UK: Employment Essentials - August/September 2016's Top 5

Gowling WLG's employment, labour & equalities experts bring you the latest top five employment law developments that may affect your business - what they are, and what you can do about them.

At number 1: Gender pay gap reporting - public sector extension plans reveal significant tweaks for all

At number 2: Apprenticeship levy looms: technical consultation & updated guidance

At number 3: A trio of Employment Tax consultations

At number 4: When an agency worker can bring a whistleblowing claim against an end-user

At number 5: Pay protection for disabled employees may be a required 'reasonable adjustment'

And don't forget, 1 October will see the last annual Autumn increase to the National Minimum Wage

At number 1: Gender pay gap reporting - public sector extension plans reveal significant tweaks for all

On 18 August 2016, the Government Equalities Office published the consultation paper 'Closing the Public Sector Pay Gap' on extending the plans for mandatory gender pay gap reporting to the public sector. Like the planned regulations for private and voluntary sector employers, mandatory gender pay gap reporting will only apply to relevant public bodies with 250 or more employees. The Government's intention is for the obligations on public sector employers to be the same as those on private and voluntary sector employers.

We still await the delayed Government response to the consultation on the draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2016 introducing the reporting requirements for private and voluntary sector employers. But what is becoming increasingly clear is that there will be significant amendments from the current published draft. For example, it is anticipated there will be amendments to the definition of bonus pay, in particular in relation to long term incentive plans. From the 'Closing the Public Sector Pay Gap' consultation it is apparent that the draft regulations for private and voluntary sector employers will most likely also be amended so that:

  1. the first data snapshot will be on 5 April 2017 rather than 30 April 2017;
  2. the date by which the first report must be published will be 4 April 2018, rather than 29 April 2018;
  3. pay quartiles are to be calculated by dividing the workforce into four equal sized groups, as opposed to dividing the overall pay distribution into four equal proportions;
  4. the wider definition of 'employment' contained in section 83 of the Equality Act 2010 is to be used when determining who is an 'employee' for the purposes of the regulations, so the broader category of 'workers' will also be included;
  5. affected employers will be required to report the median as well as the mean gender bonus pay gap;
  6. the definition of 'pay' will be amended. While the majority of the changes in the definition simply reflect a more modern terminology, significantly the rewording indicates that for staff on paid leave it will be their normal pay rather than a lower pay rate due to being on leave that should be used.

Gender Pay Gap Reporting first year likely revised cycle:

  • 6 April 2016 - Begin pay data collection for 1st reporting period. Bonus and pay awards impact 2017 reporting.
  • 5 April 2017 - Take your 2017 Gender Pay Gap snapshot and begin to carry out analysis to prepare your 2017 Gender Pay Gap report.
  • 6 April 2017 - Begin pay data collection for 2nd reporting period. Bonus and pay awards impact 2018 reporting.
  • 4 April 2018 - Last date for publishing the results of the 2017 pay gap in your own website and uploading to Government website.
  • 5 April 2018 - Take your 2018 Gender Pay Gap snapshot and begin again...

At number 2: Apprenticeship levy looms: technical consultation & updated guidance

Government plans to introduce an Apprenticeship Levy appear to be proceeding full steam ahead for coming into force on 6 April 2017. The Levy will see employers with an annual wage bill of £3 million or more paying 0.5% of their annual wage bill towards the cost of apprenticeship training.

In 'The cost of training: Apprenticeship Levy Looms' (20 June) we reported on the Government's intention to publish details regarding the funding of apprenticeships, the eligibility rules governing who employers can spend apprenticeship funding on, requirements for apprenticeship training providers and how to calculate and pay the levy. Despite the implementation of the Levy being mere months away, much of the detail about how it will work remains outstanding. Having said that, we now at least have a bit more information.

On 19 September 2016, HM Revenue & Customs (HMRC) published a further consultation on the draft regulations dealing with the calculation, reporting and collection of the Levy. The draft regulations provide that employers will fall within the reporting requirements where their pay bill for the previous year was £2.8 million or more. The draft regulations also set out the information that employers must provide to HMRC concerning the levy. HMRC is seeking comments by 14 November on whether the regulations as drafted give rise to any technical difficulties for employers/payroll operators.

In August, the Government also published updated guidance which now includes:

  • Funding bands
    • All existing and new apprenticeship frameworks and standards will be placed within a funding band. The upper limit of each funding band will cap the maximum amount of digital funds an employer who pays the levy can use towards an individual apprenticeship. It will also cap the maximum price that government will 'co-invest' towards, where an employer does not pay the levy or has insufficient digital funds and is eligible for extra support.
    • The government has now confirmed that there will be 15 funding bands with upper limits ranging from £1,500 to £27,000.
  • Co-investment
    • Employers who do not pay the levy, or levy-paying employers who are prepared to invest more in training than they have in their digital accounts, will be given financial support for apprenticeships. The Government will provide funding for up to 90% with the employer providing 10%.
    • There will also be additional funding for training 16 - 18 year olds and grants for employers with less than 50 employees to cover 100% of the cost of training apprentices in this age group.

The Government has also confirmed employers will be permitted to provide apprenticeship training to their own apprentices and those of other employers. Employer providers will need to become a registered training provider and meet the requirements of the Skills Funding Agency and will be subject to inspection by Ofsted.

While the publication of the draft regulations by HMRC and updated Government guidance provides some further clarity for employers on how the new system will work, much detail still remains outstanding. Information about the eligibility rules setting out who employers can spend apprenticeship funding on remain outstanding. The Government has committed to providing full details of eligibility and funding information by the end of the year. In the meantime, employers preparing for the introduction of the Apprenticeship Levy continue to face uncertainty.

At number 3: A trio of Employment Tax consultations

In August, HMRC published three consultation documents concerning employment taxation:

  1. The simplification of the tax and National Insurance treatment of termination payments: government response and consultation on draft legislation
  2. Salary sacrifice for the provision of benefits in kind
  3. Tackling disguised remuneration

Simplification of termination payments

HMRC are proposing to amend the legislation relating to the taxation of termination payments from April 2018. The notable changes include:

  • all payments in lieu of notice (PILONs), both contractual and non-contractual will be taxed as earnings, and employer national insurance contributions (NICs) will now be payable on termination payments exceeding the £30,000 tax free threshold;
  • the rules for income tax and employer NICs will be aligned so employer NICs will be payable on payments above the £30,000 tax free threshold (currently only subject to income tax); and
  • clarification that termination payments exempt from tax because of "death, disability or injury" do not include payments for "injury to feelings".

HMRC will also have a new power allowing them to vary the £30,000 threshold in the future. However, HMRC have stated that there are no plans to vary this amount at present.

A key aspect of the draft legislation is that it effectively splits termination payments into payments that are able to fall under the £30,000 tax free threshold and payments that cannot. It specifically lists payments that will always be subject to the threshold, such as statutory redundancy payments and unfair dismissal awards.

For other termination payments, whether or not they are subject to the £30,000 threshold will depend on whether or not the total amount exceeds a sum equivalent to the employee's average earnings over their notice period: "post-employment notice income".

The sum used for the employee's average earnings will be calculated using the employee's earnings during the last 12 weeks of their employment. This change means that any sum to compensate the employee for the loss of taxable benefits in kind that the employee would have received if he had worked out his notice will be subject to income tax and NICs in full. This will be so even if the PILON clause only requires the employer to pay basic salary (as is often the case), or there is no PILON clause in the contract at all. Anti-avoidance rules are included aimed at preventing artificial reductions in general earnings in anticipation of termination.

HMRC are requesting feedback on these proposals. In particular they would like views on whether using the 12 week period leading to the employee's termination to calculate average earnings would lead to unfair outcomes. The consultation closes on 5 October, following which a second draft of the legislation will be published with the draft Finance Bill 2017.

Salary sacrifice for the provision of benefits in kind

HMRC are proposing to make changes limiting the range of benefits that attract income tax and NICs advantages when provided through salary sacrifice arrangements.

The policy change is aimed at benefits in kind offered to employees under flexible benefit arrangements that can be structured as a salary sacrifice arrangement and allow the employee a choice between either the benefits or a cash equivalent to the benefit. The policy is not aimed at the situation where the employee may be entitled to a flexible benefits package that does not provide the employee with a cash alternative.

HMRC proposes to amend the legislation so that where a benefit in kind is provided through these flexible benefit arrangements, it will be chargeable to income tax and Class 1A employer NICs at the greater of the amount of salary sacrificed and the cash equivalent set out in statute (if any). This means that where the normal taxable value of the benefit in kind is higher than the amount of salary sacrificed, it would be subject to tax and Class 1A NICs in the normal way.

There are some significant exemptions. Some benefits in kind will retain their favourable current tax treatment as the government wishes to encourage employers to provide these to their employees. These include: employer pension contributions, employer provided pension advice, employer-supported childcare and provision of workplace nurseries; and cycles and cyclists' safety equipment which meet the statutory conditions. However, some popular salary sacrifice arrangements including company cars, mileage reimbursement and workplace gym memberships are likely to be affected.

The changes are intended to take effect from 6 April 2017. HMRC is seeking feedback on the proposals, in particular any potential difficulties with the proposed timescale. The consultation closes on 19 October.

Consultation on tackling disguised remuneration

HMRC is planning on implementing changes to current legislation in an attempt to tackle the use of disguised remuneration schemes ("DR Schemes").

The current rules are contained in Part 7A of the Income Tax (Earnings and Pensions) Act 2003 ("Part 7A"). The changes are aimed at putting beyond doubt that all forms of DR Schemes will be subject to the Part 7A tax charge.

The proposed legislation will:

  • clarify that DR schemes which involve close companies will come under a Part 7A charge by specifically adding a "close companies' gateway" to the legislation;
  • include provisions which provide that the writing off, or release, of a DR loan will result in a Part 7A charge; and
  • clarify that arrangements which result in the employee being indebted to a third party will be treated in the same way as cases where the third party had made the loan directly to the employee (although there will be an exception for situations where the third party is the employee's new employer).

HMRC's powers will be broadened to allow them to transfer income tax and NIC liabilities from the employer to the employee where a DR scheme is used. This change will not disturb the principle that HMRC will pursue the employer for the tax in the first instance. The proposals will be in addition to the existing transfer of liability powers already available to HMRC. Safeguards to this will be included which provide that the powers will only be available where there is a tax avoidance motive.

HMRC is also proposing to deny the tax relief on employers deductions to taxable profits for payments made to reward employees, where those payments are made to a DR scheme.

A new charge on outstanding DR loans will also be introduced to tackle the use of schemes to date. In order to give those who have received a DR loan the opportunity to repay the loan and prevent the loan charge from arising, the charge will only apply where the loan, or part of it, is outstanding as at 5 April 2019.

The consultation closes on 5 October.

At number 4: Can an agency worker bring a whistleblowing claim against an end-user?

In many cases - yes.

In McTigue v University Hospital Bristol NHS Foundation Trust, the Employment Appeal Tribunal (EAT) has clarified the circumstances in which an agency worker can claim whistleblowing protection against an end-user. The fact that the individual is an 'employee' or 'worker' in relation to the agency does not prevent him or her also being a 'worker' in relation to the end-user under the extended statutory definition for whistleblowing purposes contained in section 43K of the Employment Rights Act 1996.

In this case, Ms McTigue was an employee of an agency and supplied to work for the Trust. She had a written contract of employment with the agency. The agency operated all disciplinary and grievance procedures, and was responsible for all of Ms McTigue's remuneration. Ms McTigue was also issued with the Trust's standard form contract, which set out procedures she should follow and reserved the Trust's right to terminate the contract for any reason that might jeopardise the quality of care offered to patients.

She was removed from this engagement and brought claims based on protected disclosures made to the Trust. She claimed that she was subjected to detriments (including her removal) by the Trust as a result of having made protected disclosures.

Could she bring such a claim against the Trust as her employer was the agency? Overturning the employment tribunal, the EAT said yes. An individual who is an employee of an agency may also be a worker of the end user under the extended meaning of 'worker' for whistleblowing purposes (section 43K). The EAT noted that both the agency and the end-user may substantially determine the terms under which the agency worker is engaged. If the agency and end-user both substantially determine the terms then both are the 'employer' for the purposes of section 43K. Significantly, there is no need to ask who, between the agency and end-user, determined the majority of the terms.

Lesson: End-users should ensure that concerns raised by agency workers are taken just as seriously as those raised by a permanent employee. Any internal whistleblowing procedures and helplines should be clearly identified to agency workers.

At number 5: Pay protection for disabled employees may be a required 'reasonable adjustment'

An employer has a duty to make reasonable adjustments where it knows (or ought reasonably to know) that a person has a disability and there is a provision, criterion or practice (PCP) which places the disabled person at a substantial disadvantage compared to those who are not disabled.

Whether a particular step is a reasonable adjustment will depend on the circumstances of the particular case. The question will be whether it was reasonable for the employer to have to take a particular step in the circumstances. When assessing whether a step is 'reasonable' for an employer to take, tribunals will consider:

  • the extent to which the adjustment will ameliorate the disadvantage;
  • the extent to which it is practicable;
  • the financial and other costs of making the adjustment;
  • the employer's financial and other resources;
  • external assistance the employer can access; and
  • the nature and size of the employer.

In G4S Cash Solutions (UK) Ltd v Powell, the EAT held that an employer's duty to make reasonable adjustments under the Equality Act 2010 may extend to maintaining the salary of a disabled employee who has been moved to a less skilled role.

In this case, Mr Powell worked for G4S as a cash point machines maintenance engineer. He had ongoing back problems and by 2012, it was accepted that he had a disability. At around the same time, G4S created a new role of "key runner" to support its engineers. Mr Powell was moved to the newly created key runner role on his existing salary, although his new role did not require the same level of engineering skills and training. After 12 months, G4S decided that the pay rate for the key runner role should be reduced by around 10 per cent. Mr Powell was faced with a choice of either accepting the reduced pay rate or dismissal on medical grounds. Mr Powell refused to accept the lower rate of pay and was dismissed.

The employment tribunal and EAT both agreed that pay protection is no more than another form of cost for an employer, analogous to the cost of providing extra training or support, and there is no reason in principle why one should be a 'step' within the reasonable adjustments duty but the other should not. The objectives of the reasonable adjustments duty plainly envisage an element of cost.

It would not be an everyday event for a tribunal to conclude that long-term pay protection is required. However, there may be cases such as that of Mr Powell, where pay protection would be a reasonable adjustment for an employer to have to make to keep an employee in work in accordance with the objective of the legislation. That said, the EAT also noted that, in changed circumstances, an adjustment may eventually cease to be reasonable, for example if the need for the 'key runner' job disappeared or the economic circumstances of the business changed.

Lesson: This is an important decision establishing that the duty to make reasonable adjustments may extend to pay protection where an employee is transferred to a lesser role. Having said that, this case is not saying that pay protection will always, or even normally, be considered a reasonable adjustment an employer will be required to make when transferring a disabled employee to an existing vacant lesser role.

In this case, the role Mr Powell moved to was newly created. G4S had paid Mr Powell at the higher rate of pay for around a year, with no indication that the arrangement would be temporary. The tribunal concluded that G4S was a company with substantial resources for whom the additional annual cost of employing Mr Powell would have been easily affordable.

Notably, G4S's evidence was that the main reason for wishing to reduce his rate of pay was the likelihood of discontent from other employees. The EAT described this as an "unattractive reason" as there was no evidence of other employee's complaining and he was the only one in the "key runner" role. As ever, each case will be fact sensitive.

And don't forget, 1 October will see the last annual Autumn increase to the National Minimum Wage

On 1 April the national living wage (NLW), the national minimum wage (NMW) rate for workers aged 25 or above, was introduced. While the NLW remains unchanged at £7.20 per hour, from 1 October the other NMW rates will increase to:

  • For workers who are aged 21 but under 25 from £6.70 to £6.95 per hour
  • For workers who are aged 18 or over (but not yet aged 21) from £5.30 to £5.55 per hour
  • For workers who are under the age of 18 who are no longer of compulsory school age from £3.87 to £4.00 per hour
  • The apprenticeship rate from £3.30 to £3.40 per hour
  • The accommodation amount which is applicable where an employer provides a worker with living accommodation from £5.35 to £6.00 for each day that accommodation is provided.

This is the last time to expect NMW increase in the autumn. In future any NMW (including NLW) changes will take place annually in April

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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