Autumn Statement 2016: What this means for Employment
Our experts share their views on the 2016 Autumn Statement announced today.
Ruth Christy, a lawyer specialising in employment law at law firm Blake Morgan, said: "The announcement today that the National Living Wage (NLW) introduced in April this year for workers aged 25 and over will be increased from £7.20 to £7.50 per hour from April 2017 is not really ground-breaking, since the rate was due to be revised from next April anyway. However it will still be a blow to many employers, especially in certain sectors.
"Despite complaints about the NLW from many businesses, the NLW from April 2017 will still fall far short of the voluntary Living Wage set by the Living Wage Foundation which has just risen to £8.45 and £9.75 for workers in London.
“Nevertheless, employers need to take action now and forward plan for this increase - many employers may not be ready for the changes and the impact the increased financial burden will bring.
“Sectors such as retail and hospitality prior to the introduction of the NLW were particularly concerned about its potential impact. Many organisations could however offset the costs of the NLW by reduced premium payments, higher prices, lower profits and reduced hours.
“There is a particular concern for the social care sector and small businesses in more marginal sectors where often flexibilities do not exist and cuts by government and local authorities are already hitting hard.
“Businesses will again have to consider increasing productivity to fund the changes, while those that can, may attempt to pass the costs on to customers.
“Clearly the impact will be different depending on regional economies and local pay rates - a much deeper impact is likely to be felt in certain regions and cities, with less of an impact in London and the South East.
"Employers should remember that we are also expecting the other rates of the National Minimum Wage (for 16-17 year-olds, 18-20 year-olds, 21-24 year olds and apprentices) to be revised from next April.
“Employers will also be faced with the increased cost of National Insurance Contributions and pension contributions under the auto-enrolment scheme – both as a result of increased pay, and as the rate of employer pension contributions slowly rises. Compulsory employer contributions under auto-enrolment, currently at 1%, will rise to 2% from April 2018 and then 3% from April 2019. There may be a slight set-off to these increased costs through a revised threshold of who must be auto-enrolled, but that is likely to have minimal impact.
“With many employers already complaining about the costs of the forthcoming Apprenticeship Levy, businesses will be hoping that savings can be made from other concessions in the Autumn Statement.
With regard to the taxation of termination payments, the Government had already announced earlier this year that all Payments in Lieu of Notice (PILONs) would be taxed regardless of what the employment contract said (currently some PILONs may be paid free of tax if there is no contractual right to make a PILON). However it has now confirmed in the Autumn Statement papers that, following a technical consultation, tax would only be applied to the equivalent of basic pay if an employee does not work their notice. This reflects some difficulties encountered in drafting provisions to tax an employee's 'expected bonus income' in relation to a notice period, so the Government has obviously decided to keep things simple.
The Chancellor has also confirmed proposals regarding salary sacrifice – namely that the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. According to the Government: "this will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
“The Chancellor confirmed that tax advantages linked to Employee Shareholder Status (introduced in 2013) will be abolished. Employee Shareholders give up certain statutory rights (such as the right not to be unfairly dismissed) in return for shares.
“Although it was designed to encourage start-ups and small businesses, the special tax rules have been only really used by senior executives using it as a tax break for shares they were going to get anyway. The Autumn Statement papers state that the status itself will be closed at the next legislative opportunity."