RFB looks at important new legislation affecting employment rights and responsibilities due to come into force on 1 April 2016. For example, a national living wage is being introduced as well as a new state pension scheme. National Insurance Contributions (NIC’s) are abolished for apprentices under 25 years old and regulations requiring higher earning public-sector employees to repay exit payments if they re-join the public sector within a year are expected to come into force in April 2016 or soon after. Furthermore, legislation allowing tribunal enforcement officers to impose a financial penalty on an employer that fails to pay a tribunal award is also expected to come into force in April 2016. Lastly, a minimum salary requirement is being introduced for tier 2 workers on 6 April 2016.
1. The national living wage is introducedWorkers aged 25 and over will be entitled to the national living wage rate of £7.20 per hour from the first pay reference period beginning on or after 1 April 2016. The national living wage is a new top rate of the national minimum wage. Employers should check, in particular, that employees’ pay is not brought below the new rate by salary-sacrifice arrangements.
If 1 April 2016 falls part way through a payroll period, from which date does the employer have to start paying the national living wage?
The national living wage is the new statutory minimum wage rate of £7.20 that must be paid to workers aged 25 and over. The national living wage applies to pay reference periods beginning on or after 1 April 2016.
For example, if an employer's monthly payroll period begins on 10 April 2016, the national living wage rate will apply from that date, because this is the first pay reference period that begins on or after 1 April 2016. The employer does not have to pay workers the national living wage for the period of 1 April to 9 April 2016.
2. Penalties for non-payment of the national minimum wage are increased
The penalty for employers found not to have paid the national minimum wage doubles from 1 April 2016. The enforcement regime is the same for non-payment of the national living wage.
National minimum wage enforcement
The law relating to the national minimum wage is governed by the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 2015 (SI 2015/621). The Regulations, which came into force on 6 April 2015, replaced and consolidated the National Minimum Wage Regulations 1999 (SI 1999/584) and amending Regulations, which were revoked.
The majority of workers aged 16 and over qualify to receive the national minimum wage. Exclusions from the right include au pairs, family members in the family business and voluntary workers.
There are four rates of payment for the national minimum wage.
Calculating whether an employee has been paid the national minimum wage can be very complicated. In essence, the employer should divide the number of hours worked by the amount of pay, but there are different rules relating to different types of work.
Employers must keep records that show that they have paid their workers the national minimum wage for three years after the pay reference period following the pay period that the records cover.
What are the consequences if an employer pays workers less than the national minimum wage?
Where an underpayment of the national minimum wage is identified in an investigation by HM Revenue and Customs (HMRC) (including an underpayment of the national living wage from 1 April 2016), the compliance officer may issue a notice of underpayment requiring the employer to pay the arrears to the worker(s) and pay a financial penalty to the Secretary of State
The penalty is set at 100% of the total underpayment. This will increase to 200% for pay reference periods starting on or after 1 April 2016. There is a minimum payment of £100 and a maximum payment of £20,000. The maximum payment applies for each worker who has been underpaid, not to the total payment for all workers.
The most serious cases of non-compliance with the national minimum wage legislation, for example producing false records or refusing to answer questions from a compliance officer, may be criminally prosecuted by the Revenue and Customs Prosecutions Office. The potential penalty on conviction is an unlimited fine.
The Government operates a scheme to publicly name employers that do not comply with the law on the national minimum wage. The Department for Business, Innovation and Skills periodically issues a press notice naming employers that have been issued with a notice of underpayment.
An employer that pays less than the national minimum wage may face individual claims from employees for unlawful deductions from wages or breach of contract. If an employee brings his or her own claim, HMRC cannot also enforce a complaint on the employee's behalf.
3. A new state pension scheme is introduced, ending contracting-out
A single-tier state pension is introduced from 6 April 2016, replacing the previous basic state pension and additional state pension. Employer-provided pension schemes will no longer be able to contract out of the state pension and receive a national insurance rebate.
This means that, where an employer provides a previously contracted-out scheme, its employer and employee national insurance contribution liability will increase. Employers should ensure that employees are aware that there may be an impact on their pay packet and that they understand the reasons for this.
The state pension system combines a contributory state scheme, consisting of a basic retirement pension and an additional pension (previously the State Earnings Related Pension Scheme, now the state second pension (S2P)).
The state pension age for men is 65. It is in the process of increasing from 60 to 65, for women. It will have reached 65 by 6 November 2018. It is due to increase to 66 for men and women by October 2020 and 67 by 2028.
To qualify for a basic state pension, individuals must have paid or been credited with a certain level of national insurance contributions.
There is a "triple guarantee" attached to the rate of the state pension. Employees can earn an entitlement to an additional, second tier state pension. National insurance contribution rebates apply where the employer operates a defined-benefit occupational pension scheme and the employment is contracted-out of the state second pension.
Occupational and personal pensions
Employers often offer employees membership of an occupational pension scheme, which may be contributory or non-contributory. Subject to the auto-enrolment provisions, employers must not attempt to compel employees to become members of a scheme, although membership can be automatic unless the employee requests in writing to opt out.
Trustees oversee the operation of occupational pension schemes.
Tax relief is available on pension contributions and savings, subject to key controls.
From 6 April 2015, pension scheme members have more flexibility than previously, in how and when they can access their pension savings.
Individuals may be a member of more than one pension scheme.
People who do not have access to an occupational pension scheme may choose to invest in a personal pension plan.
Employers may offer personal pensions to employees on a group basis. This is much easier to administer than an occupational pension scheme as trustees are not required.
From 8 October 2001 to 30 September 2012, many employers were required to give employees access to a stakeholder pension scheme. The requirement to designate a stakeholder pension was removed from 1 October 2012 with the introduction of pensions auto-enrolment.
4. Employer NICs are abolished for apprentices under age 25
As part of the Government’s drive to encourage employers to create more apprenticeships for young people, from 6 April 2016, employers will not pay employer national insurance contributions for apprentices aged under 25.
Employer NICs abolished for apprentices under the age of 25
The Chancellor of the Exchequer announced that employer national insurance contributions for young apprentices are abolished from April 2016. To make it cheaper to employ young people, employers will not have to pay Class 1 national insurance contributions on earnings up to the upper earnings limit for apprentices aged under 25. The new measure is contained in the National Insurance Contributions Act 2015.
5. Public-sector employees can be required to repay exit payments
Regulations requiring higher earning public-sector employees to repay exit payments if they re-join the public sector within a year are expected to come into force in April 2016 or soon after.
The duty to repay will include redundancy payments, voluntary exit payments and payments made to reduce an actuarial reduction to a pension on early retirement.
Public-sector exit payments repayable
Section 154 of the Small Business, Enterprise and Employment Act 2015 provides for regulations (the “Regulations”) to be made to require the repayment of exit payments made to public sector workers.
The Regulations confirm that the £95,000 threshold applies to the total amount of pay received by an individual for loss of employment, including redundancy payments, voluntary exit payments, and “any other payment made as a consequence of, in relation to, or conditional upon, loss of employment whether under a contract of employment or otherwise”.
Redundancy rights – Local authority
Employees who are aged over 55 and who are made redundant may be entitled to an immediate payment of pension benefits.
Redundancy payments in local government are affected by the Redundancy Payments (Continuity of Employment in Local Government, etc) Modification Order 1999 (SI 1999/2277).
Additional payments by way of compensation for redundancy may be made in accordance with discretionary statutory provisions.
Local authorities are required to formulate policies on the exercise of discretion with regard to additional payments.
There is no requirement to ensure that any individual receives the best possible severance terms.
The importance of the written particulars of redundancy payment should not be overlooked.
When an employee leaves it will often be necessary for the employer to work out what payments are owed to the employee in respect of his or her employment up to the termination date.
Usually the type and amounts of such payments are governed by the contract of employment.
Employers have obligations to complete a form P45 in respect of an employee who leaves. Employers should ensure that a leaving employee returns any property of the employer.
6. Financial penalties can be imposed for non-payment of tribunal awards
New limits on employment tribunal awards and statutory redundancy pay come into force on 6 April 2016. The maximum amount of a week’s pay for these purposes increases to £479, and the maximum amount of a compensatory award for unfair dismissal increases to £78,962.
Legislation allowing tribunal enforcement officers to impose a financial penalty on an employer that fails to pay a tribunal award or Acas settlement sum is expected to come into force in April 2016.
Research carried out in 2013 showed that less than half of tribunal claimants who had been awarded compensation received the full award from the employer.
The penalty will be 50% of the unpaid award, subject to minimum and maximum amounts and a reduction for prompt payment.
Non-payment of tribunal awards to incur financial penalty
The Small Business, Employment and Enterprise Act 2015 gives tribunal enforcement officers the power to levy a financial penalty against employers for failure to pay employment tribunal awards. Section 150 of the Small Business, Enterprise and Employment Act 2015 amends the Employment Tribunals Act 1996 to give tribunal enforcement officers the power to impose a financial penalty against employers for failure to pay sums ordered by an employment tribunal, including costs awards and preparation time orders, employment tribunal fees and Acas conciliated settlements.
The amount of the penalty will be 50% of the amount owed. The penalty is subject to a minimum threshold of £100 and an upper ceiling of £5,000. However, employers will qualify for a reduction of 50% of the penalty if they pay the reduced penalty and the whole unpaid amount within 14 days after the day on which notice of the decision to impose the penalty is sent to the employer.
This is in addition to the power of tribunals to impose a financial penalty against employers that are in breach of a worker's employment rights, which was introduced on 6 April 2014 and contained in the Enterprise and Regulatory Reform Act 2014.
7. A salary requirement is introduced for tier 2 worker
Employers can sponsor skilled foreign workers to come to the UK to work for them under tier 2 of the immigration points system. A new requirement for a minimum salary of £35,000 will apply from 6 April 2016.
Employing foreign workers
It is a criminal offence to take on an employee who is subject to immigration control and who has not been granted leave to enter or remain in the UK, or does not have permission to work in the UK.
To comply with the provisions of the Immigration, Asylum and Nationality Act 2006, employers should (prior to allowing a job applicant to start work) require the person to produce documentary evidence indicating that he or she has the right to work in the UK, and keep copies of the documents.
If an employer knowingly employs someone who does not have permission to work in the UK, it could be prosecuted. Under the Immigration, Asylum and Nationality Act 2006, employers have a duty to conduct follow-up checks on employees whose employment began on or after 29 February 2008 where, at the time of recruitment, the employees in question have been granted only limited leave to remain and work in the UK. A follow-up check will normally be required when an employee's permission to live and work in the UK expires.
Citizens of any country in the European Economic Area (EEA) (apart from Croatia) and of Switzerland are entitled to work in the UK without special permission. Either one document, or two documents in a defined combination, from one of two lists are acceptable as proof of an individual's right to work in the UK.
Asylum seekers do not normally have the right to work in the UK.
Employers must reconcile the requirement under the Immigration, Asylum and Nationality Act 2006 to check that anyone offered employment has the right to work in the UK, with the provisions on race in the Equality Act 2010 (which repealed and replaced the Race Relations Act 1976 from 1 October 2010), which make it unlawful to treat a job applicant less favourably on grounds of his or her nationality.
There is a merit-based five-tier points system for non-EEA nationals wishing to work in the UK. Under tier 1 of the points-based system, exceptionally talented and highly skilled individuals can gain permission to work in the UK without first having a specific job offer or sponsor.
Under tier 2 of the points-based system an employer can obtain permission to employ skilled workers who are non-EEA nationals provided that potential recruits score a sufficient number of points. The employer may have to satisfy the resident labour market test.
Employers employing non-EEA nationals must obtain a sponsorship licence to be able to sponsor migrants. A temporary workers scheme has been introduced under tier 5 of the points-based immigration system.