April is a busy month for most businesses, with the start of a new quarter and financial year creating accounting and reporting requirements for many. Alongside this, key developments to employment law will take effect from the start of the month. Here, we take a look at six key developments employers need to be aware of.
Deadline for gender pay gap reports
Whilst this issue has been in the spotlight for many months, the first deadline for publishing gender pay gap reports for private companies is 4 April 2018. Large employers with 250 employees are required to carry out specific calculations using their pay data to determine whether a gender pay gap exists. These results are required to be uploaded to a government website and the company’s own website. Alongside the required calculations, employers can produce a voluntary narrative which explains any gap and sets out the steps the company will take to reduce, or remove, the pay gap.
Once the deadline has passed, large companies cannot forget about this issue as it is an annual requirement; the next ‘snapshot date’ for private companies to collect pay data is 5 April 2018. This data will be used to produce the report due in April 2019.
Additionally, publicity on gender pay gaps is unlikely to wane as more organisations release their data close to the deadline. As results become public, employers may find their employees raising more questions or complaints about their pay, and the pay of others around them.
Changes to taxation of termination payments
In a move to simplify the tax treatment of termination payments, the tax distinction drawn between contractual and non-contractual pay in lieu of notice (PILON) payments will be removed. From 6 April 2018, all PILON payments will be subject to normal deductions, e.g. income tax and employee Class 1 National Insurance Contributions, regardless of whether there is a contractual PILON clause.
Employers who pay termination payments will have to carry out a complicated calculation to split the payment in to post-employment notice pay (PENP), the amount of basic pay the employee won’t receive because their employment was ended without full or proper notice, and the remaining balance. PENP will be taxable whilst the remaining balance is tax-free up to the £30,000 threshold.
Minimum wage increases
Hot on the heels of nearly 180 employers being ‘named and shamed’ for underpaying staff, the increases to minimum pay rates will take effect from 1 April 2018. National Living Wage, the minimum rate applied to workers aged 25 and over, will increase by 4.4% up to £7.83 per hour. All other National Minimum Wages will rise from the same date, with those on the apprenticeship rate receiving a record 5.7% increase from £3.50 to £3.70 per hour.
Employers need to be aware of these rate increases to ensure they are paying staff correctly. Current pay rates are likely to need reviewing to assess whether pay increases are required, especially where staff are moving between minimum wage bands. A failure to apply the new rates properly, or being unaware of the rate increases, could lead to an investigation into whether staff are being underpaid. Further enforcement action could then follow, including penalty fines of up to £20,000 per worker and being included on a future 'name and shame' list.
Auto-enrolment contributions on the rise
Alongside wages, employers will be responsible for increasing the minimum auto-enrolment contributions they pay towards workers’ pensions. From 6 April 2018, employers will have to contribute 2% (up from 1%) and employees will have to contribute a minimum of 3% (also up from 1%). The minimum contributions will increase again from April 2019.
These increases are a legal requirement and employers cannot put these off. A failure to increase contributions appropriately could lead to a fine for each day of non-compliance and may result in the company being publicly named for their failure. Employees who do not wish to increase their contribution are entitled to opt-out of auto-enrolment or opt down to lower contributions, although this affects the obligation on employers to contribute.
Employees on statutory leave to receive higher pay
At the end of each year, the Department for Work and Pensions outlines proposals for new statutory rates to take effect from the following year, with increases in line with the Consumer Price Index. The government has accepted the proposed increases and these are set to take effect from April 2018.
Employees who are entitled to statutory maternity, paternity, adoption and shared parental pay will receive an increase as the statutory rate rises from £140.98 to £145.18 per week on 1 April 2018. Those who are absent from work due to sickness will receive greater statutory sick pay (SSP) as this rises from £89.35 to £92.05 per week on 6 April 2018.
The amount employees have to earn to be entitled to receive these rates is also increasing. The lower earnings limit will rise from £113 per week to £116 per week. Employees who earn below this amount will not be eligible to receive statutory pay.
Tribunal awards to become more expensive
Employers who lose claims at tribunal will have to pay more in compensation. These increases come at a time when employment tribunal claims are on the up, increasing by 90% in October-December 2017 compared to the previous year. The removal of tribunal fees in July 2017 has led to a surge in claim numbers due to the removal of the financial barrier for claimants which, in some cases, amounted to over £1,000.
Each April, the maximum limits on tribunal awards are updated, including the maximum amount of a week’s pay for statutory redundancy pay calculations. From 6 April 2018, the maximum award for an unfair dismissal, totalling the maximum basic and compensatory award, will reach £98,922; a significant amount of money for any business.
About the author
Alan Price is Employment Law Director at Peninsula, a leading employment law and health & safety consultancy in the UK. It offers SMEs a comprehensive and cost-effective alternative to employing expensive HR and/or health & safety staff, including personalised documentation, 24-hour advice, legal representation and insurance.