Are you ready for the April employment law changes?
Spring is here and the clocks have gone forward but these are not the only newsworthy issues. As ever, April sees a number of significant employment law changes and set out below are an overview of the key developments.
National Living Wage
The introduction of the National Living Wage (NLW) on 1 April 2016 has dominated the headlines for the past few months and is certainly one of the most significant developments of the year. The NLW was actually announced back in the July 2015 Budget and is still proving controversial with many employers.
The NLW is a new, additional, top rate of the National Minimum Wage (NMW) and workers aged 25 and over will benefit from the hourly rate of £7.20 from the first pay reference period beginning on or after 1 April 2016. The pay reference period is the period used for calculating hourly pay and could be weekly or monthly or even daily, depending on when the workers are paid. Employers must start paying the NLW at the start of the relevant pay period that is, the first pay period on or after 1 April. Similarly, when a worker turns 25, the new NLW rate is not payable immediately on their birthday but rather, from the start of the next pay reference period after their birthday.
The other NMW hourly rates are as follows:
- Adult rate (ages 21 to 24) £6.70 (increasing to £6.95 in October 2016).
- Development rate (ages 18 to 20) £5.30 (increasing to £5.55).
- Youth rate (under 18) £3.87 (increasing to £4.00).
- Apprentice rate (under 19 or within the first 12 months of apprenticeship) £3.30 (increasing to £3.40).
There will be no change to the NLW in October 2016 but it is intended that the NLW will increase to £9 an hour by 2020.
According to the Resolution Foundation, which monitors the living standards of people on modest incomes, around a third of workers in low pay areas will benefit from the introduction of the NLW. Three groups will benefit in particular: women who are over-represented in minimum wage jobs, workers between the ages of 25 to 30 and people still working over the age of 66. However the impact of the NLW will vary across the country. Workers in London and the south east will see relatively little change whereas an estimated 22% of workers in Sheffield (identified as a low pay "hotspot") will benefit from a pay rise.
In terms of the impact of the NLW on specific business sectors, the retail and hospitality and care sectors are some of the most affected. According to the British Retail Consortium, 300,000 workers will benefit from an immediate pay rise and the sector will need to find up to £3 billion by 2020.
There is some concern that the NLW will mean that employers will perhaps seek to recruit younger staff or increase prices to customers to meet the extra wage costs. Some employers may decide to reduce the number of staff, delay investment plans or reduce overtime or other benefits. On the other hand, many employers, particularly in the retail sector, are competing to offer higher salaries or to pay the unrelated, voluntary Living Wage which is currently £9.40 an hour for London and £8.25 outside London. An estimated 2,300 employers are paying the Living Wage.
Hopefully, by this stage, employers have already established who is eligible in their organisation for the NLW, made the appropriate changes to payroll and informed the relevant staff affected.
Beware of the significant consequences of not complying. HMRC will continue to have responsibility for enforcing the NMW and as the NLW is effectively a new rate of the NMW, the same enforcement regime applies. The financial penalty for non-payment doubled to 200% of the arrears due to the worker for pay reference periods on or after 1 April 2016 (this will be halved if the arrears are paid within 14 days) and the maximum fine for non-payment remains at £20,000 per worker. In addition, employers can be disqualified from being a company director for up to 15 years for non-payment of the NMW and NLW. Finally, don't forget the government's well publicised policy of naming and shaming employers for not paying the NMW.
The government has just published new guidance Calculating the minimum wage and this provides practical examples of what counts as pay and working hours for minimum wage purposes and how to calculate the minimum wage.
Employment Tribunal compensation limits
On 6 April 2016, there are increases to the statutory limits as follows:
- The statutory limit on a gross week's pay (used to calculate the basic award for unfair dismissal and the statutory redundancy payment) increases from £475 a week to £479 a week.
- The maximum compensatory award for unfair dismissal increases from £78,335 to £78,962 or 52 weeks' pay whichever is lower.
Financial penalties for non-payment of Employment Tribunal awards
From 6 April 2016, legislation comes into force which enables a financial penalty to be imposed on an employer that fails to pay an Employment Tribunal award or a sum agreed in an ACAS COT3 settlement. The purpose of this is to put pressure on employers to make payments of awards that have been ordered or sums that have been agreed by the parties. According to government research carried out in 2013, out of 1,200 successful claimants only about half had actually received the full award from their employer and over a third were completely unpaid. The employer's insolvency was the reason for non-payment in 25% of cases and the research also revealed that smaller employers were more likely to pay late or not pay at all.
The penalty (payable to the Secretary of State) will be 50% of the unpaid award subject to minimum of £100 and a maximum of £5,000 and there will be a reduction of 50% for prompt payment, that is, within 14 days of the penalty notice.
This new measure is similar to the provision introduced in April 2014 whereby Employment Tribunals can order employers who have lost their case to pay a financial penalty to the Secretary of State where the employer's breach has "aggravating features". Interestingly, the government confirmed in late January 2016 that only 12 financial penalties had been ordered to date and only 6 of these have actually been paid.
Employment Tribunal postponements
From 6 April 2016, changes to the Employment Tribunals Rules of Procedure will make it more difficult for the parties to make requests for postponements where a claim has been brought on or after that date. Briefly, there will be a limit to the number of postponements a party can make. If the Employment Tribunal has already allowed one party two postponements, a request for a third postponement will only be made in limited circumstances, for example, all parties consent to the postponement.
Public sector exit payments
There are two key developments in this area. Firstly, the recovery of public sector exit payments where an individual is required to pay back an exit payment if they return to the public sector within 12 months of their departure. Secondly, the proposed cap on public sector exit payments.
In relation to the recovery of public sector exit payments, draft Regulations were issued for consultation on 22 December 2015 and were expected to come into force in April 2016. The actual implementation date has not been confirmed but under these provisions there will be a duty to repay exit payments such as redundancy payments, severance payments and discretionary payments to buy out actuarial reductions to pensions.
As for the cap on public sector exit payments, there is currently a consultation exercise ongoing looking at such issues as the tariff for calculating exit payments and the consultation period ends on 3 May 2016.
Contracting out of state second pension abolished
Contracting out of the state second pension (S2P) is abolished for defined benefit pension schemes from 6 April 2016. The net consequence is that employer costs will increase as they no longer benefit from the savings on National Insurance. The requirement in the Employment Rights Act 1996 for employment contracts to state whether there is a contracting out certificate in force is also repealed from 6 April so employers no longer have to refer to contracting out at all. The cessation of contracting out has a number of implications and employers can take various steps to manage any increased liabilities that arise as a result. Employers should also think about how they communicate the change to affected employees. For further information please contact our Pensions team.
Statutory pay rates
Unusually this year, there will be no April increase in the statutory payment rates for maternity, adoption, paternity or shared parental leave and the rates are unchanged at £139.85 a week.
Similarly there will be no change to statutory sick pay and the current weekly rate remains at £88.45.
Psychoactive Substances Act 2016
This Act was expected to come into force on 6 April 2016 and prohibits the production, distribution, sale and supply of all psychoactive substances (legal highs) with the exception of those in everyday use such as medicines, alcohol, cigarettes and caffeine. Legal highs imitate the effects of illegal drugs.
The legislation is significant because it will have implications for alcohol and drug policies or driving policies. However, at the very last minute, the government announced that the introduction of the Act will be delayed for at least a month while the actual meaning of psychoactive substances is clarified.
See our previous article on the topic for more details by clicking here.