Employment law reforms Philip Bundy Senior Employment Law

Employment law reforms Philip Bundy Senior Employment Law Adviser Date 26 January 2017 www. local. gov. uk

What will we cover? • Exit pay: public sector restrictions (Advisory Bulletin 640) • Salary sacrifice reforms (AB 643) • IR 35 rules: public sector changes (AB 643) • Mandatory gender pay gap reporting (AB 640) • English speaking fluency: public sector requirement (AB 642) www. local. gov. uk

Exit pay reforms • £ 95 k cap on exit payments • Recovery of exit payments made to those earning £ 80 k or more and who return to public sector within 12 months • Further reforms to be in place by June 2017 e. g. cap of 15 months’ actual pay www. local. gov. uk

£ 95 k cap • Applies to all public sector bodies (ONS definition: few exemptions) • What’s included? – – • Most payments including pay in lieu of notice Costs arising from early pension access (LGPS will be amended to limit strain costs) Applies across exits taking place within 28 days: individual receiving an exit payment must inform new employer about it

£ 95 k cap • Exceptions – – • • Payments for injury/death, serious illness etc, Contractual bonuses/accrued holiday TUPE protected entitlements Court/ET Orders Relaxation: can be made by ‘specified person’ in line with Treasury directions Treasury has power to increase level of cap in future

£ 95 k cap • • Statutory redundancy payment must be paid but flexibility in respect of payments in excess LGPS members will be able to pay part of strain cost themselves LGPS members will still be required to take retirement pension after redundancy even if reduced because of cap In force Spring 2017? ?

£ 95 k cap example • 58 yr old employee made redundant • Exit payments: – £ 35, 000 redundancy payment (inc £ 14, 370 statutory component) – £ 80, 000 LGPS strain cost • Options: – Receive full redundancy payment and have reduced pension – Receive reduced redundancy payment and full pension – Something in between: employee contributes to pension

Recovery provisions • • • Applies to those earning £ 80 k or more if return to any public sector body within 12 months of leaving prior public sector employer Must repay a proportion of exit payments Tapering principle: always keep sum equivalent to statutory redundancy and what you would have earned in interim www. local. gov. uk

Recovery provisions • • • Includes strain on fund payments made to pension fund, but not pay in lieu of notice and accrued holiday Exceptions: Waiver by So. S/prior local authority in line with Treasury directions In force: exits/returns from early 2017? ? www. local. gov. uk

What’s next? • Further reforms announced September 2016 – Maximum tariff of three weeks’ pay per year of service – A cap of 15 months’ pay: could be lower for compulsory redundancies and higher for nonredundancies – £ 80 k maximum salary that can be used to calculate exit payments – Tapering lump sum closer to retirement www. local. gov. uk

What’s next? • Reducing or ending employer-funded early access to pension: three options – Capping payments at redundancy pay entitlement – Removing employer’s ability to make payments (employee could still make payment) – Increasing the minimum age at which employee may receive employer-funded early retirement. Five years before NPA or 55 or 58? www. local. gov. uk

What’s next: implementation • Government proposes that each department responsible for a particular workforce will devise its own scheme within the framework • This will be introduced through negotiation with the trade unions, where existing schemes form part of a collective agreement • Draw up scheme by 26 December 2016? • Agreed by 26 June 2017 or legislation www. local. gov. uk

Exit pay: implementation • Local authorities exit pay not in collective agreements • 2006 Discretionary Compensation Regs - authority must have policy: 104 week cap • Pensions legislation amendments • LGA speaking with DCLG • Teachers: Df. E, Fire: Home Office www. local. gov. uk

Bi. K salary sacrifice restrictions • Restrictions to tax advantages for Bi. Ks provided through salary sacrifice • No changes to: – Childcare vouchers, Cycle to Work, employer pension contributions, ultra low emission cars • Due April 2017, or April 2018 for deals in place before then, April 2021 for cars, accommodation, school fees www. local. gov. uk

Phone contract cost: £ 700 Basic Higher Additional Employee reduces gross salary by £ 700 Cost to employee (reduction in net pay) £ 476 £ 406 £ 371 Employee saves* £ 224, 32% £ 294, 42% £ 329, 47% Employer saves** £ 97, 13. 8% Cost to Exchequer £ 321 £ 391 £ 426 * The employee’s income tax and Class 1 NICs ** The employer’s NICs

Bi. K salary sacrifice restrictions • Tax advantages removed • Employer can still provide Bi. K through salary sacrifice but Bi. K will be valued as the higher of the salary sacrificed or the £ equivalent value set out in Part 3, The Benefits Code ITEPA • Issues: employees lose tax advantages, employers lose NIC advantages, which currently pay for admin of scheme and more www. local. gov. uk

Intermediaries IR 35 • IR 35 rules apply where (1) a person performs services for a client through an intermediary, e. g. a personal service company (PSC); and • (2) had the arrangements been made directly between the individual and the client the person would be in employment for tax/NIC purposes (the employment status test) • Consequence: person taxed/NI’d as employee www. local. gov. uk

Intermediaries IR 35 • At present responsibility for assessing whether IR 35 applies and paying tax falls on intermediary e. g. PSC • Government believes 90% non compliance www. local. gov. uk

Intermediaries IR 35 • Change: for payments from 6 April 2017 where client is public sector body responsibility will fall to public sector body • If supplied by agency/consultancy firm public body assesses, agency deducts • Public sector body defined as body listed in Freedom of Information Act 2000: includes local government www. local. gov. uk

Intermediaries IR 35 • Key questions – Are you a public sector organisation? Yes – Does the worker through their own company? Yes – Is the worker supplied through an agency? No, go to A, Yes, go to B • A: IR 35 employment status assessment and deduction falls to public sector body • B: IR 35 assessment falls to public body who tells agency result and agency deducts www. local. gov. uk

Intermediaries IR 35 • Employment status test: HMRC producing online tool, likely to focus on: – Mutuality of obligation – Right of substitution – Right of control – Financial risk – Length of engagement – Part and parcel of the organisation www. local. gov. uk

Intermediaries IR 35 • Where agency involved • Public sector client must inform agency whether or not IR 35 applies • Agency can request information if not provided or if provided reasons: 31 days to reply • Two or more agencies in a chain? – Provide info to agency you contract with but agency closest to individual/PSC deducts tax/NI www. local. gov. uk

Intermediaries IR 35 • Statutory payments etc – Apprenticeship levy: fee payer liable (i. e. public body/agency) – SSP/SMP etc: Personal Service Company – Pension (auto-enrolment): no rights through client or fee payer, rights through PSC as employer – ‘Employment rights’ e. g. NMW and redundancy pay: worker has rights though PSC www. local. gov. uk

Intermediaries IR 35 • Issues – Public/private sector disparity: public sector less attractive as IR 35 likely to be applied – Increase in rates? – Administration and associated costs – Direct employment more attractive? Pension, sick pay etc (tribunal claims? or a benefit? ) www. local. gov. uk

Gender pay gap reporting • Mandatory: public sector requirements will mirror those for private sector • Implemented with effect for pay on 31 March 2017, must report by 30 March 2018, annually thereafter • Will apply to public sector bodies listed in Equality Act Specific Duties Regulations with 250 or more employees www. local. gov. uk

Gender pay gap reporting • Mean and median gap based on hourly pay rate as of snapshot date of 30 March pay period • Bonus pay: paid over whole year • Pay quartiles: e. g. 1000 employees, rank employees lowest to highest paid and report per 250 employees, from lowest to highest paid groups www. local. gov. uk

Gender pay gap reporting • Pay includes: basic pay, paid leave, including annual leave, sick leave, maternity etc leave (except where an employee is paid less than usual because of being on any such leave); area and other allowances; shift premium pay; pay for piecework; bonus pay • Excludes: overtime, expenses, value of salary sacrifice, benefits in kind, redundancy www. local. gov. uk

Gender pay gap reporting: issues • Hourly rate of pay: teachers, sleep in payments, retainer for retained firefighters • Schools: maintained schools governing body treated as employer where local authority is employer • Administrative burdens and associated costs www. local. gov. uk

English/Welsh speaking fluency • • • 21 November 2016 implementation Customer facing public sector workers must speak fluent English (or Welsh in Wales) Standard: fluency for effective performance of role, accents/dialects excluded Details set out in Govt Code of Practice Adequate complaints procedure required Does not apply to contractors’ employees, but will to agency workers in public body www. local. gov. uk

LGA EMPLOYMENT LAW UPDATE 21 February 2017 www. local. gov. uk/events www. local. gov. uk/employment-relations