News Items – at 18th June 2008

Introduction

HMRC was quick to announce its successful appeal against a tribunal decision that payments of tips by a troncmaster count towards the national minimum wage.  The decision is significant for any business where employees receive tips.  Curiously, and incorrectly, HMRC’s initial press release described the finding as a High Court decision – in fact it was heard by the Employment Appeal Tribunal – but the press release was later corrected.

We have more information now about the EU ministers’ agreement on the 48-hour opt-out and the agency workers Directive.  The government has declared it a great success, and perhaps it is, but the agreement still has to be approved by the European Parliament and nobody seems to remember that last time the MEPs considered similar proposals, they rejected them because there were no plans included to phase out the opt-out.

Also, have a look at the new design P45s, but don’t start using them until October.

Discipline and Grievance Code of Practice

Acas consults on new guidance for employers

At the beginning of May, Acas published a draft Code of Practice on discipline and grievance in employment.  The code is being revised to take into account the changes being made to workplace dispute resolution procedures by the Employment Bill, currently before Parliament, in particular the removal of the statutory dismissal and discipline procedures.
To support the Code of Practice, Acas has now issued draft non-statutory guidance on handling discipline and grievances in the workplace.  The 74-page document provides detailed information for employers on such aspects as:

• developing rules and procedures
• using outside mediation
• preparing for and holding a disciplinary meeting
• the right of the employee to be accompanied
• dismissal and other sanctions
• what is gross misconduct
• written reasons for dismissal
• informal resolution of grievances
• preparing for and holding a grievance meeting
• sample disciplinary and grievance procedures.

Acas is inviting written comments from interested parties and the deadline submission date is 25 July 2008.

Further information:
Acas consults on non-statutory discipline and grievance guidance  http://www.acas.org.uk/index.aspx?articleid=2080
Discipline and grievances at work: Draft Acas guide  http://www.acas.org.uk/CHttpHandler.ashx?id=905&p=0

National Minimum Wage

Distribution of tips by a troncmaster and minimum wage compliance

In a decision given in the case HM Revenue and Customs v Annabels (Berkeley Square) Ltd & Ors on 13 June 2008, the London Employment Appeal Tribunal allowed an appeal by HMRC that, in the particular facts of the case, the tips distributed by the troncmasters were not payments by the employers and did not, therefore, count towards the employers’ liability to pay employees at at least the national minimum wage (NMW).

Annabels and two other private members’ clubs and restaurants (described together as “the restaurants” in this article) operate troncs for the distribution of voluntary service charges, credit card tips and cash tips (described collectively as “tips” in this article) to waiting staff and bar staff.  All of the monies taken by the restaurants, including the tips, were collected initially by the employer and banked.  The full amount of the tips was then passed to the troncmaster each week for distribution, on a length of service basis, to the staff.

The troncmaster in each of the restaurants was a senior manager of their respective restaurant and operating the tronc was part of their employment duties.  The way in which the tips were distributed was decided by the troncmaster and the members of the tronc.

Each troncmaster operated a payroll in order to distribute the tronc monies, deducted PAYE tax, issued a wage slip and kept proper records.  The restaurants, in addition, operated a separate payroll to pay the staff their contractual wages, from which were deducted PAYE tax and NICs, issued separate wage slips and kept proper records.

HMRC has statutory responsibility for NMW compliance.  In March 2006, HMRC served enforcement notices on each of the restaurants, requiring them to pay NMW arrears to members of staff whose pay, in the view of HMRC, was below the statutory minimum rate.  The amount of the tips received on top of wages was not taken into consideration as, according to HMRC’s understanding of the legislation, they were not paid through the employer’s payroll.

The two relevant requirements of the National Minimum Wage Regulations 1999 are that:

1. a worker’s total remuneration in a reference period is calculated by adding together all money payments made by the employer in the reference period, and
2. the total remuneration is reduced by deducting amounts paid by the employer representing service charges and tips paid by customers, but that are not paid through the payroll.

The restaurants appealed against the enforcement notices to an Employment Tribunal.  The tribunal took the view that

• the tips were paid by the employer and were only held by the troncmaster for distribution purposes,
• each troncmaster, as an employee of the restaurant, distributed the monies as part of their employment duties, and
• the troncmaster’s payroll was therefore part of the employer’s payroll.

Based on this interpretation of the arrangements, the tribunal found that the tips could not be deducted from each worker’s total remuneration and, as a result, the enforcement notices were rescinded.

The Employment Appeal Tribunal, in its consideration of HMRC’s appeal against the employment tribunal’s decision, decided that

• the tips, once passed to the troncmaster, were no longer owned by the employer,
• the troncmaster could not be required to pay them back,
• the employer had no control over the distribution of the tips, as long as they were distributed to those entitled to them,
• the tips were not therefore paid to the employees by the employer, and
• the tips were not therefore distributed by means of the employer’s payroll.

HMRC’s appeal was allowed on the basis that the amount of tips paid had to be deducted from each worker’s total remuneration in order to determine NMW compliance.  Without the tips, the wages were less than the NMW and the enforcement notices were therefore reinstated.

Employers considering the implications of this decision must remember that it is based on the particular facts of the case.  The key factors were the independence of the troncmaster and the ownership of the tips once in the troncmaster’s hands.
There are two conflicting interests at stake where the payment of tips is concerned:

1. If the tips are to be paid to workers without any liability for employer and employee Class 1 NICs, the troncmaster, whether or not appointed by the employer, must operate completely independently of the employer.  The workers, however, must be paid at least the NMW rate.
2. If the employer wants to pay basic rates that are below the NMW and rely on tips to increase the pay for NMW compliance purposes, the tips must be paid through the employer’s payroll.  The tips, however, become liable for Class 1 NICs.

Further information:
Revenue and Customs v Annabels (Berkeley Square) Ltd & Ors  http://www.bailii.org/uk/cases/UKEAT/2008/0562_07_1306.html
Friday 13th a good day for the UK's bar and restaurant workers  https://nds.coi.gov.uk/environment/fullDetail.asp?ReleaseID=370654&NewsAreaID=2

Working Time Directive

EU member states reach agreement on outstanding issues

On 10 June, agreement was reached by the EU Employment and Social Affairs Council on the longstanding issues of the Working Time Directive.

The Directive amending the existing directive on Working Time has been on the table since 2005.  Many Member States are in breach of the legislation as interpreted by the European Court of Justice.  The UK’s opt-out from the 48-hour average working week expired on 23 November 2003 and has been operated in breach of the Directive since then.  Many attempts have been made by EU ministers to find a compromise agreement on, in particular, the opt-out and the treatment of on-call time since then.

The main points of agreement in the Working Time Directive are:

• on-call time to be split into active and inactive on-call time. Active on-call time to be counted as working time
• inactive on-call time may not be counted as rest time and can be counted as working time if national laws or social partners agree
• standard maximum limit remains at 48 working hours per week unless an individual worker chooses otherwise (opt-out)
• new protective limit (cap) for workers who opt out: maximum working week of 60 hours unless social partners agree otherwise
• new cap for workers who opt-out if inactive on-call time is counted as working time: maximum working week of 65 hours
• the cap protects all workers employed for longer than 10 weeks with one employer
• opt-out only under certain conditions, such as:
  • no signature during first month of employment
  • no victimisation for not signing or withdrawing opt-out
  • employers must keep records on working hours of opted-out workers.

The agreement is now subject to approval by the European Parliament.  It should be noted that the last time that the European Parliament considered the future of the opt-out, in February 2004, it voted by a large majority for the opt-out to be phased-out.  No such phasing-out arrangements are included in the new proposals.

Further information:
Commission welcomes agreements on working time and temporary agency workers  http://ec.europa.eu/employment_social/emplweb/news/news_en.cfm?id=413
Commission strongly welcomes today's political agreement on Working Time and Working conditions for Temporary Agency Workers  http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/912&format
=HTML&aged=0&language=EN&guiLanguage=en

Temporary Agency Workers Directive

EU member states reach agreement on outstanding issues

On 10 June, agreement was reached by the EU Employment and Social Affairs Council on the longstanding issues of the Temporary Agency Workers Directive.  The proposals, which have been under discussion since 2002, will provide equality of treatment for temporary workers with workers engaged on full employment contracts.

The main points of agreement in the Temporary Agency Workers Directive:

• equal treatment as of day one for temporary agency workers as well as regular workers in terms of pay, maternity leave and leave
• possibility to derogate from this through collective agreements and through agreements between social partners at national level
• temporary agency workers to be informed about permanent employment opportunities in the user enterprise
• equal access to collective facilities (canteen, child care facilities, transport service)
• Member States have to improve temporary agency workers access to training and child care facilities in periods BETWEEN their assignments so as to increase their employability
• Member States have to ensure penalties for non-compliance by temporary agencies and enterprises.

Although the proposals provide for equal treatment from the first day of a temporary contract, the UK government announced in May that the CBI and the TUC had reached agreement on how fairer treatment for agency workers in the UK should be applied, while preserving flexibility agency work offers to both employers and workers.  The EU proposals allow member states to delay the start of equal treatment with the agreement of “social partners at national level” and this has already been achieved.

 Agreement was reached between the CBI and the TUC on the following points:

• After 12 weeks in a given job there will be an entitlement to equal treatment.
• Equal treatment will be defined to mean at least the basic working and employment conditions that would apply to the workers concerned if they had been recruited directly by that undertaking to occupy the same job. It will not cover occupational social security schemes.
• The Government will consult the social partners regarding the implementation of the Directive more generally, in particular:
  • mechanisms for resolving disputes regarding the definition of equal treatment and compliance with the new rules that avoid undue delays for workers and unnecessary administrative burdens for business;
  • appropriate arrangements to enable the two sides of industry and also public services to reach appropriate agreements on the treatment of agency workers, while respecting the overall protection of agency workers; and
  • appropriate anti-avoidance measures reflecting Art 9 (2), in particular relating to the treatment of repeat contracts for the same worker and the position of workers with permanent contracts of employment with agencies who continue to be paid between assignments; it is not intended that article 5 (2) will be used to evade the aims of the Directive.
• The new arrangements will be reviewed at an appropriate point in the light of experience.

Further information:
Commission welcomes agreements on working time and temporary agency workers  http://ec.europa.eu/employment_social/emplweb/news/news_en.cfm?id=413
Commission strongly welcomes today's political agreement on Working Time and Working conditions for Temporary Agency Workers  http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/912&format
=HTML&aged=0&language=EN&guiLanguage=en
Government agrees fair deal on Agency Work  http://nds.coi.gov.uk/content/detail.asp?ReleaseID=368001&NewsAreaID=2

New Form P45

Samples of the final versions available to view

The new A4-size P45 comes into use from October 2008.  Samples of the five different versions of the four-page colour documents have been made available for the particular benefit of system developers.

Further information:
Online Services: draft versions of 2007-08 and 2008-09 Forms  http://www.hmrc.gov.uk/ebu/pnforms.htm

Employed or Self-employed?

New guidance on employment status for tax and NICs purposes

HMRC has published a new Factsheet ES/FS1 Employed or self-employed for tax and National Insurance contributions, written specifically for the use of individuals.  A similar Factsheet is being prepared for the use of employers and, until it is published, leaflet IR56 should continue to be used.

Further information:

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

Fixed-Term Employees

Are temporary staff entitled to redundancy pay when they complete their contracts?

Under the provisions of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, employees engaged under fixed-term contracts may not be treated less favourably than comparable permanent employees on the grounds that they are fixed-term employees, unless that treatment can be justified objectively.

The Regulations apply only to employees; agency staff are specifically excluded.
If an employee is dismissed or selected for redundancy simply because of working under a fixed-term contract, the action is likely to be less favourable, or detrimental, treatment.  Consequently, at the time the 2002 Regulations came into force, the redundancy provisions set out in the Employment Rights Act 1996 (ERA) were amended to provide that, in certain circumstances, a fixed-term employee would be treated as being dismissed by reason of redundancy.

For the purposes of redundancy rights, the ERA uses the term “limited-term contract” instead of “fixed-term contract”.  A “limited-term contract” is a contract that is intended to come to an end when a “limiting event” occurs.  It is not, therefore, simply a contract for a pre-determined period of time.  It is also a contract that ends when a task or project is completed, or when an event of any kind occurs or fails to occur, e.g. the return of a woman from maternity leave, or the end of a period of peak trading or production.

What, then, is an employee’s situation when the “limiting event” occurs?  Section 136 of the ERA says that the employee is “dismissed by the employer if … he is employed under a limited-term contract and that contract terminates by virtue of the limiting event without being renewed under the same contract”.  The employee is dismissed, therefore, if the contract is not renewed.  The reason why the contract is not renewed then becomes important.  According to section 139 of the ERA, if the contract is not renewed because the need for employees to carry out work of a particular kind has ceased or diminished, the dismissal is by reason of redundancy.

Consequently, if a limited-term employee’s contract is not extended or renewed, and the reason is that there is no longer a requirement for the work done by the employee, it amounts to a dismissal by reason of redundancy.  There is entitlement to all redundancy rights, including redundancy pay, if the employee has the necessary length of service.

This does not mean, however, that there is a redundancy situation every time a fixed-term employee’s contract ends.  For example, if an employee is covering for an absent permanent employee, e.g. a woman on maternity leave, the reason for the contract ending is not by reason of redundancy.  The need for someone to perform that kind of work has not ceased or diminished.

Another important issue is the requirement for an employer to consult if 20 or more employees are to be made redundant over a period of 90 days or less.  If the employment of a large group of temporary seasonal workers is to end at Christmas, the dismissals are only treated as being by reason of redundancy for consultancy purposes if, according to section 195 of the Trade Union and Labour Relations (Consolidation) Act 1992, the dismissals are “for a reason not related to the individual concerned”.  The failure to renew their contracts amounts to dismissal, the reason is redundancy because the need for their work has ceased, but it is not the kind of redundancy that requires consultation.

The objective of the Fixed-term Employees Regulations is to ensure that fixed-term employees have the same or equivalent terms and conditions as permanent employees doing the same jobs – unless the difference can be objectively justified.  This means that a fixed-term employee would also be entitled to the benefit of any contractual redundancy provisions, at the same levels that apply to permanent employees, unless the employer can objectively justify different treatment.

Prior to October 2002, employees were able to waive their right to redundancy pay if they were engaged under fixed-term contracts for two years or more.  That concession was removed completely from 1 October 2002.  However, such a waiver clause in a contract that was made before 1 October 2002 continues in force until the contract is either renewed or extended, at which time no further waiver is permitted. 

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