24/07/2018
Welcome to the July 2018 edition of our employment law report: our monthly round-up of key employment law developments and what they mean for you.
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Featured case law |
Alastair Currie provides an update on two important decisions on pay: one dealing with National Minimum Wage for night shift workers, and one dealing with holiday pay. |
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Briefing |
Higher earners and tax on pensions Philip Woolham reports on annual allowance changes, three years on. |
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News round-up |
Employment news round-up, July 2018 Jodie Sinclair on July's employment news in brief: a new Corporate Governance Code, a TU facility time reminder, private sector equal pay, Brexit and immigration updates. |
Two important cases on pay
Alastair Currie provides an update on two important decisions on pay: one dealing with National Minimum Wage for night shift workers, and one dealing with holiday pay.
The National Minimum Wage and 'sleep in shifts'
Under the National Minimum Wage Regulations 2015 ('NMWR 2015'), a worker who is not strictly 'working' may be treated as such if they are available (and are required to be available) at or near a place of work for the purposes of doing that work.
There is an exception that:
'hours when a worker is “available” only includes hours when the worker is awake for the purposes of working, even if a worker by arrangement sleeps at or near a place of work and the employer provides suitable facilities for sleeping'.
The concept of 'availability for work' has long been a cause of ambiguity in case law.
The application of this provision in relation to night shift workers was considered by the Court of Appeal this month, in a case called The Royal Mencap Society v Tomlinson-Blake.
The facts
Tomlinson-Blake was contractually obliged to spend the night at her workplace. She was entitled to sleep throughout the shift, unless her assistance was required, in which case she would be woken. The 'sleep-in' shift was paid at a fixed rate, as well as additional sums that were paid if Tomlinson-Blake was called.
Tomlinson-Blake argued that she was being underpaid under both the National Minimum Wage Regulations 1999 ('NMWR 1999') and NMWR 2015 on the basis that the whole sleep-in shift constituted 'time work'.
The Employment Appeal Tribunal (EAT) upheld a tribunal's finding that Tomlinson-Blake was working throughout her shift. Mencap appealed.
The decision
The Court of Appeal allowed Mencap's appeal on the basis that Tomlinson-Blake was 'available for work' during the sleep-in shift, although not actually working; the conclusion being that only that time spent working (once called for assistance) could be counted for the purpose of NMWR 1999 and NMWR 2015.
The purpose of Tomlinson-Blake's 'sleep-in' shift was to be 'on call' in case of emergencies. In LJ Underhill's judgment, he noted that the "essence of the arrangement is that the worker is expected to sleep", and so only time spent reacting to emergencies which arose were relevant for National Minimum Wage purposes.
Holiday pay and overtime
Article 7 of the Working Time Directive ('the Directive') requires that workers in member states be entitled to at least four weeks' paid leave. The Directive does not explicitly explain how the pay should be calculated, though it has widely been interpreted as 'normal remuneration'.
In Flowers v the East of England Ambulance Trust, the EAT looked at whether non-guaranteed and voluntary overtime pay should be taken into account in the calculation of ambulance workers' holiday pay under their contractual terms and the Working Time Directive.
The facts
The claimant employees' overtime for the purposes of calculating holiday pay fell into two categories: non-guaranteed overtime, which was paid when an employee was required to work past the end of their shift to finish a job they had already started, and voluntary overtime, where an employee volunteers to work extra shifts.
The claimant employees brought an unlawful deduction of wages claim, contending that the calculation of their holiday pay pursuant to
(i) clause 13.9 of their contractual terms and conditions and/or
(ii) Article 7 of the Working Time Directive 2003/88/EC ("WTD") should take account of both types of overtime.
An employment tribunal allowed both the contractual claim and the WTD claim in respect of non-guaranteed overtime, but dismissed the claims in respect of voluntary overtime. The claimant appealed and the defendant cross appealed.
The decision
In relation to the WTD claims, the EAT confirmed that normal remuneration must continue for the purposes of holiday pay when annual leave is taken, and that pay for voluntary overtime should not be excluded from the calculation of pay. These claims were passed back to the tribunal for assessment on a case by case basis.
In relation to the contractual claims, Justice Soole stated that the purpose of paragraph 13.9 of the Agenda for Change Terms was to ensure that holiday pay was calculated on the basis of what a worker would be paid if they were at work. The interpretation of these terms should also match up with the WTD as much as possible; the correct calculation of holiday pay would therefore need to include all the overtime worked in the three months prior to taking holiday, whether non-guaranteed or voluntary.
What does this mean for me?
Both judgments do provide some certainty over ambiguous areas. Certainly, the Mencap decision will come as a relief to employers in the care sector. However, the Flower's decision potentially raises further ambiguity between holiday pay under the WTD 4 week minimum and the full contractual holiday period.
Accordingly, it may be wise to review policies and procedures currently in place, particularly in relation to practical capture of working time information. Please do not hesitate to contact me if further guidance is required.
Higher earners and tax on pensions
Philip Woolham reports on annual allowance changes, three years on.
What's the issue?
We've had a number of enquiries from clients about tax on employees' pensions over the past few months, and in particular on annual allowances.
The annual allowance is the amount anyone can save tax efficiently into a pension or pension each year. It runs with the financial year, so usually from 6 April each year.
The annual allowance isn't a cap. It doesn’t prevent saving more into a pension scheme – you will simply have to pay tax on any pension contributions above the annual allowance.
For most people, the annual allowance is £40,000. It sounds like a lot, although it used to be much higher - £255,000 at its peak.
For money-purchase pension schemes, it's easy– it's simply how much you and your employer pay into the pension scheme each year. For defined benefit (final salary-type) schemes, it's more complicated. It's the increase in the value of the pension benefits each year, i.e. how much the member's pension and lump sum benefits have increased, multiplied by 16. So if these increase by more than £2,500 each year, then the annual allowance is exceeded (£2,500 x 16 = £40,000).
If you exceed the annual allowance, then a charge to income tax arises. While the calculation of the annual allowance charge is quite complex, it's intended to be tax-neutral, so that you are effectively paying your marginal rate of tax on any pension contributions above the allowance level, just as if you had received those contributions as income and paid tax on that.
There are a also couple of ways that the annual allowance is can be reduced from £40,000 The key one is that if employees earn more than £150,000 (including their employer's pension contributions). In this case, it can be as low as £10,000 for the highest earners. This is called 'tapering'.
In essence for every £2 you earn above £150,000, you lose £1 of annual allowance. So someone earning £210,000 has an annual allowance of £10,000. It makes pension saving less attractive to higher earners.
The other way that annual allowance reduces is if someone accesses money purchase pension savings 'flexibly'. For example, an employee has made additional savings into a personal pension scheme, and draws down some of this money while remaining in work, and paying into their main pension scheme. If they also keep paying into their personal scheme, this will reduce their total annual allowance. It's a complex area, and outside of the scope of this article, but it does crop up when people still in work make alternative pension arrangements.
Why is this news three years on?
The 'tapered' annual allowance of £10,000 was introduced at the start of the 2016/2017 tax year, on 6 April 2016. We're now therefore in the third tax year of tapering. Higher-earning employees can carry over unused, and usually higher, annual allowance for up to three years. These are now running out, and people are discovering that previously tax-efficient benefits are now triggering pension charges.
Pay rises also put more people in scope – although the threshold of £150,000 is quite high, it has not been increased in line with inflation or pay increases. It also includes employer pension contributions, so if these are high, you can actually take home less than this and still be close to, or above, your annual allowance.
Can employers do anything?
The annual allowance is primarily an issue for the individual, but many pension schemes inform members when they are at or close to the threshold. If an employee is due a pay rise, and it's clear that this could have implications for their tax status, it's worth letting them know that this is going to happen.
Employers can also put in place alternative, lower-cost pension arrangements. For example, some NHS trusts offer contract-based money purchase pension schemes. While these are primarily intended to allow employees who find NHS Pension Scheme contributions too great a chance to save into a cheaper pension, the lower contributions can allow employees close to their annual allowance, and often tied into set contributions by their scheme, to continue to save in a tax-efficient way. The benefits are not as generous as the main pension scheme, but they at least keep the employee saving.
Can individuals do anything?
This depends on what flexibility employers provide, as discussed above, and, in the public sector, if the scheme gives the employee any options. If they are a member of the Local Government Pension Scheme, the employee could choose to go into the 50/50 section, in which their contributions and their benefits are halved, but membership and other benefits remain. This may reduce or eliminate any annual allowance charge, but the employee inevitably builds up fewer benefits, and it is not always convenient or quick to switch back to the higher level if circumstances change.
If the employer has put in place a money purchase pension scheme with lower contributions as an alternative, as discussed above, the employee could choose to swap to that.
If the 'main' scheme is a money purchase, contractually-based pension scheme, into which the employer contributes, the employee could suspend payments towards the end of the financial year, restarting with a new allowance in the new financial year. Many of these schemes allow this level of flexibility, but the employeewill also need to check that their employer will restart contributions when the employee does, and the employee will pay tax on their pay, which will increase when the employee stops making contributions.
The employee could simply accept the annual allowance charge as the price of continued regular pension saving.
Finally, the employee chould check if they have any unused annual allowance over the last three years, and use it to effectively increase their annual allowance for this year.
That's not the whole of the story…
Allowance issues don't just affect higher-paid employees. Employees on fairly moderate pay with long service can also rub up against the Lifetime Allowance, the amount anyone can save tax-free into all their pension arrangements over their working life. There is a charge payable if they exceed this too.
Long-serving relatively junior staff in a valuable public sector scheme such as the NHS Pension Scheme or the Local Government Pension Scheme can find themselves getting close to this allowance, simply because of the value of their benefits built up over a long period of time.
If you'd like to discuss any of these issues further, please get in touch with me, or another member of our pensions team, or your usual Bevan Brittan contact.
Employment news round-up, July 2018
Jodie Sinclair on July's employment news in brief: a new Corporate Governance Code, a TU facility time reminder, private sector equal pay, Brexit and immigration updates.
New corporate governance code
The Financial Reporting Council (FRC) has published a new Corporate Governance Code ('the Code') and supporting Guidance for companies with a premium listing on the London Stock Exchange. In addition to other measures designed to improve company reporting, the main workforce requirements of the Code focus on increasing employee engagement with the workforce. The Code adopts a wide definition of 'workforce', including contractors, remote workers and agency workers, as well as conventional employees. The Code requires companies to encourage participation with the workforce and consideration of the views of the workforce. The Code recommends that at least one of the following means of workforce engagement should be adopted
- a designated NED
- a director appointed from the workforce
- a formal workplace advisory panel
As the Code utilises a 'comply or explain' model, if there is a failure to comply with one or more of these requirements, the company must explain what other arrangements it has in place and why it considers that these are an effective alternative.
Further information on various means of workforce engagement is explained further in the Guidance.
Boards are also required, under the Code, to describe how they have considered the interests of stakeholders when performing their duties.
The Code replaces the 2016 UK Corporate Governance Code for accounting periods beginning on or after 1 January 2019. The first report under the new Code will take place in 2020, unless companies decide to report early. However, reporting should take place during next year under the new requirement to explain what consultation will be undertaken where 20% or more votes are cast against a board recommended resolution, plus a 6 monthly update and final notes in the company’s next annual report.
Trade union facility time reporting – the clock is ticking….
If you have not done so already, remember that if you are a public sector employer, you need to publish information on 'facility time' – i.e. time off in order to undertake trade union work – before the end of July 2018.
Guidance on the reporting requirements is available here.
Affected employers are required to submit information on
- the number of trade union representatives in their organisation
- the percentage of time spent on facility time
- the amount spent on facility time
- the percentage of paid facility time spent on paid trade union activities.
The information must be presented in the form specified in Schedule 2 to the Trade Union (Facility Time Publication Requirements) Regulations 2017 and must be published on the employer's website and on a government portal.
Private sector equal pay action gains momentum
It has been reported in the press that the number of equal pay claims against Tesco has increased to 1,000 claimants. As we have previously reported in Employment Eye, the litigation is based on an alleged discrepancy between payments made to (largely female) store-based staff and (largely male) distribution centre workers, undertaking work which the claimants' allege is of equal value.
We understand that the potential liability for Tesco is in the region of £4billion, and there may be ramifications more widely across the retail sector if the claims are successful.
Brexit news
Whilst this month has seen a somewhat fraught time for the government in relation to the Brexit process, as anticipated our withdrawal from the European Union is unlikely to have a significant impact on the employment law landscape, at least in the short to medium term. According to the government's White Paper on the Future Relationship between the United Kingdom and the European Union, the UK is committed to "the non-regression of labour standards" and will uphold obligations that derive from our International Labour Organization commitments. This means that rights available to employees which were derived from EU employment legislation will remain in place once the UK has withdrawn from the European Union. Whether the UK government will chose to repeal, or amend, such legislation in the longer term remains to be seen, but key areas of legislation which would be open for reform would include the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), the Working Time Regulations 1998, discrimination protections and collective consultation requirements.
Immigration news
- Aiming for a zero vacancy gap?
It has been reported this month that Yeovil District Hospital is operating without any nursing vacancies in any of its wards. How has this been achieved? Through complementing their domestic hiring programme with an overseas recruitment drive, focussed on the Philippines and Dubai. Given the staffing pressures being faced by most hospitals, and further pressures that may be experienced as we leave the European Union, other healthcare providers may consider following Yeovil's example and look beyond the UK to fill staffing gaps. If this is an option you are considering, please contact one of our experienced immigration lawyers – we can help guide you through the process of recruiting overseas, whether in the form of ad hoc advice along the way, or overseeing the complete process of implementing an overseas recruitment programme, from start to finish - including compliance with the principles and benchmarks set by the Department of Health in its commitment to ethical recruitment practices, in its Code of Practice for international recruitment.
Please click here for more information on how we can help you with your international recruitment.
Revised Home Office guidance on right to work checks
The Home Office has released an updated version of its Employer's Guide to Right to Work Checks. Key changes include the following.
- Details of what employers should do it comes to light during a check procedure that a prospective employee has presented information indicating they are a non-EEA national who has been a long-term lawful resident of the UK since before 1988, and does not possess acceptable right to work documentation.
- Existing employees: clarification on steps to take.
- TUPE: updated guidance on the 'grace period' in the case of TUPE transfers.
If you would like to discuss any of these topics, or any other aspect of Employment Law, please contact Head of Employment, Jodie Sinclair.
This article may contain information of general interest about current legal issues, but does not give legal advice.
