So, what’s new on the employment law horizon for 2018? The answer is, not that much really as yet! However, this doesn’t mean we are returning from the Christmas break to empty desks, far from it. With gender pay issues currently making headline news, many employers will be focussing on the upcoming deadline to publish their own gender pay gap figures. This, along with on-going preparations for a new data protection regime means that for many employers early 2018 will feel a bit like a 2017 employment law hangover, which try as you might you just can’t seem to shake off! For a breakdown of the key employment law issues likely to impact your business in 2018 read on.
Gender Pay Gap: Reports due for publication by 4 April 2018
The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 require private and voluntary sector employers in England, Wales and Scotland with at least 250 employees to publish information annually about the differences in pay between men and women in their workforce.
Affected employers must publish their first year’s report by 4 April 2018 and, as that deadline approaches, research undertaken by the Financial Times based on data already submitted to the government’s website by organisations that have already published their data indicates that many employers have struggled to carry out the required calculations correctly. For example, 1 in 20 of the companies that had submitted their data reported having no mean or median gender pay gap, and exactly the same number of men and women in each of their pay quartiles. These results are, at best, ‘highly improbable’.
In addition, the Equality and Human Rights Commission is currently consulting on proposals to use their enforcement powers to take action against employers who do not comply with the requirement to publish their gender pay gap data. EEF will be responding to this consultation. If you would like to give us your views on this and/or talk to us about your experiences of gender pay reporting so far, please contact Verity Davidge. You can find further information on the EHRC’s consultation here.
Time is running out for employers to get their house in order, and employers who still need some help in preparing their gender pay gap figures for publication should consider attending a session of our national seminar - Gender pay gap reporting: How to comply. For more information and to book a place, click here. Alternatively, speak to one of our HR and employment law team on HRenquire@eef.org.uk.
EU General Data Protection Regulation (GDPR) – 25 May 2018
The GDPR will apply directly in the UK with effect from 25 May 2018. Accordingly, from that date, UK organisations will be required to comply with the new GDPR requirements relating to the processing of personal data, including those relating to consent, transparency and access rights. In addition, the UK Government intends to enact a new Data Protection Bill (which is due to be debated at third reading in the House of Lords on 17 January 2018, before progressing to the House of Commons), which will give the GDPR a basis in domestic statute so that the UK law on data protection remains aligned with that of the EU, even after Brexit.
EEF are running two GDPR preparation seminars.
Employers wanting a ‘cramming session’ to kick start their GDPR preparations will benefit from attending our seminar, GDPR and Data Protection for HR: On the Road to Major Changes. Click here for further information or to book a place.
For delegates who have already attended the above seminar in 2017 and/or who are at the stage of drafting and refining their new data protection documentation – policies, procedures and privacy notices – we are running a series of workshops, GDPR and Data Protection for HR: how to design and draft your essential documents. For further information and to book a place click here.
Changes to taxation of termination payments: April 2018
Legislation due to come into force in April 2018 will mark a significant change to the tax treatment of termination payments. Although the current £30k ‘tax exemption’ will remain, (and there will be no changes to the treatment of legal fees paid by an employer under a settlement agreement), in future:
- all payments in lieu of notice (PILONs) will be subject to deductions for income tax and National Insurance contributions (NICs), regardless of whether they are paid further to a contractual PILON clause or not;
- payments for injury to feelings will fall outside the tax exemption for injury payments, except where the injury amounts to a psychiatric injury or other recognised medical condition;
- Foreign Service Relief, (which allows some employees who worked abroad for an extended period of time to qualify for full or partial relief from taxation on termination payments), will be abolished altogether.
Currently, there is the potential for employers to pay up to £30,000 of notice monies ‘tax free’ where there is no PILON clause in an employee’s contract of employment, as such payments can be treated as damages for breach of contract falling within the £30,000 tax exemption. However, even now, HMRC can challenge whether such a payment can in fact be paid ‘tax free’, by asserting that an “auto-PILON” has been implied into an employee’s contract of employment, and therefore any purported damages payment should be taxed. The risk of HMRC deciding that such an “auto-PILON” exists increases where an employer ‘habitually’ makes tax-free PILONs rather than requiring employees to work out their notice. While making all PILONs taxable, whether or not they are contractual, may simplify matters, it will also reduce flexibility for employers to use such purported damages payments as a way of ‘sweetening’ termination packages.
HR considerations in lights of these changes to taxation of termination payments
Employers whose employment contracts do not currently contain PILON clauses should consider whether they now wish to revise them and insert a contractual PILON, or at least introduce a PILON clause as standard in their new employment contracts going forward. If the payment of notice monies by way of damages ceases to be tax efficient, there is little reason not to provide contractually for the possibility of immediate termination with a payment in lieu of notice; an employer that terminates in reliance on such a clause faces less risk of employees ceasing to be bound by any post-termination restrictive covenants. In addition, a contractual PILON clause can potentially limit the notice payment to basic salary only, and thereby save employers money on termination – by contrast, a payment of damages for breach of contract due to lack of notice will include provision for loss of benefits such as pension contributions, bonus payments and the cost to the employee of replacing insurances such as private medical insurance, etc.
Employers should bear these impending tax changes in mind in relation to any ongoing termination negotiations, as they may provide an added incentive to conclude matters quickly, in order that parties can take advantage of current potential tax advantages, whilst they remain.
Note also that NICs are not currently payable on termination payments, even where such payments exceed the £30,000 tax exemption, and in some circumstances this can amount to a significant cost saving, particularly for employers. The Government intends to change this by requiring employers (although not employees) to pay NICs on all termination payments in excess of the £30,000 threshold. This change was originally meant to come into effect at the same time as the other changes to tax on termination payments mentioned above, but has now been delayed, and is expected to take effect in April 2019 instead.
Increases in workplace pension minimum contributions – 6 April 2018
On 6 April 2018, minimum contributions into a workplace pension will rise to a total contribution of 5% of qualifying earnings, from the current requirement of 2% of qualifying earnings, (qualifying earnings are earnings per annum within the £5,876 - £45,000 band). The maximum amount that employers will be able to require a worker to contribute is 3% of qualifying earnings (as compared with 1% at present). For employers who have used certification, contribution rates are modified but there will still be corresponding incremental increases in the applicable contribution rates.
Rise in rates of statutory pay - April 2018
The rate of statutory maternity pay, statutory paternity pay, statutory adoption pay and statutory shared parental pay will go up to £145.18 per week from April 2018. The increase normally occurs on the first Sunday in April, which in 2018 is 1 April. (Note that, for statutory maternity pay and statutory adoption pay, the first six weeks are payable at the “earnings related rate”, i.e. 90% of the employee’s normal weekly earnings; the remaining 33 weeks are payable at the statutory rate or the earnings related rate, whichever is lower. Statutory paternity pay and statutory shared parental pay are both payable at the lower of the statutory rate and the earnings related rate).
The rate of statutory sick pay will increase to £92.05 per week, from £89.35. This increase is expected to occur on 6 April 2018.
To be entitled to the above statutory payments, employees’ average earnings must be equal to or more than the lower earnings limit. The lower earnings limit is increasing to £116 from April 2018 (from its current rate of £113).
EU workers registration process
Following on from the government’s announcements in December 2017 on the safeguarding of rights of EU nationals working in the UK following Brexit, 2018 should also see the opening of the proposed settled status scheme for (non UK) EU citizens, (and their families and dependents) wishing to remain in the UK post Brexit. (See our previous update, Preventing the migration exit from Brexit - will last week’s announcement do the job?).
We are currently surveying EEF members on trends in EU migration, and the potential impact of future migration policy on manufacturers. To share your experiences or concerns, or seek further advice and assistance on the management of your EU workforce in light of Brexit, contact Tim Thomas, EEF Director of Employment and Skills Policy.
How else can EEF help?
As always, we will continue to keep you updated on HR and employment law developments throughout the year. Dates for our popular Spring Member Briefing: Employment Law Update are now available. You can reserve your place here.