and employers start putting more money into their pension pots, to fund them through their retirement. The objective of AE was to provide access to a tax effective means of retirement saving for employees, so it has been a resounding success for the millions of additional employees who have a pension who didn’t have one in 2012. Although a 3% employer contribution will not mean that the job is done, or that retirement will be one long luxurious holiday for all, this means that not all employers are defaulting to the minimum 1% employer contribution.

It is still early days, and the research evidence and experience suggests that the current processes and solutions are far from perfect. But a good start has been made. Among those who have yet to go through auto-enrolment, some are predicting negative consequences of the pension changes, in terms of employment and pay. However, of those who have already gone through automatic enrolment, few report that there are significant extra costs, while many report that they have been able to absorb the additional expense. It requires some planning to be successful and compliant. We would echo the CIPD’s experience that when implemented and communicated effectively, there are positive benefits to be gained. These include having a scheme aligned to a businesses objectives and its culture. It helps if it is also aligned with reward packages and meets the needs of employees.

Our Consultants would be pleased to assist you on any element of the issues arising from this newsletter.

There is growing awareness of the importance of individual well-being inside and outside the workplace. In working to get the very best out of their organisation, many managers are choosing to adopt practices to increase the well-being of their staff. A comprehensive Government sponsored study in 2014 suggested improvements in well-being will result in improved labour productivity, profitability, and the quality of outputs or services. Employee well-being has gone mainstream. It used to be niche, a luxury that was secondary to health and safety, and certainly not a strategic priority for most businesses.

Well-being includes people’s physical and mental health but it means different things to different people (and different organisations). It can be described as having a happy, healthy workforce, in mind, body and spirit but really well-being goes beyond “wellness”. It includes factors such as the physical and mental aspects of the working environment. It covers several aspects of the way people feel about their lives, including their jobs and their relationships with the people around them i.e. how employees get on with their colleagues and managers. Well-being is about corporate culture, inspiring leadership and a shared organisational belief system. It is a key driver of engagement, so, for many “employers of choice”, focusing on employees’ well-being is a conscious business decision and is more than just seen as part of the organisation’s duty of care to employee welfare. It goes beyond gym membership or mindfulness classes and considers the real basics of everyday work.

Although downward trends in fatal and major injuries at work in many countries reinforce the perception that ‘tough jobs’ are declining, health and well-being in the workplace remains an issue due to a range of factors, including job insecurity, potentially worsening working conditions and issues with work/life balance. Research by RAND Europe, in collaboration with the University of Cambridge, suggests that lack of sleep, financial concerns and care of family are negatively associated with productivity. Mental health problems are also found to cause significant productivity loss, especially in the form of presenteeism, i.e. being at work but unfit to work productively. Workers who are subject to workplace bullying report significantly higher levels of absenteeism and presenteeism, than those who are not.

Job satisfaction – including aspects such as satisfaction with training, skills development opportunities, how much autonomy employees have in their role, and how much scope they have to use their own initiative and influence decisions, show a strong and positive link with workplace performance.

Closely linked to well-being is the concept of wellness which can be graphically represented. There are more colourful variations of this approach but we like this one because it demonstrates that as individuals our wellness is multi-faceted and that aspects of it vary with time and circumstances and can be charted. In the example below we would be telling ourselves that we needed to work on our physical and financial health.

Wellness Picture

 

Whilst not wishing to undermine individual responsibility there is a lot which employers can do. ACAS are very clear about the scope which employers have to influence the well-being of their staff. Their sensible advice states that there is no ‘one size fits all’ but where employers are able to raise well-being in their workforce, they are also likely to see improvements in the performance of their workplace.

There will be different factors that influence well-being at an individual level, but detailed analysis of a wide range of research studies has suggested that there are 11 key factors for increasing well-being to boost performance in general. Most employers will not achieve good results in all these areas, but those who are able to focus effort on a number of these areas should be able to increase well-being.

  • Where employees have a degree of autonomy over how they do their job – this does not mean that people should ignore set processes, but could mean that staff have a level of discretion about how they undertake their work. Involvement in decision-making can also be beneficial.
  • Variety in the work employees undertake, which can be addressed through job design.
  • Staff respond positively to a sense that their job has significance within the workplace, as well as the perceived value of the job to society i.e. purpose.
  • Being clear about what is expected of staff, including feedback on performance, which could be addressed through a combination of effective induction, clear employment conditions and a regular appraisal process
  • Supportive supervision, which means ensuring that line-managers are adequately trained; and an environment in which co-workers offer support can also be positive.
  • Staff also benefit from positive interpersonal contact with other people. This includes contact with managers and co-workers, as well as with customers or the general public (where the job requires it).
  • Opportunities for employees to use and develop their skills, which could be through training, and/or by increasing the variety of work they undertake.
  • A sense of physical security is important for employees, including the safety of work practices, the adequacy of equipment and the pleasantness of the work environment.
  • A sense of job security and clear career prospects both help increase well-being.
  • Staff respond well to the perception of fairness in the workplace, both in terms of how the employee is treated but also how they see their co-workers being treated. Effective use of procedures for responding to bullying coupled with disciplinary and grievance procedures where needed are helpful.
  • Higher pay also registered as a strong positive motivator. This relationship, however, depends not only on the absolute level of pay but how this compares with the pay of others.

Alongside these factors which can boost well-being, the research also showed that when the demands of a job are particularly high this can reduce well-being. It was noted that job demands resulted not only from the amount of work a member of staff was undertaking, but also from the level of compatibility with pressures outside of work.

A key thread that runs through many of these factors is ensuring good, open communication with employees.

Fairness is one of ACAS’s key levers for productivity so it is not surprising that employees’ perception of fairness at work can also impact their health. According to a recent study by the University of East Anglia, fairness is vital to well-being and productivity. Researchers investigated how employees’ perceptions of workplace policies for rewards, pay, promotion, and assignments were impacting their health and found that employees who reported more fairness at work also reported better health. The findings suggest that employees who feel they are being treated fairly at work are more motivated and more likely to feel healthy. We would recommend five ways to improve perceptions of fairness in the workplace:

  1. Offer clear and transparent policies
  2. Show empathy which requires time and listening
  3. Handle promotions with care lest the internal candidates feel slighted
  4. Provide honest feedback on both a formal and informal basis
  5. Avoid favouritism and the impression of favouritism

High levels of well-being at work are good for the employee and the organisation. It means lower sickness-absence levels, better retention and more satisfied customers. People with higher levels of well-being live longer, have happier lives and are easier to work with. Towers Watson surveyed 74 leading organisations in the UK during 2012 regarding their health and well-being programmes. Organisations who report that they have been able to create an internal culture of health are more likely to regard linking health to productivity as essential to their health strategy and measure employee outcomes associated with their programmes. As a result, they are more likely to understand the return on investment associated with their programmes, and where they observe quantifiable returns they are more likely to report appreciable positive return on investment associated with their programmes.

Improving health and well-being can have real societal, economic and personal benefits above and beyond their value to business alone but just because the benefits to employers are difficult to quantify does not mean they should be discounted. Employers often say that their employees are their greatest asset but assets need looking after and should be used effectively.

We explored all of these themes further on our “Improving Workplace Productivity” course ran last year.  If this a course you would be interested in running in-house, please do not hesitate to contact us, as we would be pleased to provide you with a proposal for consideration.

Our Consultants would be pleased to advise you on any element of the issues arising from this newsletter.

 

The Government is acting to stamp out slavery and human trafficking in the UK. Legislation requiring organisations to report on what they are doing to tackle modern slavery in their supply chains is now law. The Modern Slavery Act 2015 represents the first step to eradicating the use and abuse of forced and child labour at home, and abroad, in supply chains. By obliging organisations to report on their efforts to tackle forced labour, the UK is going some way to opening a window on the murky world of modern slavery. The Act consolidates previous offences relating to trafficking and slavery. It also criminalises aiding, abetting or, procuring forced labour or human trafficking, or being an accessory to such offences. What the Act is aiming to do is to take that transparency to the next level. For example, it is encouraging organisations to demonstrate how they check that human trafficking isn’t taking place with suppliers. The UK is the first country in Europe to introduce such provisions on services and goods and therefore this position is unaffected by the recent Referendum result as it is not derived from any EU initiative.

Context

It may seem like it is far-fetched, but modern slavery does indeed exist in this country, as well as most of the countries which are likely to be supplying us, and it will become an increasingly live issue. According to 2014 Global Slavery Index, there are an estimated 35.8 million men, women and children trapped in modern slavery globally. The Home Office figures suggest there are between 10,000 and 13,000 potential victims of modern slavery in the UK alone.  Modern slavery is a broad concept encompassing slavery, servitude, forced and compulsory labour, and human trafficking, and is prevalent in many sectors.

Recent research by YouGov, which involved 263 businesses with turnovers under the £36m threshold, found that nearly 61% were unaware of the reporting requirement. 80% said they had yet to discover slavery in their supply chains, yet very few had actively investigated. Two-thirds of the SMEs said they had never taken action to keep their supply chains free of slavery, and 75% said they wouldn’t know what to do if they discovered slavery in their supply chain. Only 5% of organisations have mapped their supply chains in an attempt to uncover modern slavery, and just 4% have provided training to staff on how to spot the signs of possible slavery amongst suppliers.

Obligations

Section 54 of the Act requires businesses with a turnover greater than £36m, to publish an annual slavery and human trafficking statement. The statement must confirm either:

  • the steps that have been taken to ensure that slavery and human trafficking are not taking place in any of its supply chains or in part of its own business; or
  • that no such steps have been taken;

The reporting that organisations with more than £36 million turnover should follow in respect of their obligations is clearly set out and is straightforward:

  1. An explanation of its policy
  2. How it engages with stakeholders
  3. How it integrates findings into its decision making process
  4. How it is tracking its impacts in this area
  5. What it is doing to provide a remedy for any impacts

A link to the statement must be published in a prominent position on their website homepage, and the statement must be approved and signed by a Director. So, although organisations could opt to take no action as a result of the Act, and simply produce a statement under option (b) above, the Government hopes that public pressure and scrutiny from shareholders and the media, together with the risk of reputational damage, will encourage organisations to take real steps to investigate their supply chains, and publish details of their efforts. The goal of the Act is to persuade organisations to do the right thing. It is intended to have a cascade effect on SMEs.

For UK nationals, the trafficking provisions have extra-territorial application which means, an offence is committed regardless of where in the world the arranging, or facilitating of trafficking, takes place.

Next Steps for Employers

The new measures will apply to financial years ending on, or after 31st March 2016. Large organisations should start thinking about compliance now. Steps to consider include:

  • Introduce a modern slavery statement into policies.
  • Auditing your practices to check that all employees, and agency staff, are paid at least the minimum wage, and have the right to work.
  • Updating template commercial agreements to include an obligation that suppliers will comply with the Act.
  • Engage more closely with suppliers on a practical level, to resolve any issues around slavery and trafficking.
  • Appointing an appropriate senior person to be responsible for compliance.
  • Ensuring that staff, particularly those involved in recruitment, procurement and supply chain management, are aware of the law, and are appropriately trained to make the right enquiries of potential suppliers.
  • Consider what due diligence steps might be applicable.
  • Identify any high-risk sectors in which you, or your suppliers, do business, perhaps referring to third party sources, such as the Global Slavery Index.

Many smaller organisations are unaware of the significance of the Modern Slavery Act, despite it meaning that they will face greater scrutiny from larger organisations they supply to, on slave and child labour issues. That is the conclusion of the Chartered Institute of Procurement and Supply (CIPS), which found that 61% of small organisations surveyed, have not even heard of the Act.  If you, like most of our clients, are a small or medium sized employer, but supply larger organisations, then you are likely to go through a supplier assessment, so you need to consider:

  • What you can do to prove that you are paying people properly, and only employ people with the right to work here?
  • What do your suppliers do about the above, e.g. employment agencies and outsourced suppliers?
  • Are you comfortable about the products/services which you buy from abroad?
  • Training relevant staff about slavery and human trafficking.
  • Expanding your whistleblowing policy to cover any concerns about slavery or human trafficking, or consider introducing new related policies.

Employers need to be sensible about this. You should not be worrying about office paper in this respect, unless you are an office supplies business. It needs good judgment, and a degree of risk assessment. Whilst it is a good idea to make someone senior responsible, no one department or individual can tackle this due diligence issue in isolation. For more information, a useful resource to look at is “The Stronger Together Project” – their website is http://stronger2gether.org.

The reporting obligation aims to prevent forced and child labour in the UK and abroad, by putting greater onus on larger organisations to be accountable for the practices of their suppliers. The legal duties in the Act must not override the moral obligation to make sure that supply chains are slavery-free. It is what some people are calling hidden labour exploitation, or the unseen crime.

You should conduct some sort of analysis of your exposure, and develop an action plan to deal with issues arising.

 

If you are unsure of how to proceed, please speak to our Consultants.

 

Growing Your Business

Huge change is coming to the early careers landscape. The Government wants 3 million apprenticeship starts by 2020. According to the Skills Funding Agency, 80% of those who employ apprentices agree that they make the workplace more productive. There are numerous advantages arising from bringing eager new people into your business, and apprenticeships now cover more skills and industries than ever before. Apprenticeships enable businesses to grow their own skilled workforce, while also gaining access to administrative support, financial help, and providing apprentices with a programme of structured learning.

The Government believes that economic benefits are generated when education and training helps individuals achieve a higher level of qualification, increasing their employment prospects, productivity and wages. Despite skill shortages reported by employers, investment by UK employers in training is low compared to international competitors, having declined rapidly in the last 20 years. The proportion of employers engaged with apprenticeships is higher in other countries. It is 24% in Germany, 30% in Australia but only 15% in England. The Government is positioning itself to support apprenticeships by making it easier to take on apprentices.

Benefits

There are many benefits of bringing an apprentice into your business; here are 6 important ones when looking at the positives from a business perspective.

  1. Loyalty: Apprenticeships are attractive to many companies who want to “grow their own” bespoke employees, rather than depending on the labour market to find skilled workers. In return, 9 out of 10 stay with the same employer after completion.
  2. Fresh ideas and enthusiasm: Bringing in apprentices means they will be doing on-the-job training alongside existing staff, as well as external training with a learning provider. This arrangement can bring fresh ideas and innovation to businesses.
  3. Increased productivity: Apprenticeships help businesses boost productivity by bringing in new talent that quickly helps to grow their skills base.
  4. Availability: Apprenticeship vacancies have increased at a record rate, with up to 28,000 available at any one time on the national apprenticeship website. Recruitment costs are often lower than for non-apprentices.
  5. Grants and financial support: Apprenticeships enable young people to earn while they learn in a real job, gaining valuable qualifications. Businesses with less than 50 staff can apply for an Apprenticeship Grant of £1,500.

They are comparatively inexpensive to employ: An apprentice must be paid at least the Apprenticeship Minimum Wage, which is currently £3.30 per hour, whereas the National Minimum Wage is £5.30 for an 18 – 20 year old. These rates will increase to £3.40 and £5.55 respectively in October 2016.

Constraints

If the benefits are that great why are many employers reluctant to recruit and develop apprentices?

There are probably three reasons; the first being lack of experience. Many younger Managers will have little experience of such training. Secondly, there are bound to be employers with bad experiences, either of employing poor quality apprentices, or of their own children being badly treated in their apprenticeships. In our experience, a third significant factor is the fear that they will be stuck with someone who is not working out. Historically, this had some strong foundation in the legalities of employing apprentices, who were seen as being on some sort of fixed term contract, because the main purpose of the contract was to train the apprentice, which means that an employer owed them greater obligations compared to normal employees.

They enjoyed certain rights that are not extended to other workers or employees, including protection from certain forms of dismissal. It is often thought that apprentices are employees with fixed term contracts. In fact, this is not the case. The Fixed-Term Employee (Prevention of Less Favourable Treatment) Regulations exclude apprentices from their provisions.

The nature of an apprentice’s contract made it difficult for an employer to dismiss them during the course of their apprenticeship. Legal precedents suggested that ordinary redundancy was not permissible in an apprenticeship. In reality, of course, the employer only had to show that they were dismissing the apprentice fairly and reasonably. You can legally dismiss an apprentice on the grounds of, for example, gross misconduct, or, if they break the terms of the contract, such as not attending college or passing exams.

However, an employer can struggle to show that a dismissal for anything other than gross misconduct is fair. The apprentice’s behaviour must be so unreasonable that it is no longer possible to teach the apprentice.  An employer cannot dismiss a ‘traditional apprentice’ engaged under a contract of apprenticeship for redundancy, unless there is a closure of the business, or the employer’s business undergoes a fundamental change in its character.

The Future

To make it easier for employers to take on apprentices without such constraints, apprentice agreements are being replaced by ‘approved English apprenticeship agreements’.

If an employer would like to employ an apprentice under such an agreement (so the apprentice does not have enhanced protection from dismissal), the apprentice must work for the employer in accordance with an approved English apprenticeship, under the Apprenticeships, Skills, Children and Learning Act, which was amended in 2015.

An approved apprenticeship agreement must:

  • Provide for an individual to work as an apprentice in a sector for which the Secretary of State has published an approved apprenticeship standard.
  • Provide for the apprentice to receive training in order to assist the apprentice to achieve the approved apprenticeship standard in the work done under the agreement.
  • Satisfy any other conditions specified by the Secretary of State in regulations.

An approved English apprenticeship agreement is deemed to be a contract of service, resulting in an employer being able to terminate such an agreement as any other employment contract. As apprentices are also employees, they have the same rights any other employees, including the right not to be discriminated against; the right not to be unfairly dismissed; the right to statutory sick pay; and the right to family-friendly leave.

How can we protect our Organisation?

The most important way in which you can provide protection is simply to understand the costs associated with hiring and employing an apprentice. All too often, businesses take on apprentices only to find that they cannot afford to keep them. Whatever the legal situation, this is a very bad idea.

You should also remember that there is significant financial help available for organisations that wish to take on apprentices. Although employers need to be careful when employing apprentices, and ensure that the apprenticeship is set up correctly, there are clear benefits in doing so.  Hiring apprentices is a good way to in-house grow talent by developing a motivated, skilled and qualified workforce. As well as being a financially astute move, employers also report satisfaction at helping young people realise their potential.  It can also help organisations to improve productivity and competitiveness.

Therefore, although employers need to be careful when employing apprentices, and ensure that the apprenticeship is set up correctly, this is not difficult if you talk to our Consultants about drafting appropriate apprenticeship employment contracts that can give you all of the benefits, and will help minimise the issues if you need, at some stage, to let them go either during, or at the end of the training.

In November 2014, in our Newsletter No. 87, we reported on the case of Bear Scotland, which said that overtime should be included in holiday pay calculations, if it is a normal part of an employee’s remuneration.
Since then, many of our clients have changed the way they pay holiday pay in respect of such overtime. More recently, the Employment Appeal Tribunal (EAT) in British Gas v Lock has confirmed that, the same logic should apply to commission payments. This is hardly surprising, as the case had previously been to the European Court of Justice (ECJ) who had ruled against British Gas, but had to remit the case to the British Courts to apply the ruling to UK law. The ECJ had concluded that because his commission was directly linked to the work Mr Lock carried out, it must be taken into account when calculating holiday pay.

The EAT’s technical judgment decided that the UK’s Working Time Regulations can be interpreted compatibly with the EU Working Time Directive, so as to include commission payments in the calculation of holiday pay in respect of four weeks’ annual. Parliament’s purpose in enacting the Regulations was to comply with its obligation to fully implement the Directive. It is permissible, and indeed necessary, to imply words into the Working Time Regulations 1998 to comply with EU law. The judge refused to criticise the previous EAT case of Bear Scotland, deciding that if that case was wrongly decided then the Court of Appeal must decide that, not the EAT. We will, therefore, have to wait for the Court of Appeal to have an opportunity to consider the decisions in Bear Scotland and the British Gas cases.

The Facts

Mr Lock worked for British Gas and earned commission on sales, which represented around 60% of his pay. When he took holiday, his commission payments in subsequent months were lower because he had been unable to generate sales whilst on holiday. There remain other outstanding questions for a Tribunal to consider, including whether British Gas’s scheme operates, so as to effectively compensate for periods of annual leave so that no further money is due.

Implications

Unfortunately, the judgment does not shed any light on a number of practical issues. A further Employment Tribunal hearing will now be required to determine how much compensation British Gas must pay the claimant, to compensate him for the missing commission payments. The Tribunal will also need to decide the relevant reference period for calculating the commission, and whether this should be the previous 12 weeks, the previous 12 months or some other period. The European Court of Justice simply said this was a matter for national courts to determine, by taking an average over a period they considered to be representative. Whatever the Tribunal decide will not bind any other Tribunal, so it may take some time (years potentially) to get definitive rulings. A very large number of commission based Tribunal claims have apparently been stayed (suspended) pending the outcome of this case.

One point that is clear from other cases – and had already been accepted by the Tribunal – is that only the four weeks of paid annual leave entitlement deriving from the WTD will be affected by the result. It is, therefore, open to employers should they decide to pay commission (or overtime pay), to only do so for 20 days per annum and pay basic pay on public holidays, or holidays they provide in excess of the statutory minimum. Employers can decide their policy on how to treat the additional 1.6 weeks’ statutory minimum leave, and any additional contractual entitlement, but may decide to include pay for commission/overtime in all holiday pay to avoid complicating the administration. In some cases, however, it is much simpler to just pay normal pay on public holidays, rather than doing calculations.

Options

Given the potential appeal, and the questions yet to be considered by the Tribunal, employers have a dilemma. They can:

  • Maintain a “wait and see” approach to commission-based holiday pay.
  • Ensure that holiday pay includes a payment in respect of commission.

We would not recommend the first approach, as employers risk backdated claims for ‘unlawful deductions from wages’, and amongst our own client base, we know that some employees have already become aware of the changes in holiday pay calculations and are asking for back dated payments. ACAS are already saying that commission should be factored into statutory holiday pay calculations, for the four weeks of statutory annual leave required under European law. Employers should seriously consider ensuring that holiday pay includes a payment in respect of commission. They should review and consider what other elements of pay should be paid when employees take their four weeks’ annual leave provided by Reg. 13 of the Working Time Regulations, or they risk legal claims.

Limitation on a Claim for an Underpayment

The introduction of The Deduction from Wages (Limitation) Regulations 2014 means that, when making a claim for backdated deductions from wages for holiday pay, a two year cap will be placed on all claims that are brought after 1st July 2015. This means that, the period that the claim can cover will be limited to a maximum of two years. This may seem like a lot, but is better than the worst case scenarios which envisaged going back to 1999!

Action

The logic behind ensuring that employees are not worse off by going on holiday is very difficult to argue with, and the chances of the Court of Appeal doing much more than clarifying some important details are slim. We are still surprised by the deafening silence experienced by most of our clients in respect of holiday pay, albeit many have made changes to ensure they are in control of any changes, and do not get any Tribunal claims with substantial cost and employee relations implications.

Our Consultants would be pleased to advise you on any element of the issues arising from this newsletter.

2016 Budget Announcements

Termination Payments

Chancellor George Osborne has announced that from April 2018, termination payments over £30,000 will be subject to employer’s National Insurance Contributions as well as Income Tax, which is already payable. Under £30,000 will still be free of tax. He said in his speech that “the rules are complex and the exemptions incentivise employers to manipulate the rules, structuring arrangements to include payments that are ordinarily taxable such as notice and bonuses to minimise the tax and NICs due”.

For people who lose their job, payments up to £30,000 will remain tax-free, and they will not need to pay National Insurance on any of the payment.

It appears that more complex proposals floated by HMRC in their recent consultation on this issue, have not been taken further at this stage. But, they are also planning further consulting on wider changes to the tax and NI treatment of termination payments, including:

  • taxing Payments In Lieu of Notice (PILONs) irrespective of whether they are contractual in nature or not; and,
  • bringing in new rules to prevent contractual termination payments being “disguised” as damages in order to avoid tax and NI on them;

These changes will be an additional cost to employers – potentially making termination settlements much more expensive in the future. It is worth noting that had the £30,000 exemption kept pace with earnings, it would now be over £72,000, but the amount has remained static for a very long time.

In two years time, employers are less likely to be generous in what they are prepared to offer to staff in termination situations, as they look for ways to absorb the additional costs that the change will bring. As we get closer to the 2018 implementation date, some employers who are planning to restructure their workforce, are likely to look to push their plans forward sooner than they might otherwise, to avoid the national insurance charge.

Employers and employees may also be disappointed that an opportunity for simplification has been missed.

Salary Sacrifice

The Government is also considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes, although the Treasury makes clear that pension saving, childcare and health-related benefits, such as Cycle to Work, will continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.

Minimum Wage 2016

The standard rate of the national minimum wage for 21 to 24 year-olds will increase by 3.7% to £6.95 per hour, from October 2016, based on recommendations for the new rates from the Low Pay Commission.

Workers aged between 18 and 20 will see their pay rates rise by 4.7% to £5.55 per hour. The minimum wage for 16 to 17 year-olds increases to £4.00 per hour, a rise of 3.4%, while the apprentice rate increases 3% to £3.40.

The Government said the increase will mean that, for the first time, the national minimum wage for 21 to 24 year-olds is restored to its highest level in real terms, above its previous peak before the recession.

The National Living Wage, the minimum wage rate for workers aged 25 and over of £7.20 per hour, will be effective on 1st April 2016.

Commentary

The challenge for employers is keeping up with pay, whilst juggling a number of other employment-related costs. It is increasingly difficult to disentangle rises to the national minimum wage rates with other business costs, such as the new apprenticeship levy, and pensions auto-enrolment. Necessary actions for employers are:

  • From 2018, termination payments over £30,000 will need to add NI contributions to the calculations to establish the true cost.
  • Review whether salary sacrifice is really a good long term option.
  • Plan for the further changes to the NMW to ensure they do not mismanage the increases due in October this year.

New Statutory Figures

The annual increase in compensation limits has been announced. The new limits are applicable where the event that gives rise to the award or payment occurs on or after 6th April 2016 and are:

  • £479.00 – the maximum amount of a week’s pay for calculating statutory redundancy pay and the basic award; (up from £475.00)
  • £14,370.00 – the maximum statutory redundancy payment or basic award, i.e. 30 weeks; and
  • £78,962.00 – the maximum compensatory award which can be made for unfair dismissal (up from £78,335.00) or one year’s gross pay whichever is the lower

These increases mean that the maximum total unfair dismissal award is now £93,332.00, although uplifts can add a further 25%.

It remains very important to follow good practice in your HR procedures; carefully consider all dismissals, and ensure that the handling of appeals is conducted as thoroughly as possible. It is also important to remember that there is no cap at all on the awards that can be made in many cases, including discrimination claims.

Employees may be entitled to receive guarantee payments for up to five days of lay-off in any three-month period. The maximum amount of such a statutory guarantee payment for any one day will remain at £26.00.

From 6th April 2016

Statutory Adoption, Maternity, Paternity and Shared Parental Leave Pay, and Maternity Allowance, will all remain at £139.58 per week.

Statutory Sick Pay (SSP) will also remain at £88.45 per week.

The Lower Earning Limit (LEL) also remains static at £112.00 per week, i.e. £5,824.00 per annum.

We have produced a new useful Information card with these rates. If you would like a copy, please contact us. Our Consultants will be pleased to answer questions on any of the above, or you can find much of the data by clicking on Frequently Asked Questions.