Various pieces of legislation came into force in early April 2019.  The common, and unsurprising, theme among all these legislative changes is that they increase the statutory minimum amounts employers must pay to their staff and increase awards available to the Employment Tribunal.  We have set out below a summary of these key increases all of which are now fully effective.

Statutory sick and family leave pay

Under the Social Security Benefits Up-rating Order 2019, employers must increase minimum weekly payments to eligible employees as follows:

  • as of 6 April 2019, statutory sick pay must now be a weekly payment of £94.25; and
  • as of 7 April 2019, family leave-related pay must now be a weekly payment of £148.68.

Tribunal awards

On 6 April 2019, both the Employment Rights (Increase of Limited) Order 2019 and the Employment Rights (Miscellaneous Amendments) Regulations 2019 came into force, resulting in the below increases to awards and penalties now available to Employment Tribunals:

  • the maximum limit on a week’s pay, including for the purposes of calculating statutory redundancy, has increased to £525;
  • the maximum compensatory award for unfair dismissal claims is now £86,444;
  • the minimum basic award for certain unfair dismissal (including dismissal for reasons of union membership and acting as a staff representative) has risen to £6,408; and
  • the maximum penalty for an aggravated breach of employment law is now £20,000, up from the previous maximum of £5,000.

In addition to the above, an addendum to the Presidential Guidance on bands of damages for injury to feelings (Vento bands) has been issued, which increases the potential damages that the Tribunal can award for claims presented on or after 6 April 2019. The Vento bands are now as follows: a lower band of £900 to £8,800 for cases such as a one-off act; a middle band of £8,800 to £26,300 for more serious one-off acts of harassment or loss of job due to discrimination; and an upper band for the most serious cases of discrimination of £26,300 to £44,000, with the most exceptional cases, such as a sustained course of harassment, capable of exceeding £44,000.

National living and minimum wage

Further to our blog post in early March, under the National Minimum Wage (Amendment) Regulations 2019, the increases to hourly rates took effect from 1 April 2019.

What do employers need to do?

The above increases have already come into force so employers must ensure they have implemented these changes, and from the correct dates. Employers should think about the mechanics of backdating payments to the relevant effective date to ensure employees or workers do not have claims for unpaid wages.  Employers facing a potential claim in the Tribunal should keep in mind the above increases to awards as, no doubt, claimant solicitors will be sure to mention these increases in any pre-claim settlement discussions.

The government has given the green  light to a new form of defined contribution pension scheme.  At least, it is new to the UK.  “Collective defined contribution” (“CDC”) schemes are common in the Netherlands and Denmark but the idea of introducing this type of scheme into the UK has only relatively recently gained traction.  The fact that the Royal Mail wants to put such a scheme in place for its 140,000-strong workforce has provided the impetus for the government to consult on how CDC schemes would operate and be regulated.

Continue Reading Collective defined contribution schemes: a fresh alternative?

The case of Hargreaves v Department for Work and Pensions provides a useful reminder of what employers should keep in mind when managing an employee with a disability, including the following:

  • Discuss suitable reasonable adjustments at the very first opportunity and seek input from the employee’s treating health professional and occupational health as well as the employee.
  • Consider whether the application of a ‘provision, criterion or practice’ within the organisation, such as rigid working hours, could have the effect of placing a disabled employee at a disadvantage.
  • Be attentive to the changing circumstances of an employee with a disability and open to reassessing the reasonableness of the adjustments.
  • Be open to suspending, extending or restarting a reasonable adjustments ‘trial period’ if an employee’s symptoms or condition is likely to change due to, for example, a change in medication.
  • Be mindful that a disability may affect an employee’s ability to follow a standard process, such as calling a line manager to advise if he or she will be late, and consider whether an alternative process could be possible.
  • Be careful not to reject any recommendations made by a disabled employee’s treating health professional or occupational health without first discussing the reasonableness of their suggestions with them and the employee, and clarifying any points of uncertainty.

In this case, the Tribunal held that the employer had failed to make reasonable adjustments when it refused a flexible working pattern requested by a disabled individual. The subsequent dismissal was also held to be discriminatory. If the employer has taken into account the above, this outcome could have been avoided.

Defined benefit (DB) pension schemes promise their members a pension for life. However, while one member may live to age 75, another might live to age 95. When working out how much money a DB scheme needs to fund the benefits it has promised members, trustees (or rather their actuarial advisers) therefore have to make an assumption about how long, on average, members will live – a longevity assumption.

If that longevity assumption proves to be incorrect and the scheme has to pay benefits for longer than expected, the trustees will need to find additional money to fund those benefits. And usually they will look to the scheme’s sponsoring employer for that money.

Finding ways of managing a scheme’s longevity risk is therefore beneficial for both the trustees and the employer. One way of doing this is a transaction called a longevity swap. Between 2009 and 2018, nearly 50 pension schemes entered into longevity swaps, including schemes sponsored by Astra Zeneca, AkzoNobel, BA, BAE Systems, BMW, BT, Heineken, ITV and Rolls-Royce.

Continue Reading Managing pension scheme longevity risk – a good thing for schemes and employers

In a consultation paper issued on 5 March, the second consultation on the IR35 changes, the government confirmed the intention is still to apply the IR35 reforms to the private sector in April 2020. In summary, the intention is for IR35 to apply to any individual who, but for the supply of their services through a personal service company or agency, would otherwise be an employee of the end user client in receipt of the service. The impact of the rules on medium and large businesses is that they, as the end user client, will be responsible for determining the employment status of contractors, whether they supply their services directly, through a personal service company or an agency. Under the current rules, contractors are required to self-declare whether they fall within the IR35 framework.

The Government has committed to reviewing the Check Employment Status for Tax tool (‘CEST’) the digital tool developed by HMRC to help public authorities determine employment status. HMRC is looking at where the CEST tool might be improved to help make employment status decisions. It is worth noting that there is a difference between employment status for tax purposes (and IR35) and employment status for employment rights and protections.

The draft legislation is awaited this summer which should offer some further clarity and certainty on the proposals. The consultation will close for comment on 28 May 2019.

In this post, we take a look at the actions medium and large private sector employers can take now in order to prepare for the changes.

  • Understand your obligations

Whilst it is right there is a degree of uncertainty as to the details, now is the time for business to seek to understand what their obligations will be when the rules apply in April 2020. This will ensure businesses are in the best place possible to make decisions about the status determination of workers.

  • Look at your work force

It is worth businesses carrying out a detailed assessment of their workforce to determine how many contractors they have that potentially fall within the remit of IR35. A starting point would be to check how many contractors are engaged through personal service companies and agencies to provide services to the business. Businesses should make sure they understand the supply chain involved as sometimes these can be complex involving many parties. It would seem that the reform is not intended to be retrospective however, it would not be a wasted task to understand the profile of the workforce and will help businesses to plan going forwards.

  • Consider resources

In order to make employment status determinations, assessments will need to be made on a case by case basis and this is not a straight forward task. Businesses would be wise to consider how they will resource this task and what tools they will use to make the determination. Account will need to be taken of the individual working arrangements and so the larger the number of contractors are engaged, the greater the resources needed will be. This could easily become an administrative challenge.

  • Start the conversation

There is value in business speaking to the agencies and consultancies they contract with now to understand how they too are planning for the implementation of IR35 into the private sector. It will be important that all those in the supply chain understand and deliver under their respective obligations.

It would not be advisable to wait until the outcome of the consultation or the publishing of the draft legislation before business take steps to prepare. If you need any assistance with your planning process, please get in touch.

Recent intervention by the Competition and Markets Authority could lead to increased competition in the market for investment professionals who provide services to pension schemes – which should be a good thing for the employers supporting those schemes.

Many occupational pension schemes use the services of investment consultants and / or fiduciary managers.  Broadly, investment consultants advise pension scheme trustees on how best to invest scheme assets – and fiduciary managers make investment decisions on behalf of pension scheme trustees.

Continue Reading Pension scheme investment – a new era of increased competition?

These two small, but practically important, changes are coming in: one next month and the other next year.

From 6 April 2019, new rules relating to payslips will apply. The key points are:

  • The right to receive a payslip will extend to all workers, not just employees.
  • Employers will be required to itemise payslips (and show the hours worked) where the amount of wages or salary varies by reference to time worked.
  • Where an employer does not comply, workers and employees can apply to an employment tribunal to determine what particulars are required.
  • The changes will apply to wages or salary earned for work performed after 6 April 2019.

Before the changes come into effect, it is important for employers to check that payslips for workers and employees are formatted in a way which will ensure compliance with this new legislation, and ensure that data in relation to time spent performing work which attracts a different rate of pay is accurately recorded and submitted to payroll.

The Government has also published legislation that will come into force on 6 April 2020, giving employees (and workers who commence employment after 6 April 2020) a ‘day one’ right to receive a statement of employment particulars, currently known as a ‘section 1’ statement. Currently, the right only applies to employees who have been employed for more than two months. The amendment will also require employers to identify the days of the week that a worker is not required to work and, to the extent that a worker’s hours are variable, how these hours of work may vary and how this variation is to be determined.

On 6 April, the quality requirements that pension schemes being used for automatic enrolment (“qualifying schemes”) must meet are changing.

DC schemes – what’s changing?

At present, for a DC scheme to be a qualifying scheme:

  • The employer must make a contribution of at least 2% of the worker’s qualifying earnings.
  • The total contributions paid by the employer and the worker must be at least 5% of the worker’s qualifying earnings.

From 6 April, the minimum employer contribution will rise to 3% and the minimum total contribution will rise to 8%.

Qualifying earnings are broadly gross earnings including salary/wages, commission, bonuses, overtime, and statutory maternity, paternity, adoption and sick pay between £6,136 and £50,000 (2019/20 figures). Where pensionable pay under a scheme is based on something other than qualifying earnings, employers can choose to satisfy one of three sets of alternative contribution requirements. Pensionable pay will vary from scheme to scheme and will be defined in the scheme’s rules, but typically only includes basic pay. These alternative contribution requirements will also increase from 6 April.

DB schemes – what’s changing?

Before the abolition of contracting-out, a DB scheme was a qualifying scheme if it was contracted-out. When contracting-out was abolished in 2016, a new test was introduced under which a DB scheme must meet a prescribed cost-of-accruals test. This test must be met at either a scheme-wide level or, where there is a material difference in the cost of providing benefits for different groups of members, for each group of members.

However, a transitional easement allows schemes which were contracted-out at the time of abolition to apply the test at a scheme-wide level, even if there is a material cost difference, provided the scheme has not made any rule amendments which would mean it ceased to satisfy the contracting-out requirements had they still been in force. This easement expires on 5 April.

Alternative quality requirements also apply to DB schemes – these will remain unchanged.

What do employers need to do?

Employers should check that the pension scheme they use for automatic enrolment will continue to meet the relevant quality requirements from 6 April. If changes need to be made to the scheme to meet the new requirements, the employer should speak to the scheme trustees about these urgently.

Superfunds are a hot topic right now in the pensions industry. A consultation on the regulation of superfunds has recently closed, and a response from the Government is expected in the near future. But what are superfunds, and why might they be of interest to an employer with a defined benefit (DB) pension scheme?

What is a “superfund”?

  • A superfund is an occupational pension scheme which will, at a cost, accept a transfer of assets and liabilities from a DB pension scheme.
  • It’s a relatively new concept – there aren’t currently any operational superfunds, although market entrants are actively seeking business.
  • The entity running the superfund will be aiming to make a profit and distribute returns to external investors.  The expectation is that this can be achieved through cost efficiencies, better access to investment opportunities and the pooling of risk.
  • They will be regulated by the Pensions Regulator (although the authorisation framework is not yet in place) and the intention is that they will be eligible for the PPF.

Continue Reading Superfunds – another option for managing historic DB pension scheme liabilities?

At the end of January 2019, the Government launched a consultation which proposes plans to boost the protection given during redundancy to pregnant women and new parents returning to work.   Under the current law, before making an employee on maternity leave redundant, employers are under an obligation to offer them a suitable alternative vacancy where one is available.  They are therefore given priority over other employees who are also at risk of redundancy.

Under the new proposals, this protection could be extended so that it also applies during pregnancy, and continues for up to six months after a mother’s return to work from maternity leave.  Six months reflects the Government’s provisional view that this is a sufficient period to allow a new mother to re-establish herself in the workplace.  The consultation is also seeking views on offering a similar protection on return to work for other groups who take extended periods of leave for similar purposes, e.g. shared parental leave or adoption leave.

There are a number of questions that the Government will need to grapple with before any such changes are implemented.  For example, when would the protection on a return to work period commence if maternity leave is followed immediately by a period of annual leave, as is common in practice?

This consultation has been launched in response to a commitment the Government made in response to the Taylor Review, which was released in July 2017, and the proposed measure would go further than what is currently required under European Law.  It also comes after research commissioned by the Department for Business, Energy and Industrial Strategy found that one in nine women said they were dismissed when returning to work after having a child, or felt forced out.

The consultation is due to end at the beginning of April 2019, so watch this space.