Regulatory Outlook: Employment and Contingent Workforce - November 2016

Current Issues

Holiday pay: The Court of Appeal (CA) has decided that results-based commission must be included in statutory holiday pay calculations. Employers must also bear in mind that overtime forming part of normal remuneration should now be included in statutory holiday pay. Failure to include these payments in future holiday pay entitlements could result in claims under the Working Time Regulations or the deduction from wages provisions in the Employment Rights Act 1996. An appeal of the CA decision to the Supreme Court is now anticipated.

Gender pay:  The new gender pay reporting requirements require employers with 250 or more employees to publish a report containing prescribed gender pay gap data. The government has published final regulations that provide a long-stop date of 4 April 2018 for employers to make their first gender pay report.  An employer must report on a ‘gender pay snapshot’ taken on 5 April 2017. Details of ordinary pay and bonus pay made in the 12 months leading up to 5 April 2017 will therefore form part of an employer’s gender pay calculations. The government has also consulted on gender pay reporting in the public sector and it is likely that the private and public sector requirements will be aligned.

Apprenticeship levy: Funding of apprenticeships will change from April 2017. Employers operating in the UK will have to pay a levy, calculated at 0.5% of an employer’s pay bill, although a ‘levy allowance’ of £15,000 per year will mean that in practice only employers with an employee pay bill of over £3m will be caught. An employer’s levy payments will be paid into the government’s new Digital Apprenticeship Service (DAS), from which they will be able to access the funds (plus a government top-up) to fund approved apprenticeship training. Employers should start planning how they will use this levy as it is paid into the DAS on a ‘use it or lose it’ basis, i.e. if an employer does not use its funds within its DAS account within a specific period, they will be made available to another employer.

Taxation of termination payments: Changes to the taxation of termination payments are to be introduced from April 2018. The main changes involve: removing the distinction between contractual and non-contractual PILON clauses, to treat both as fully taxable earnings (subject to income tax, employer and employee NICs); and levying employer NICs on other termination payments above the £30,000 limit.  Updated draft legislation has been published for consultation.

Personal Service Company (PSC) engagement in the public sector: The government announced in the 2016 Budget that rather than just being able to accept the assurances of PSCs engaged by the public sector about tax and IR35, as they do now, public sector engagers will face a new ‘duty’ to ensure all PSCs they use pay enough tax. Liability to pay the correct employment taxes will move from the worker’s own company to the public sector body or agency/third party paying the company. These proposals are currently undergoing consultation and the government proposes the changes come into force from April 2017.

Employment law reform: A number of employment law reforms are in motion:

• the Business, Innovation and Skills Committee has launched an inquiry on corporate governance, focusing on executive pay, directors’ duties and the composition of boardrooms, including worker representation and gender balance in executive positions;
• we are awaiting the outcome of a government Call for Evidence on post-termination restrictions in employment contracts; and
• the government has commissioned an independent inquiry into modern working practices. This review was announced in October 2016 and will take six months. It will address: security; pay and rights; training and progression; balance of rights and responsibilities for new business models; representation; under-represented groups; and new business models.

In Focus: Enforcement

Employment laws are enforced in a number of ways, both through private action brought by affected individuals in courts and tribunals, and by regulators and other public bodies.

Employment tribunals: access to justice

Access to employment tribunals still remains a significant issue in the employment law arena. Since the introduction of employment tribunal fees in 2013, there have been increasing concerns that the fee regime has caused the number of claims made to employment tribunals to drop off, a conclusion reached by a Commons Select Committee in its recent report. The Committee recommended a substantial reduction in the overall quantum of fees; replacement of the binary Type A/ Type B categorisation of claims according to complexity; an increase in disposable capital and monthly income thresholds for fee remission; and further special consideration of the position of women alleging maternity or pregnancy discrimination, for whom, at the least, the time limit of three months for bringing a claim should be reviewed.

We are still awaiting the outcome of the government’s review of employment tribunal fees – a delay criticised by the Committee. Until that review is published, the Committee believes that its recommendations in relation to employment tribunal fees should be taken as indicating options for achieving the overall magnitude of change necessary to restore an acceptable level of access to justice to the employment tribunals system.

Aside from fees, the Ministry of Justice is currently consulting on wider reforms to the justice system. It is unclear at present how employment tribunals will sit within that new system. However, some of the proposals for the civil courts, such as an online court to deal with simpler claims, may well find their way into the tribunal system.

National Minimum Wage Enforcement

Back in September 2015, the Department for Business Innovation and Skills (now the Department of Business, Energy and Industrial Strategy) announced measures to increase compliance with the National Minimum Wage (NMW) and National Living Wage (NLW).

The measures included legislative reforms, doubling penalties for non-compliance and providing for the possibility of disqualification of those convicted from being a company director. New powers were also given to HMRC to ‘name and shame’ employers. Since the scheme was introduced in October 2013, 687 employers have been named and shamed. This August 2016 saw the government publish the largest list of employers, over 190, to be named and shamed for failing to pay their workers the NMW. Employers should take care to ensure that the NMW and NLW are paid within their organisation and, in particular, be alert to pay arrangements which may inadvertently push pay below these levels.

Director of Labour Market Enforcement

Many employers will have remained relatively untouched by the former Gangmasters Licensing Authority. However, since 1 October 2016, its powers have been significantly increased and could now potentially affect employers in all sectors. The GLAA’s remit has also been expanded so that officers will be able to look into allegations of labour abuse in all aspects of UK businesses. In order to do this, a new role of Labour Abuse Prevention Officer has been created. These will be specialist investigators specifically required to carry out enquiries into labour market abuse offences. In order to support its expanded responsibilities, the GLAA has been given additional powers under the Police and Criminal Evidence Act 1984 and will be able to request assistance from other agencies, including a chief officer of the police, a Director General of the NCA, UK immigration officers or any other prescribed person.New powers, introduced under the Immigration Act 2016, now require the appointment of a new Director of Labour Market Enforcement, to provide strategic direction for those organisations policing and regulating the UK labour market – that is, the Gangmasters Labour Abuse Authority (GLAA) (formerly the Gangmasters Licensing Authority), the National Minimum Wage Unit and the Employment Agency Standards Inspectorate. The strategy will focus on labour market offences as well as breaches of licensing conditions, court orders and regulations plus any non-payment of financial penalties.

Dates for the diary

1 October 2016          

The national minimum wage has increased to:

• £6.95 per hour for 21 to 24-year-olds;
• £5.55 per hour for 18 to 20-year-olds;
• £4 per hour for workers under 18 but above the compulsory school age; and
• £3.40 per hour for the apprenticeship rate.

Early 2017                 

The government is expected to introduce a new tax-free childcare scheme covering 20% of annual childcare costs to a maximum of £2,000 per child, for families who earn less than £100,000 annually, and earn a minimum 16-hour weekly income at the national minimum wage. Both parents must be working and have one or more children under the age of 12.

April 2017                

The government is looking to implement the following changes to the immigration rules:

• the introduction of a requirement that public authority employees in customer-facing roles be fluent in English;
• the ability of an immigration officer to close a place of work within 48 hours where they find or suspect illegal working, and the employer cannot provide evidence of complying with work check requirements; and
• an immigration skills charge which will be applied to employers who sponsor non-EEA nationals under a Tier 2 work visa.

6 April 2017               

Gender pay gap reporting regulations are expected to come into force on 6 April 2017. The government has published final draft regulations introducing gender pay reporting for employers with 250+ employees (which is defined under the Equality Act 2010 to include workers). The final draft regulations require employers to report by 4 April 2018 on a gender pay snapshot taken on 5 April 2017.

6 April 2017               

For those employers with a salary bill exceeding £3m a 0.5% apprenticeship levy will become payable in April 2017.

6 April 2017

Draft legislation is expected to be introduced restricting the benefits which attract income tax and NICs advantages under salary sacrifice arrangements (other than some limited exceptions including pensions, childcare voucher schemes and cycle to work schemes etc.). The government is proposing that the legislation will apply to arrangements entered into on or after 6 April 2017. Existing arrangements are protected until 6 April 2018 (although provision of cars, accommodation and school fees will be protected under 2021).

September 2017           

30 hours’ free childcare becomes available for 3 and 4-year-old’s in working families living in England.

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