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News Items – at 10th June 2008
This week’s newsletter brings you details of the statutory changes that will be made to the National Minimum Wage from October, and corresponding information of the minimum wage increase planned for the Isle of Man.
There are also details of a new Data Protection publication that raises awareness of the issues employers must consider in TUPE situations.
Our FAQ this week looks at the tax and age discrimination issues for enhanced redundancy payments.
As the newsletter was being finalised, the Department for Business, Enterprise and Regulatory Reform (with its unpronounceable acronym DBERR) issued a press release describing “landmark” agreements by EU ministers that will allow UK workers to continue to work for more than 48 hours per week and enable to UK to proceed with new protection measures for agency workers. The press release is big on hype and small on information and nothing has yet been published by the EU. Hopefully, we will have some details for you next week.
In an Impact Assessment document, the Department for Business, Enterprise and Regulatory Reform (DBERR) has
- confirmed the increases to the National Minimum Wage (NMW) recommended by the Low Pay Commission to take effect from 1 October 2008, and
- provided details of an increase in the NMW exemption for Work Trials from a period of 3 weeks to 6 weeks.
The new NMW hourly rates from October 2008, other than for groups of workers who are exempt from the provisions, are:
- £3.53 for workers aged 16 and 17
- £4.77 for workers aged 18 to 21
- £5.73 for workers aged 22 and above.
It is anticipated that some 1 million workers will benefit from the October 2008 NMW uprating, comprising around
- 30,000 16-17 year olds
- 100,000 18-21 year olds, and
- 800,000 workers aged 22 and over.
About two-thirds of these beneficiaries are women.
Work Trials is a government programme that enables employers to take on unemployed and inactive benefit claimants for a trial period of up to three weeks. The trial period relates to a particular post and the intention is that the unemployed individual will be offered the post if the trial is satisfactory. During the trial the potential employee continues to receive benefits from DWP. Around 15,000 people annually take up one of the existing three-week trial periods.
The National Minimum Wage Regulations 1999 currently provide an exemption for work trials of up to three weeks. The Prime Minister has announced that this scheme will be extended to six weeks for some client groups, e.g. lone parents. The change is expected to increase the number of people taking up a work trial by around 10,000. An amendment to the NMW regulations is required to ensure the extended scheme is exempt, in the same way as the current scheme.
Further information:
Impact Assessment of the amendment to the National Minimum Wage regulations 2008 http://www.berr.gov.uk/files/file46462.pdf
The Office of the Information Commissioner has published a new “good practice note” on the data protection issues that employers must consider when transferring employee information under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
TUPE ensures that employees’ terms and conditions of employment are preserved when a business or undertaking is transferred to a new employer. To achieve this, the Regulations require that certain information is provided to the new employer before the transfer takes place, such as details of pay, contracted hours, holiday entitlement and any disciplinary or grievance action relating to that employee. The Data Protection Act does not prevent the transfer of this information as it is a requirement by law. However, both parties must comply with the Act when handling the information, for example ensuring it is accurate, up-to-date and secure.
Employers should consider the data protection issues early in the transfer process and only pass on the information that is required by the new employer. The employees concerned should also be told that their personal information is being given to the new employer unless that is prevented by insider trading restrictions.
Further information:
Disclosure of employee information under TUPE http://www.ico.gov.uk/upload/documents/library/
data_protection/practical_application/gpn_disclosure_employee_info_tupe_v1.0.pdf
Payroll deadlines during the next month
June 19 – For employers required to pay tax and NICs etc to the Accounts Office monthly, this is the deadline for payment to be received by the Accounts Office, unless made electronically.
June 20 - (June 22 is a Sunday) – For employers required to pay tax and NICs to the Accounts Office monthly, this is the deadline for electronic payments to be cleared into the HMRC bank account. Payments through BACS must be initiated by June 18 at the latest.
July 5 – This is the final day of tax month 3. Tax and NICs etc for payments made in the tax month to July 5, or in the tax quarter to July 5, are due for payment to the Accounts Office by July 19, or by July 22 if paid electronically.
July 6 – This is the deadline date for filing, in paper form or electronically,
- form P9D Expenses payments and income from which tax cannot be deducted
- form P11D Expenses and Benefits
- form P11D(b) Return of Class 1A National Insurance contributions due and Return of expenses and benefits – Employer’s declaration
Copies of forms P9D and P11D must also be given to the employees concerned by this date.
Payroll FAQ's
Statutory Redundancy Pay
There are both age discrimination and tax issues to consider.
Changes were made in October 2006 to the rules for calculating statutory redundancy pay (SRP) in order to remove, at least to some extent, the potential for discriminating on the grounds of age. The current rules for paying SRP are:
- the employee must be dismissed due to redundancy (as defined)
- the employee must have two years’ continuous employment at the “relevant date” (normally the date on which the employment ends)
- payment must be made in respect of a period of up to 20 years’ continuous employment, ending on the relevant date
- for each complete year of continuous employment, the number of weeks’ SRP is
- 1½ weeks for each full year that the employee was not under age 41, plus
- 1 week for each full year that the employee was not under age 22, plus
- ½ week for each full year that the employee was under age 22.
- the amount of a “week’s pay” is calculated using the statutory “week’s pay” rules, but limited to a statutory ceiling, £330 per week (in October 2008).
It will be noted that the employee’s age is still a factor in determining the number of weeks that are used for the SRP calculation.
Example: Two employees are redundant. The relevant date in both cases is 31 May 2008. Employee A is 66 years old and has 18 years service. Employee B is 34 years old and has 18 years’ service. Their “week’s pay” is more than £330 per week, so the statutory ceiling applies in both cases.
Employee A is entitled to £8,910 SRP (i.e. 18 years × 1½ weeks × £330).
Employee B is entitled to £4,950 SRP (i.e. (6 years × ½ week) + (12 years × 1 week) × £330)
Although the difference is attributable to the age of each employee, this is permitted by the Employment Equality (Age) Regulations 2006 and is not therefore treated as age discrimination.
SRP is not taxable or subject to Class 1 NICs. It is, however, added to any other qualifying termination payments when determining whether they exceed the £30,000 exemption for tax purposes.
Enhanced redundancy payments
The Age Equality Regulations provide an exception for enhanced redundancy payments to “qualifying employees” if certain conditions are met. This is the only specific reference in statute to “enhanced redundancy payments”, although they are also treated as being exempt from income tax to the extent that, when combined with all other qualifying termination payments, they do not exceed the £30,000 limit. As with SRP, there are no NICs liabilities, irrespective of the amount involved.
Employees are “qualifying employees” if they
- are entitled to SRP, or
- would have been entitled to SRP if they had two years’ continuous employment, or
- volunteered for redundancy, irrespective of their length of service.
The statutory exception from age discrimination applies where:
- a payment made to one qualifying employee is less than the payment made to another qualifying employee and the same rules have been used to calculate both payments, or
- a payment is made to an employee who is entitled to SRP or who would have been entitled to SRP if it were not for having volunteered for redundancy.
Because of the way that an “enhanced redundancy payment” is defined in the Regulations, either of these situations could result in younger employees receiving a smaller payment than older employees, or no payment at all, in otherwise identical circumstances.
For a payment to be an “enhanced redundancy payment”, it must initially be calculated in exactly the same way as SRP. It may then be adjusted by
- not limiting the amount of the payment by the statutory ceiling, or limiting it to a figure higher than the statutory ceiling, and/or
- multiplying the number of weeks (according to the three age bands) by a factor of more than one, and
- whether or not an (a) and/or (b) adjustment is made, multiplying by a factor of more than one.
Example: Two employees have volunteered for redundancy. The relevant date in both cases is 31 May 2008, the date on which the termination takes effect. Employee A is 65 years old and has 10 years’ service. Employee B is 27 years old and has 10 years’ service. A “week’s pay” is £250 for Employee A and £600 for Employee B.
Neither employee is entitled to SRP as they are not being dismissed for redundancy. The employer provides instead an enhanced redundancy payment. It is calculated in the same way as SRP but (1) there is no ceiling to the “week’s pay” and (2) the resulting payment is doubled.
Employee A receives £7,500 (i.e. 10 years × 1½ weeks × £250 × 2).
Employee B receives £9,000 (i.e. (5 years × ½ week) + (5 years × 1 week) × £600 × 2)
The calculation of the enhanced redundancy payments has followed the SRP rules for both employees. The employer has only varied the calculation by (1) not applying the statutory ceiling and (2) multiplying the payment by a factor of 2, both adjustments being permitted by the Regulations. The difference in the payments is covered by the statutory exception so is not treated as age discrimination.
If the employer chooses to adjust the payments as described above, the same adjustments must be made to each of the three age bands. For example, the same increased weekly limit must be applied to all three bands, or the same factor must be applied to each of the three bands. An employer may make different adjustments to the bands but, as required by the Age Equality Regulations, would have to objectively justify this if challenged.
If the conditions for the exception are met, employers with enhanced redundancy packages that are modelled on the SRP rules are protected from claims of age discrimination. However if the enhanced payment is calculated in a significantly different way, the exception does not apply and the employer would have to amend the rules or endeavour to justify the differences objectively.
The Department of Trade & Industry Minister, David Cretney, will be asking Tynwald to support an increase in the rate of the minimum wage on the Isle of Man at the sitting of the Court on17 June 2008. The proposed increase, from £5.60 to £6 per hour, is a 7.1% increase, and, if approved, will come into effect on 1 October 2008.
The increase proposed by the Minimum Wage Committee was to £5.85, a 4.1% increase. However, the rate of inflation had risen to 4.9% by April 2008 and the higher rate has been agreed by Treasury and Council of Ministers.
The rate for 16 years olds remains at £4.67 per hour and £5.24 per hour for 17 year olds and certain trainees.
The June 2007 earnings data analysed by Treasury shows that roughly 4.8% of the Isle of Man workforce earned below £6 per hour. About 1,700 workers of the Island’s employed workforce of approximately 35,000 stand to benefit from the proposals.
Further information:
Increase in Minimum Wage http://www.gov.im/dti/ViewNews.gov?page=lib/news/dti/
employmentRights/increaseinminimu.xml&menuid=11570
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