What’s changed and what should organisations be doing about it?
Chancellor Philip Hammond’s recent Autumn Statement contained a number of measures of significance to employers. Organisations should be considering now how they need to amend their contractual arrangements in response.
The increase in the national living wage (NLW) from £7.20 to £7.50 per hour from April 2017 (other minimum wage rates will increase at the same time) will be a blow to the retail and hospitality sectors, which were particularly affected by the introduction of the NLW this year. However, the NLW is still far below the voluntary living wage, set at £8.45 per hour (£9.75 in London) and is a slight reduction from the Low Pay Commission’s provisional recommendation of £7.64 an hour. The commission was satisfied that the increased costs could mostly be offset by higher prices or lower profits, but it did express concern for the social care sector, which is already feeling the effect of government cuts, and for small businesses that would find it harder to make such adjustments.
Some employers may consider limiting staff pay in response, perhaps by reducing staff hours or overtime rates, or by increasing productivity, or by passing the increased costs on to customers. Recent research shows that 100,000 businesses are experiencing ‘financial distress’ following the introduction of the NLW, so redundancies are not out of the question.
There was much publicity earlier this year around employers that reduced hours/overtime rates, or removed paid breaks and other staff benefits, in the wake of the NLW’s introduction. Workers said they were worse off as a result. Employers must forward plan any changes to terms and conditions (and redundancies) and may need to defend claims of unfair dismissal, including constructive dismissal. Full employee consultation and sound business reasons for making the changes are essential, particularly where there is an adverse impact on pay.
Although there was no announcement about auto-enrolment in the Autumn Statement, increased levels of pay because of the rise in the NLW will inevitably increase the cost to employers of both national insurance contributions (NICs) and employer auto-enrolment pension contributions. These contributions, currently set at one per cent, are also set to increase to two per cent from April 2018 and three per cent from April 2019.
The government announced before the Autumn Statement that all payments in lieu of notice (PILONs) would be taxed, regardless of what the employment contract said, from April 2018 (currently some PILONs may be paid tax-free if there is no contractual right to make one). However, it has now confirmed that “tax will only be applied to the equivalent of basic pay if…notice is not worked”. The government has apparently dropped complex provisions to tax ‘expected bonus income’ in relation to a notice period – more details on this should be available on 5 December.
The tax and employer NIC advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including pensions advice), childcare, cycle to work schemes and ultra-low-emission cars. Arrangements in place before that date will be protected until April 2018, and arrangements for other cars, accommodation and school fees will be protected until April 2021.
Employers will find these benefits more expensive to offer, especially when the cost is added to the increase in insurance premium tax, affecting benefits such as private dental and medical insurance – this has doubled in the past two years and is now at 12 per cent.
There is a window between now and next April to review how these arrangements have been offered to employees, and whether both the benefit and the saving have become a contractual entitlement or, at the very least, an expectation. Making changes could be tricky. Employers may want to change what they offer for new joiners and, in the longer term, consider changes for those already receiving non-exempt benefits.
The government is abolishing the tax advantages linked to ’employee shareholder’ status introduced in 2013, although employee shareholder agreements made before 1 December 2016 are unaffected.
Employee shareholders give up certain statutory rights (for example, unfair dismissal) in return for a minimum of £2,000 worth of shares. This means the individual pays no/reduced income tax on the shares and gets capital gains tax (CGT) relief on the proportion of shares valued when acquired at up to £50,000 when the shares are sold. It was designed to encourage start-up companies, but the special tax treatment was mainly used by senior executives as a tax loophole, with the rights given up usually re-inserted into a contract. So, a lifetime limit of £100,000 of CGT relief was introduced for agreements made on or after 17 March 2016. As well as now losing all tax advantages, the government has confirmed the status itself will be closed at the next legislative opportunity.
Because employee shareholders were little used, except at very senior levels, this is unlikely to have much impact on HR departments.
Story via – http://www2.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2016/12/01/hr-strategy-implications-from-the-autumn-statement.aspx