Looking ahead to 2017
Following on from our Employment law "Top Ten" of 2016, we now take a look ahead to what are likely to be the key employment law developments for employers and HR professionals in 2017. One piece of advice at the outset, perhaps avoid taking a holiday in April as many of the year's most significant developments take place that month, most of them in the same week!
- Brexit judgment
- Article 50 to be triggered
- Trade Union Act 2016
- Gender pay reporting
- Apprenticeship levy
- Increase in statutory rates
- Salary sacrifice arrangements restricted
- Employing foreign workers
- Off-payroll working in the public sector
- Public sector exit payments
It seems appropriate to start with Brexit, an issue that will continue to dominate the headlines this year. The repercussions of the EU referendum vote last June will be felt for many years to come but more imminent is the Supreme Court's decision in the case of Miller and others v the Secretary of State for Exiting the European Union which we have been told to expect "in the New Year."
The basis of the case is that it is constitutionally improper for the government to rely on the Royal prerogative to serve notice under Article 50 (which formally commences the process to leave the EU) and to trigger Brexit without Parliament's authorisation. On 3 November 2016, the High Court agreed. The government's appeal to the Supreme Court was expedited and was heard over four days starting on 5 December 2016. Reflecting the constitutional importance of the case, the appeal was heard by all the Supreme Court Justices, eleven in all. The last time this happened was back in 1876.
We don't know the exact date yet or even how it will be done, especially as we are still waiting for the Supreme Court judgment in the Miller case. However, as Theresa May announced at the Conservative Party Conference back in October, Article 50 will be triggered before the end of March 2017. Watch this space! Also relevant in this context is the Queen's Speech in spring, when the Great Repeal Bill will be introduced to repeal the European Communities Act 1972 and remove the supremacy of EU law over UK law.
One of the more controversial developments of 2016 was the passing of the Trade Union Act 2016. There were numerous industrial disputes in the run up to Christmas and although the Act's provisions may not go far enough for some people, its changes to the law on industrial action and trade union obligations are extensive. One of the most significant changes is the introduction of a statutory minimum 50% voting threshold of eligible union members in strike ballots. In addition, where industrial action is proposed in important public services (health, education, fire, transport and border security) 40% of eligible voters must support industrial action. This 40% threshold does not include “ancillary” workers in those services only those actually delivering the service. Government guidance will be produced to clarify what this means. It has been argued that imposing these thresholds will make it difficult to organise lawful industrial action but that may not be the case. In the recent Southern rail/Aslef dispute, the turnout was 77% and 87% voted to take part in strike action. If the minimum thresholds had been in place they would have been met without difficulty.
On 6 December 2016, the government published five sets of draft Regulations with more details of what is meant by “important public services”. Health services for example, will include emergency ambulance services, accident and emergency, high-dependency units and intensive care services as well as emergency psychiatric, obstetric and midwifery services. Transport services will include London bus services, passenger rail services (but not including international rail services) and air traffic control services. The draft Regulations are to be debated in Parliament in January and it is expected that the provisions relating to these minimum balloting thresholds will come into force on 1 March 2017 or 21 days after the Regulations are made if later. Implementation of the remainder of the Act is unknown at this stage.
The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 will come into force on 6 April 2017. The Regulations apply to employers in the private and voluntary sector with 250 or more employees. Employers will need to calculate gender pay gaps using a snapshot of data for the pay period encompassing the date 5 April 2017 but note that, in relation to bonuses, the period is 6 April 2016 to 5 April 2017. Employers must then publish information about their gender pay within 12 months that is, by 4 April 2018 and thereafter annually.
The Regulations specify what does and doesn't constitute "pay". For example, pay includes basic pay, paid leave, maternity, paternity, adoption, parental or shared parental leave, sick pay and bonus pay. Pay does not include for example, overtime pay, expenses, benefits in kind and redundancy pay. The Regulations also provide more detail of what is meant by "relevant employees" who are "employed" on the snapshot date and of the data employers are required to publish. For more details see our previous briefing.
There isn't that much time to prepare for the Regulations. Although publication is not compulsory before 4 April 2018, the first snapshot pay period on which the figures will be based is 5 April 2017 (save for bonuses as mentioned above). We would encourage employers to do a "dummy run" and our bespoke Equal Pay Audit service can help with this. Please click on the link below to view details.
Similar Regulations relating to the public sector in England (not Wales) are also likely to be implemented on 6 April 2017 but this has not yet been confirmed.
The need to tackle gender pay differences is clear. The ONS reports that the UK pay gap is 9.4% for full time employees and 19.2% for all employees. Other research reveals that women lose out on wage progression when they return to work part-time from maternity leave and women's poorer promotion prospects also impact on pay. Research just published by the Resolution Foundation shows that women face a "rapid rise" in pay inequality in their 30s and 40s. Although mandatory gender pay reporting will be welcomed by many it will be quite some time before we see what impact it has on reducing the long-standing pay gap.
The levy will be introduced across the UK on 6 April 2017 through the Income Tax (Pay As You Earn) (Amendment) Regulations 2017. On 14 December 2016, HMRC published, for further technical consultation, updated draft Regulations and the consultation period ends on 3 February 2017.
All employers, whether in the private or public sector, that have an annual wage bill of more than £3 million will need to spend 0.5% of their wage bill on the levy. The levy will be collected monthly through PAYE and there will be a £15,000 annual allowance for employers to set off against the levy. The allowance will accumulate on a monthly basis meaning that, every month, employers will be able to off-set £1,250 of the allowance against any levy liability. Any unused allowance is also capable of rolling over from one month to the next. Where companies are connected, the employer will only receive one £15,000 allowance but will be permitted to split the allowance between them. Extensive guidance has been published by the government on how the levy will work in practice.
To access apprenticeship funding, employers in England will need to set up a digital apprenticeship service account for which they can register from January 2017. For details of the funding arrangements in England please see our previous briefing.
It is important to note that that the funding arrangements only apply to England. This is because "skills", including apprenticeships, are devolved matters and the Welsh and Scottish governments and Northern Ireland Assembly will decide what they will do with the money allocated to them from the levy and how employers will access it. In Wales, plans will be published "later this year" (meaning 2016) but there is no more information at present.
The National Minimum Wage (NMW) is not a new development but it is important to note that the usual October increase in the rates will now change to April to be aligned with the National Living Wage (NLW) which was introduced in April 2016. The NLW is a new, top rate of the NMW and is currently £7.20 an hour for workers aged 25 and over. From 1 April 2017 the NMW rates will increase as follows:
- NLW rate from £7.20 an hour to £7.50
- Adult rate (21 to 24 year olds) from £6.95 an hour to £7.05
- Development rate (18 to 20 year olds) from £5.55 an hour to £5.60
- Youth rate (16 to 17 year olds) from £4.00 an hour to £4.05
- Apprentice rate from £3.40 an hour to £3.50
In November's Autumn Statement, the government announced that it will spend £4.3 million helping small businesses to understand the NMW rules and "cracking down" on employers who do not pay the NMW.
Statutory maternity, adoption, paternity and shared parental leave rates usually change on the first Sunday in April which is 2 April 2017 and they will increase from £139.58 a week to £140.98. From 6 April 2017 statutory sick pay will increase from £88.45 a week to £89.35.
In November's Autumn Statement, the Chancellor confirmed that the tax and employer National Insurance advantages of salary sacrifice schemes entered into on or after 6 April 2017 will be removed, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. The reason for the change, according to the government, is 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. However, salary sacrifice arrangements in place before 6 April 2017 will be protected until 6 April 2018, and arrangements for cars, accommodation and school fees will be protected until 6 April 2021 unless the arrangement is ended, modified or renewed before then.
The "Immigration skills charge" is due to be implemented from April 2017 for employers sponsoring non-EEA nationals coming to the UK under a Tier 2 Visa. It is to be introduced at £1000 per employee per year, with a reduced rate of £364 for small or charitable organisations. Although the Regulations have not yet been published, the Home Office literature on the subject suggests that businesses will be treated as "small" in the same way as they are under the Sponsor Licence system, that is, as defined by section 382 Companies Act 2006 (satisfying two or more of the following requirements: turnover of not more than £10.2 million; balance sheet total of not more than £5.1 million; no more than 50 employees). There are exemptions for PhD level jobs, international students switching from Tier 4 to Tier 2 visas, and the Intra Company Transfer Graduate Trainee category. The skills charge could increase recruitment costs if an exemption doesn't apply, and may incentivise some employers to look to the resident labour market to keep costs down.
In autumn 2016, the minimum salary for "new entrants" into the Tier 2 General category (mainly those switching from the Tier 4 student category or under 26 years old) remained at £20,800. However, the salary threshold for sponsoring Tier 2 General "experienced" workers increased to £25,000. In April 2017, the minimum salary will rise again to £30,000.
The short-term Tier 2 Intra-Company Transfer will close in April 2017. A minimum salary threshold of £41,500 in this category will apply. The requirement that an applicant has worked for the same company overseas for at least 12 months will still apply. However, those earning more than £73,900 will not have had to have any prior overseas experience with the company. Those earning over £120,000 will be able to extend their visas for up to 9 years.
For further information and advice please contact our Immigration team.
Not a very well publicised measure compared to the gender pay reporting requirements or the apprenticeship levy mentioned above and certainly not a very catchy title! This development however will have significant implications for the public sector and agencies that provide workers to that sector. The off-payroll rules are often known as IR35 or the intermediaries' legislation. There has been long-standing concern that individuals who work through an intermediary, such as a Personal Service Company (PSC), do not fully comply with the IR35 legislation and so are able to avoid employment taxes or NICs when, but for the PSC, the arrangements between the parties are more characteristic of an employment relationship.
The purpose of the measure is to improve fairness in the tax system by removing the ability of the individual to side-step the IR35 rules. Rather than the individual who works through a PSC being responsible for deciding whether or not the off-payroll rules for engagements in the public sector apply, responsibility will pass instead to the public sector body, agency or third party engaging the intermediary to make that decision and to pay the right tax and NICs. It is not clear whether this measure will have effect only for contracts entered into or payments made, on or after 6 April 2017 or if it will also apply to contracts already in place. The government estimates that around 26,000 PSCs will be affected. The changes do not apply to PSCs providing services to the private sector and there will be no impact for those who are genuinely self-employed and outside the intermediaries' rules. On 5 December 2016, HMRC published comprehensive technical guidance about how the new rules will apply and it is currently developing an online tool that will help to determine employment status. For further information and advice please contact our Recruitment sector group and our Corporate tax team who have specialist expertise in this area.
There are three separate developments in relation to public sector exit payments and their broad purpose is to save tax payers' money by limiting the cost of public sector exit payments and recouping them where possible.
The first initiative relates to the reform of public sector exit packages and the government's objective is to make compensation terms fairer and more consistent with the private sector. A consultation paper published in February 2016 set out the framework for the restructuring of exit terms:
- Setting a maximum tariff for calculating exit payments at three weeks' pay per year of service
- Introducing a cap of 15 months' salary for calculating redundancy payments
- Calculating exit payments based on a maximum salary which could possibly be aligned with the NHS scheme salary limit of £80,000
- Tapering the amount of lump sum compensation an individual is entitled to receive as they get close to the normal pension age or target retirement age of their pension scheme
- Limiting or ending employer-funded early access to pensions within exit packages
Following the conclusion of the consultation exercise in September 2016, the government expected public sector organisations to begin restructuring their exit terms "immediately" using this framework, to consult and negotiate with trade unions and other workforce representatives and then to obtain their agreement to the changes. Significantly, the government thought that the process could be concluded within nine months, that is, by the end of June 2017. It would be interesting to know how our public sector clients are managing with these timescales. The proposals will affect many thousands of public sector workers and most of the respondents to the consultation exercise were opposed to them. There is concern that they will damage staff morale and workplace relations and will impact on future recruitment. On the other hand, if these changes are made the government expects to reduce spending on exit payments by up to £250 million a year.
Another development is the proposed cap of £95,000 on public sector exit payments. The cap will apply, for example, to a redundancy payment, a voluntary exit from employment payment and a payment in lieu of notice. It will not apply, for example, to payments that are made in respect of incapacity or death or for untaken annual leave. There will be a limited option to waive the cap. The Public Sector Exit Payment Regulations 2016 were originally expected to come into force in autumn 2016 but were delayed and it is reported that they may be implemented in early 2017. According to the government, in 2013/14 almost 2,000 public sector employees received exit payments costing more than £100,000. However, overall that is a relatively small (albeit costly) number. In 2014/15 more than 97% of exit payments were below £95,000.
The final development is the repayment of public sector exit payments which will apply to individuals earning £80,000 or more a year where they return to the public sector shortly after leaving it. The Repayment of Public Sector Exit Payments Regulations 2016 were expected to come into force in April 2016 but have been delayed. It is proposed that there will be a tapering system from day 1 to ensure proportionate repayment over a period of 12 months. The employee/exit payee will be under a duty to provide specific information "as soon as reasonably practicable" if they return to the public sector within 12 months of receiving the exit payment and must inform their new employer that there has been a qualifying exit payment and that there may be an obligation to repay some or all of it. Once again, there will be a limited waiver option.
Note that the Welsh and Scottish governments and Northern Ireland Assembly are to decide if and how they plan to introduce similar arrangements in relation to devolved bodies and workforces.
Clearly it's going to be another busy year for employers and HR professionals across all sectors with many challenging developments. If you thought that nothing was happening for the rest of 2017 that's just wishful thinking. There are some significant cases still being pursued. For instance, Unison's appeal about the introduction of Employment Tribunal fees will be heard by the Supreme Court on 27 and 28 March 2017. The Chesterton Global Ltd whistleblowing case about the meaning of "in the public interest" will be heard by the Court of Appeal on 8 June 2017. In terms of the holiday pay/commission litigation will British Gas decide to pursue the Lock case to the Supreme Court or will they decide to call it a day?
It is also important to keep an eye on developments that may arise from some current consultation exercises. Proposals on how to reform corporate governance, including for privately-owned companies were published on 29 November 2016 with the consultation period ending on 17 February 2017. Similarly, the consultation paper Improving Lives, is seeking views on how to transform the employment prospects of disabled people and people with long-term health conditions. It was published on 31 October 2016 and the consultation period ends on 17 February 2017. Finally, the Turner Review, Employment Practices in the Modern Economy concludes in May 2017. Its purpose is to assess how employment practices "need to change to keep pace with modern business models". One of the themes addressed by the Review will be security, pay and rights. There has been a rise in the number of people working in the "gig" economy and this will continue to be a hot topic for 2017. Determining an individual's employment status, if any, is crucial because if the definition of "worker" or "employee" is satisfied the individual gains the benefit of certain employment rights. This was the matter in dispute in Aslam v Uber, one of our Top Ten cases from 2016. The Review team will be visiting various locations across the UK in the months ahead and details will be released shortly.
There never seems to be any shortage of developments in employment law and we will continue to keep you updated and look forward to working with you in 2017.