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Archive for the ‘Pay & Benefits’ Category

Changes to Pensions

The Pensions Bill 2011 received Royal Assent on 3 November becoming the Pensions Act 2011. The most important aspects of the Act relate to the state pension age and automatic enrolment into workplace pension schemes.

The Act accelerates the timetables, set out in previous legislation, for increasing the state pension age to 66 and for equalising the state pension ages of men and women.

From April 2016 the state pension age for women will rise, equalising with the state pension age for men of 65 by November 2018. Between December 2018 and October 2020 state pension ages for both men and women will be increased from 65 to 66.

The Act also contains a number of measures which amend the automatic enrolment provisions for workplace pension schemes. Government is still working out all the practical guidance for employers and others about this, but this Act provides for example:

• an earnings trigger at which an employee must be automatically enrolled into a workplace pension (employees aged 22 years or older who have not reached pensionable age and who earn £7,475 or more will need to be enrolled unless they positively opt out), and new uprating provisions for the qualifying earnings band on which contributions are made;

• the introduction of an optional waiting period of up to 3 months before the duty to automatically enrol an employee commences;

• changes to provisions for automatic re-enrolment for staff who have already opted out

The duty of employers to automatically enrol their staff into a workplace pension scheme comes into force from 1 October 2012 for employers with a workforce of over 50,000. Smaller employers are phased in between 2013 and 2016. You can check the provisional start date for your business at  this link. Whilst that may seem a long time off employers should start thinking about updating their employment documentation so as to allow for employee and employer pension contributions.

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Employers should urgently review their mileage policies following a recent ruling by the Upper Tribunal of the Tax and Chancery Chamber.

The company, in this case, employed a number of staff who were expected to use their cars for business purposes. The company’s policy was to pay motoring expenses of 40p per mile to employees who were expected to travel less than 2,500 business miles per year and a lesser amount per mile plus a fixed lump sum to those who travelled more extensively.

The question the Upper Tribunal had to decide was whether national insurance was payable in respect of the lump sum payments. It was common ground that payments based on the mileage rates did not attract NICs.

The Upper Tribunal said that there was nothing to stop the company from making lump sum payments to its employees in respect of motoring expenditure. However, it held that unless the payments were actually linked to mileage they could not be classed as ‘relevant motoring expenditure’ for the purpose of the Social Security (Contributions) Regulations 2001, as amended.

The payments were made at a fixed flat rate, dependent on an employee’s grade, and did not vary by reference to the miles actually travelled. For this reason they could not be classed as ‘relevant motoring expenses’. They were, therefore, subject to national insurance contributions.

Case reference: The Commissioners for Her Majesty’s Revenue and Customs v Cheshire Employer and Skills Development Ltd (formerly Total People Ltd)

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This case concerned a temporary pub manager who was required, under the terms of her contract of employment, to reside and sleep at the premises.An earlier tribunal had found that she was required to sleep on the premises as a ‘minimum security or preventive measure’ and that once the pub closed no actual work was required. The tribunal had also found that she was not required to stay in every minute of the day and could pop out if she wished.

The Employment Appeals Tribunal had to decide whether the time she spent at the premises overnight had to be taken into account when deciding whether or not she had been paid the national minimum wage.

The EAT held that the tribunal, who had dismissed the claim, had been wrong to decide the case under the Working Time Regulations 1998 as those regulations have no application in the context of the national minimum wage. The issue, the EAT said, should have been determined exclusively by reference to the National Minimum Wage Regulations 1999. Having said that the EAT was satisfied that the tribunal had reached the right result even though it went about it the wrong way.

Accordingly the appeal was dismissed on the basis that time spent sleeping did not count as ‘work’ for the purposes of calculating an employee’s hourly rate as against their entitlements under the National Minimum Wage Regulations.

Case reference: Ms S Wray v JW Lees & Co (Brewers) Ltd

A worker who is sleeping on premises and ‘on call’ may well be working during that time for the purposes of the Working Time Regulations which has an impact on other statutory entitlements such as how holiday leave is accrued. However, hours spent on call do not count towards a national minimum wage claim unless the employee is actually awake and working.

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The Advocate General of the Court of Justice of the European Union has given her opinion on the question as to whether annual leave can accrue indefinitely where an employee is on long-term sick leave.

The question was referred to the Court of Justice of the European Union by the Higher Labour Court in Germany, who has been asked to decide a claim by a worker for payment in lieu of leave following his dismissal after long-term sick leave.

An employee who is unable to take annual leave due to long-term sickness absence, accumulates the right to take that leave (or pay in lieu if his employment ends) on his return to work.

The Advocate General is, however, of the opinion that it is not a breach of EU law to provide that a right to take accrued leave expires after a minimum period of 18 months following the return to work.

The Advocate General’s opinion is not legally binding, although it is likely to be followed.

The period of 18 months represents a guideline which Member States are expected to follow for the purposes of implementation in their domestic law. The Advocate General has, however, indicated that a possible carry-over period of only 6 months would, in her opinion, be insufficient.

It is anticipated that the UK Working Time Regulations will be amended in due course to take into account the Advocate General’s opinion.

Case reference: KHS AG v Winfried Schulte

 

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This case concerned two women who brought claims for equal pay. They had been, and continued to be, paid significantly less than a male employee who carried out similar work to them following TUPE transfers.

The employer successfully argued that that the difference in pay was caused by TUPE and had nothing to do with the sex of the employees. The employer had adopted a standard approach when it awarded pay increases and bonuses to its staff. It also had a practice of not freezing the salaries of its employees.

The EAT held that that the requirement under TUPE to preserve the contractual rights of a particular employee can be a ‘genuine, material, and gender-neutral factor’ to explain a difference in pay. The fact that this may, as it did in this case, result in a particular employee being paid more than other employees was irrelevant.

The EAT further held that the employer was under no duty to ‘narrow the pay gap’ after the transfer, for example by freezing the salary of transferred employees until others had caught up and equalised. The mere ‘effluxion of time’ (or in more common language, the ‘passage of time’) did not change the explanation for the difference in pay.

Case reference: Skills Development Scotland Co Ltd v Miss M Buchanan and Ms P Holland.

The EAT’s decision was based upon the particular facts of this case. An equal pay claim needs a finding of sex discrimination to succeed and there was no such finding in this case because as long as a decision to award everyone a pay rise (and thus perpetuate a pay gap) is not tainted by sex, an employer will be able to establish a defence to an equal pay claim. Had there been a finding of indirect discrimination then the employer would have had to show that there was an objective justification for the difference in pay.

This decision will be a relief for employers who would otherwise be caught between a rock and hard place trying to balance the demands of the competing legislation.

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When faced with difficult trading conditions employers often prefer to make their employees take a pay cut rather than make them redundant, but can an employer impose a pay cut on its staff?

Changes to employment terms (including those relating to pay) can only be made with the agreement of the employee. If an employee objects to new terms the options available to the employer are to accept that it is bound by the existing terms or to dismiss the employee. Where a dismissal takes place the employer may need to demonstrate that the dismissal was fair as was the case when a Mr Booth brought a claim for unfair dismissal against his former employer, Garside and Laycock, arising out of his failure to accept a pay cut.

In this case the EAT held that the question that had to be asked was whether it was reasonable for an employer to dismiss an employee for refusing to accept a pay cut. The question as to whether it was reasonable for the employee to accept a pay cut, thereby avoiding dismissal, was not relevant to that decision.

The case has been remitted to a fresh tribunal who will have the task of deciding whether, on the evidence put before it, Garside and Laycock acted reasonably in dismissing Mr Booth. The tribunal is likely to hear evidence as to whether any other cost-saving measures could have been taken, thereby avoiding the need to dismiss Mr Booth.

Case reference: Garside and Laycock Ltd v Mr T G Booth

It is easy to see why Garside and Laycock took the decision to make their employees accept a pay cut rather than make them redundant since it is a cheaper and less unpleasant and disruptive process.  However, it is also a risky process, which should not be embarked on lightly as there is a chance that the dismissal would be held to be unfair. This is the case even where the employer offers to re-employ the employee on new terms, although in such circumstances the employer will have a strong argument that the employee has failed to mitigate their loss by not accepting employment on the new terms.

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Whether or not an employee can rely on a pay rise awarded under a collective agreement agreed ‘after’ a TUPE transfer takes place is still up in the air. The Supreme Court has declined to rule on the point and the question has been referred to the CJEC. (Parkwood Leisure Ltd v Alemo-Herron & Ors)

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