UK: Employer Compliance Issues

Last Updated: 17 January 2012
Article by Rawlinson & Hunter

Is Santa Claus breaking laws?

The introduction of the Bribery Act 2010 ("the Act") is intended to provide clearer and more effective guidance to commercial organisations and replaces out of date legislation which is now over 100 years old. As Christmas approaches with seemingly endless hospitality opportunities, it becomes even more relevant to consider the Act and how this affects our day to day business relationships.

Without having clear guidance, businesses may have been paranoid to the extent of wondering whether a standard business lunch could be deemed a reportable offence. The Act provides some comfort and specifically states that 'reasonable' business hospitality is acceptable. Unfortunately, as with most legislation, it is open to interpretation and until case law is passed, it makes it difficult to provide specific examples of what constitutes "reasonable".

The Act states it is now a legal offence to give or receive a bribe, to bribe a foreign official or to fail to prevent a bribe being paid. But what is a bribe, who is affected and how can it be prevented?

The dictionary definition indicates that a bribe is "to persuade someone to act in one's favour, by gift or other inducement". The Act indicates that to offer or give a financial or other advantage is an offence where it is intended to bring about or reward the improper performance by another person, or where the acceptance of this offer itself consitutes improper performance. Improper performance is where there is a breach in expectation that a person will act in good faith, impartially or in accordance with a position of trust. There must be intent to bribe for a bribe to have taken place.

The Act is also applicable for UK businesses operating overseas where local customs or practice are disregarded unless such activities are permitted or required with the written law applicable to that country.

The Act alleviates certain fears by confirming the building of professional relationships through hospitality is permitted where reasonable. In a statement issued by Kenneth Clarke, he confirmed "no one is going to try to stop businesses getting to know their clients by taking them to events like Wimbledon, Twickenham or the Grand Prix".

Look at how your business sector operates and whether that gift or event you are organising would be deemed reasonable in this sector. For anything extravagant, you may wish to consider the intent or purpose of the event. The same applies to the receiving or attendance of events offered by your business contacts.

If you have offered or received a bribe, this is a legal offence liable to prosection through the Courts. A commercial organisation is liable to prosecution if the person committing the offence is associated with that organisation. The associated person can be anyone who performs services for and on behalf of organisations for the benefit of that organisation - so in theory this may include suppliers and contractors. A defence is available to organisations where they can prove adequate procedures were in place to prevent bribery.

The reality is that a bribery offence would need to be severe and it would need to be in the public interest to bring to prosecution. The Bribery Act can therefore be regarded in some way as a safety mechanism for businesses, rather than more onerous legislation for businesses to conform with.

If you haven't already, you should make sure those associated with your organisation are identified and made aware of the Act, the consequences of offence and procedures you have in place to prevent bribes. Look at identifying risk areas specific to your business and seek ways to minimise exposure. The size of your business should be taken into consideration in terms of the level of procedures adopted. For a small company, verbal notification to associates may be sufficient. It may well be necessary to update any business policy documents too.

PAYE pitfalls

HM Revenue & Customs generally try to collect the tax due on benefits provided by employers to their employees through the Pay As You Earn ("PAYE") system. This is generally achieved by deducting the taxable value of the benefit from the employees' allowances so that the tax is effectively collected over the whole of the tax year.

There have been some articles in the Press about various problems that have arisen due to incorrect coding resulting in large underpayments for certain employees at the end of the tax year.

What may not be so apparent is the problem that has arisen as a result of both the restriction of personal allowances for those earning over £100,000 and the introduction of the 50% tax rate for those with income in excess of £150,000.

One of the overriding principles of the PAYE system is that an employer must not deduct more than 50% of an employee's salary in income tax. If an employee does not have any personal allowances due to the restrictions mentioned above, and they are subject to tax at 50%, then in certain cases it will not be possible to collect tax on their benefits in kind because they are already losing 50% of their income in tax anyway. This situation was not helped in the 2010/11 tax year by HMRC delays in issuing revised coding notices to employers.

This can lead to an unexpected and unwelcome surprise at the year end when the position is reviewed, and in the worst cases can mean a large tax demand. This is perhaps an unforeseen consequence of the higher tax rates currently in force.

National minimum wage Increase

From 1 October 2011, the national minimum wage has increased. The current rate depends on the class of worker being employed:

  • £6.08 per hour for workers aged 21 and over
  • £4.98 per hour for workers aged 18-20
  • £3.68 per hour for workers aged below 18 who are no longer of compulsory school age

Apprentices must be paid at least £2.60 per hour for those aged under 19 or are over 19 but are in the first 12 months of their apprenticeship.

As a result of the changes employers should review their pay rates to ensure that they comply with the new national minimum wage requirements.

The waiting game

Since 1 October 2011, employers can no longer enforce employees' retirement at the age of 65. The default retirement age was abolished by the Employment Equality (Age) Regulations which prohibits discrimination in the workplace.

If employers still wish to enforce retirement, they will have to provide justification for this, and they will not be able to enforce retirement on the grounds of age alone.

Employers should therefore review their employment contract, employment handbooks and other reference material to ensure that it complies with the new regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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