Implications of the Budget for employment lawyers
The Chancellor's 'big budget' today was focussed on identifying how the Government would find £17 billion in savings whilst being the budget which moved Britain to a "higher wage, lower tax, lower welfare society." £5 billion was to be found through tax evasion and tax avoidance, and £12 billion through welfare cuts. However, the Chancellor also announced that "Britain deserves a pay rise".
With this in mind, the main headline for employment lawyers is the introduction, from next April, of a compulsory National Living Wage for workers of 25 years and older of £7.20 per hour, rising to £9.00 per hour by 2020. This sounds like a significant increase, but the National Minimum Wage, currently £6.50, was due to rise to £6.70 in October anyway, and from there the leap to £7.20 is not that great. It is worth noting that the Chancellor's figures are quite different from the Living Wage Foundation's current rates of £7.85 and £9.15 in London.
The Chancellor also stated that the Low Pay Commission will recommend further increases to the National Living Wage, with the result that workers on the lowest wages will be receiving 60% of median earnings by 2020. Whilst this is expected ultimately to result in a loss of 60,000 jobs by 2020, he commented that it would be balanced by a general increase of 1 million jobs by 2020. He recognised that a National Living wage would put pressure on some businesses, and pointed to his other announcement today that Corporation Tax would be reduced by 1% to 19% in 2017, and then to 18% in 2018, as a balancing factor.
He also announced that the Employment Allowance will be increased from £2,000 to £3,000. This, he said, would allow small businesses to employ up to 4 people on the National Living Wage without paying any National Insurance.
In relation to taxation and the personal allowance, the Chancellor announced that he was increasing the tax-free personal allowance to £11,000 for 2016/17 and the higher rate tax threshold to £43,000 in 2016/17, working towards the Conservative pledge of a personal allowance of £12,500 and a higher rate threshold of £50,000 by the end of this Parliament.
Importantly for employment lawyers, the Chancellor also announced a new apprenticeship levy on all large firms. He said that too many large firms have relied on others to train staff which they then benefit from. The money will go directly into the control of employers via the 'digital apprenticeships voucher' to support all post-16 apprenticeships in England. It will provide funding that each employer can use to meet their individual needs. The Chancellor was keen to stress that firms that are committed to training will be able to get back more than they put in.
Adrian Lamb, Legal Director Pensions and Head of Trustee services at Blake Morgan, commented "Today's budget from Chancellor George Osborne includes some potentially major changes affecting pensions and one tax increase that affects some employee benefits. First, and potentially most significantly, the Government is consulting on whether, and if so how, to change the tax relief on pension contributions. The Chancellor commented that pension contributions could be treated in the same way as payments into ISAs, i.e. paid out of taxed income but with certain tax advantages on investments and presumably tax free on withdrawal. The consultation runs until the end of September.
"Second, the tax relief on pension contributions for top rate tax payers (those earning more than £150,000) will be tapered from the current maximum of £40,000 p.a. to £10,000 from next April. This change comes on top of planned reduction in both the Lifetime and Annual Allowances already due to come in from next April.
"The Chancellor also announced an increase in Insurance Premium Tax from 8% to 9.5%. Presumably this will lead to an increase in the cost of certain employee benefits, including life assurance, long term disability and private medical insurance."
The Chancellor confirmed – almost in passing – the proposed relaxation of Sunday Trading laws in England and Wales which was leaked yesterday. The proposal is to align high street shops more closely with online retailers that are able to trade 24 hours a day. Currently, small shops can open all day on Sundays, but shops with over 280 square metres can only trade for six hours. The Budget policy paper confirms that the decision over whether to relax these rules would be devolved to local councils and elected mayors. The Government is to launch a consultation on allowing councils or mayors to extend trading hours to parameters determined by them.
The Chancellor announced a freeze to working age benefits for the next 4 years, but confirmed that benefits like maternity pay, paternity pay and SSP would be excluded from the freeze.
Also of interest to employment lawyers, and buried deep in the full Budget papers is the promise that "The government will consult on the tax and National Insurance contributions (NICs) treatment of termination payments, to make the system simpler and fairer."
Finally, the Chancellor confirmed that he would be keeping up the pressure to crack down on disguised employment and personal service companies, in which his reforms to the taxation of dividend income announced today play a part.
Are there any surprises?
Pressure has been growing in many industries, in particular the retail sector, for employers to pay the Living Wage. Although it has been on the agenda, the fact that a form of Living Wage is being made compulsory from next April will come as a surprise to many.
In the same way, although some announcement regarding apprenticeships was expected today because it's high on the Government's agenda, the apprenticeship levy for large firms will be a surprise. The Conservatives have already pledged the creation of an additional 3 million apprenticeships, and Harriet Harman in her response to the Chancellor's speech claimed that apprenticeships were in fact stagnating, so this could be the boost that is needed to achieve the Government's pledge.
The relaxation of Sunday Trading laws was leaked yesterday so in that sense is not a surprise.
Adrian Lamb says, "What is perhaps surprising is that there were no changes announced today to salary sacrifice, which many had thought could be an easy target for savings. However the Government has said it will be actively monitoring the costs to the Treasury of salary sacrifice."
What actions should Employment lawyers be taking as the dust settles?
It seems perhaps strange, that the National Living Wage (NLW) will not replace the National Minimum Wage (NMW). Whilst the Low Pay Commission (LPC) will also be involved in setting levels of the NLW, its remit in respect of the NMW will not change. This may be because the NLW will only apply to workers 25 and over. However, the LPC will be required to set the NLW at a rate which reflects the growth in median earnings.
The Government has said there will be formal engagement with business on the implementation of the apprenticeship levy, which will also consider the interaction with existing sector levy boards, and that further details will be set out at the Spending Review. It is unclear whether this will be by consultation or otherwise. What amounts to a 'large firm' was also not specified, but it is likely that it will be those with 250 or more employees, in line with other employment law thresholds.
In relation to apprenticeships, employment lawyers should already be aware of the changes under the Deregulation Act from 26 May 2015, as the Government and employers develop apprenticeship 'Standards' to replace the previous apprenticeship 'Frameworks'. In England, apprenticeship agreements will progressively be known as 'approved English apprenticeship agreements'. The requirements for approved English apprenticeship agreements are now slightly different to Wales (and to the previous English requirements of an apprenticeship agreement) if a new apprenticeship 'Standard' has been published. As the number of apprenticeships increase, with the help of funding produced from the apprenticeship levy, employment lawyers must be up to speed on the legal provisions regulating them under the Apprenticeship, Skills, Children and Learning Act 2009 as amended by the Deregulation Act 2015.
The debate about Sunday trading hours has rumbled on for a number of years. There have been two consultations on the topic since 2010, and relaxed rules during the Olympic and Paralympic Games in 2012 (described as an 'almighty flop' by the trade union USDAW) reignited the debate.
Unions say that the move, which would be introduced through the forthcoming Enterprise Bill, would put more pressure on employees. Currently employees who work in shops which open to customers on a Sunday may opt out of Sunday working providing they give three months' written notice. Legislation covering the period of the Olympic and Paralympic Games reduced this notice period to two months. Employees may only object if they are or may be required to work on a Sunday and they are not employed to work only on a Sunday. There is nothing that a retail employer can do to prevent workers opting out of Sunday working, so if necessary an employer may need to rely on other measures such as employing Sunday-only workers (perhaps the under 18s and students) or operating a higher rate of pay on Sundays.
Employment lawyers with retail or trade union clients should watch out for the Government consultation on Sunday Trading laws, and their clients may want to respond to it. The consultation is likely to focus on devolving the powers to local councils and elected mayors. It's possible that it would also look at whether there should be changes to the existing rules on opting out – although this would be strongly resisted by trade unions.
Where trading hours are extended, convenience stores will feel the pressure and will need to find other ways of attracting customers. It's proposed to be a devolved power, so may come in gradually in different regions. However, all employers in the sector should be reminded that employees who do opt out of Sunday working must not be dismissed or subjected to a detriment for doing so. Dismissal for asserting this statutory right will be automatically unfair and needs no qualifying period of service. Contracts may also need to be reviewed to check whether the employer is obliged to provide an employee who has opted out with another day's work, and consideration given to the terms of new contracts (subject to any collective agreements). National retailers may have to contend with extended hours in some regions but not others.
Employment lawyers acting for employees should be prepared for more staff seeking advice about detriment and dismissal. Of course, it's worth remembering that the current protection is limited to 'shop' workers, and that other types of worker need to rely on other provisions, such as discrimination on grounds of religion or belief under the Equality Act 2010. In 2013, the Court of Appeal ruled that a Christian worker at a children's home who had objected to working on Sundays was not unlawfully discriminated against on grounds of her religious belief when her employer refused to accommodate her objection. Although there was a provision, criterion, or practice which put Christians at a particular disadvantage, the employer could establish that there was no other viable or practicable way of providing the service other than by requiring all staff to work on Sundays (Mba v London Borough of Merton  EWCA Civ 1562). By contrast, a Jewish job applicant was recently awarded £17,000 because she was turned down for a call centre job for refusing to work on Saturdays.