The key recent changes are summarised below.
National Minimum Wage
A new category of minimum wage rate was introduced on 1 April 2016. This new rate, called the “National Living Wage” applies for workers aged 25 and over. Confusingly, this is a similar name to the unrelated campaign by the Living Wage Foundation for a Living Wage, which is a voluntary minimum rate calculated on the basic cost of living.
The new figures for the National Minimum Wage are set out below:
From 1 April 2016 to 30 September 2016:
National Living Wage (Age 25+): £7.20 (new rate)
Standard Adult Rate (Age 21-25): £6.70 (no change)
Development Rate (Age 18-20): £5.30 (no change)
Young Workers Rate (Age 16-17): £3.87 (no change)
Apprentice Rate: £3.30 (no change)
From 1 October 2016 to 31 March 2017:
National Living Wage (Age 25+): £7.20
Standard Adult Rate (Age 21-25): £6.95
Development Rate (Age 18-20): £5.55
Young Workers Rate (Age 16-17): £4.00
Apprentice Rate: £3.40
Statutory Pay (maternity, paternity, adoption, sick pay)
- Statutory Maternity Pay (“SMP”) is paid for 39 weeks of maternity leave as follows:
– For the first 6 weeks, SMP is paid at 90% of the employee’s normal weekly salary.
– For the remaining 33 weeks, SMP is paid at either the lower of 90% of the employee’s normally
weekly salary, or the “Prescribed Rate”.
- As CPI decreased in the year to September 2015, there is no change in the prescribed rate from last year. Therefore, from 5 April 2016, the Prescribed Rate remains at £139.58 per week.
- The Prescribed Rate for Statutory Paternity Leave, Statutory Adoption Leave and Maternity Allowance similarly remains at £139.58 per week.
- There has also been no change to Statutory Sick Pay which remains at £88.45 per week.
Tribunal award increases: A “week’s” pay and the unfair dismissal compensation
In most unfair dismissal cases, Tribunal awards comprise two separate amounts:
- the basic award, which is calculated by reference to the employee’s length of service, age and weekly salary (subject to a statutory cap); and
- the compensatory award, which is based on the employee’s loss of earnings as a result of the dismissal. In most cases, the compensatory award is subject to a statutory cap, although there are exceptions e.g. whistleblowing or health and safety dismissals.
A week’s pay
From 6 April 2016, the maximum amount of a week’s pay, used to calculate the basic award and also statutory redundancy payments increased from £475 to £479.
Unfair dismissal Compensatory Award
The maximum compensatory award is the lower of:
(a) one year’s gross salary; and
(b) the limit set by the government.
The Government limit increased from £78,335 to £78,962 on 6 April 2016.
NB: These increases apply to dismissals where the employment has terminated with effect on or after 6 April 2016.
Zero Hours Workers
A reminder that as of January 2016, new protection is in force for workers who are engaged under zero hours contracts. The new legislation provides that exclusivity clauses in zero hours contracts are unenforceable, meaning that employers cannot require that their workers do not work for any other employers. If a zero hours worker is subjected to a detriment, or dismissed, for refusing to agree to an exclusivity clause, the worker can take the employer to the Employment Tribunal and make a claim of unfair dismissal (which in this case does not require any minimum service period), or a claim for detrimental treatment.
Changes announced in the March 2016 Budget
Termination Payments
At present, the first £30,000 of most termination payments is payable tax free under sections 401 to 404A of the Income Tax (Earnings and Pensions) Act 2003 and the remainder of any termination payments are taxable but not subject to National Insurance (either employer or employee contributions). George Osborne announced in the March 2016 budget that from April 2018, Employer National Insurance will be payable on termination payments in excess of £30,000. The government confirmed that the £30,000 exemption will remain and no Employee National Insurance contributions will be payable on any of the termination payment. In addition, there will be new legislation to ensure that all payments in lieu of notice and certain damages payments are taxed as earnings.
Grandparental Shared Leave
The government announced that there will be a consultation from May 2016 regarding its plan to extend Shared Parental Leave and Pay to grandparents who work. This consultation will also look at modifications to the existing Shared Parental Leave and Pay system.
Salary Sacrifice
The government is looking at restricting the benefits that can be offered through salary sacrifice. It has announced that this will not affect enhanced pension contributions, health related benefits, childcare benefits or the cycle to work scheme. The childcare voucher scheme will be closed to new entrants from April 2018, but there should be a new tax free childcare system in place by then.
Employers of Illegal Workers – Loss of NIC allowance
Employers will not receive the National Insurance Contribution employment allowance for 12 months if they receive a civil penalty for employing illegal workers. This will apply from April 2017.
Significant Case Law Developments
Childcare Vouchers during Maternity Leave
Previously the position was grey whether employers had to continue providing childcare vouchers as part of a salary sacrifice scheme when an employee was on maternity leave. The Government guidance suggested that the employer should continue to do so, which could mean, for example when an employee was not receiving any enhanced maternity pay, that an employer was paying childcare vouchers without being able to make any deductions from the employee’s salary.
The Employment Appeal Tribunal in Peninsula Business Services Ltd v Donaldson UKEAT/0249/15 decided that this was not the correct approach, and that instead there was no statutory requirement for employers to continue to provide childcare vouchers under a salary sacrifice scheme during maternity leave.
Scully Twiss Recommendations
- Review the hourly rates of any workers over 25 to ensure that they are being paid at least the new National Minimum Wage
- If you use zero hours contracts, check that none of your contracts/offer letters contain exclusivity clauses
- Consider reviewing your family friendly policies to reflect the lack of entitlement to childcare vouchers during maternity leave