HRD & Payroll Solutions Newsletter

In one of our August 2006 newsletters, we explained the proposal put forward in a consultation paper issued by the Department for Communities and Local Government (DCLG) to increase the earnings limits for Council Tax Attachment of Earnings Orders (CTAEOs).

In December 2006, the DCLG published a summary of the responses to the consultation. The majority of the 59 respondents agreed with the proposals and the Government has decided that the increases will apply to CTAEOs issued on or after 1 April 2007. The current rates, which were last reviewed in 1998, will continue to apply to existing orders. The new rates are calculated by applying the increase in the Average Earnings Index (36.5% between April 1998 and April 2006), rounded to the nearest £1/£5/£10 for daily/weekly/monthly limits respectively.

Note that the new rates apply only to CTAEOs issued by billing authorities in England. The existing rates will continue to be used by billing authorities in Wales.

The effect of this change is that CTAEO earnings limits will move out of line with those used for magistrates’ courts fines. Computerised payroll systems will, therefore, have to handle two sets of rates for CTAEOs, according to the dates on which the orders were made, with the rates for magistrates’ courts fines continuing to use the earlier of the two sets of rates.

The deduction bands and rates as they will apply from 1 April 2007 are set out below.

Please note that one of the band limits for the weekly rates, as set out in the Amendment Regulations, is wrong. The correct figure is as shown below.

CTAEO deduction bands and rates

Deductions from Daily Earnings

Orders issued before 1 April 2007 (England and Wales)		Orders issued on or after 1 April 2007(England only)
Net earnings	Deduction rate %	Net earnings	Deduction rate %
Not exceeding £8	0	Not exceeding £11	0
£8 – £15	3	£11 – £20	3
£15 – £20	5	£20 – £27	5
£20 – £24	7	£27 – £33	7
£24 – £38	12	£33 – £52	12
£38 – £53	17	£52 – £72	17
Exceeding £53	17 for first £53, then 50% on rest	Exceeding £72	17 for first £72, then 50% on rest

Deductions from Weekly Earnings

Orders issued before 1 April 2007(England and Wales)		Orders issued on or after 1 April 2007(England only
Net earnings	Deduction rate %	Net earnings	Deduction rate %
Not exceeding £55	0	Not exceeding £75	0
£55 – £100	3	£ 75 – £135	3
£100 – £135	5	£135 – £185	5
£135 – £165	7	£185 – £225	7
£165 – £260	12	£225 – £355*	12
£260 – £370	17	£355 – £505	17
Exceeding £370	17 for first £370, then 50% on rest	Exceeding £505	17 for first £505, then 50% on rest

* The figure of £335, as shown in the Amendment Regulations, is an error. The correct figure is £355.

Deductions from Monthly Earnings

Orders issued before 1 April 2007(England and Wales)		Orders issued on or after 1 April 2007(England only)
Net earnings	Deduction rate %	Net earnings	Deduction rate %
Not exceeding £220	0	Not exceeding £300	0
£220 – £400	3	£300 – £550	3
£400 – £540	5	£550 – £740	5
£540 – £660	7	£740 – £900	7
£660 – £1,040	2	£900 – £1,420	2
£1,040 – £1,480	17	£1,420 – £2,020	17
Exceeding £1,480	17 for first £1,480, then 50% on rest	Exceeding £2,020	17 for first £2,020, then 50% on rest

Increasing statutory holiday pay

Proposal for a phased increase to 28 days holiday each year

Note: The changes to holiday entitlements described below already affect employers with holiday years starting November 2006 or later.

In June 2006, the Department of Trade and Industry (DTI) published the Government’s proposals to increase the annual statutory leave entitlement, as set out in the Working Time Regulations 1998, from 4 weeks to 5.6 weeks – effectively an additional 8 days for a five-day worker. The intention of the change is to ensure that all workers receive the equivalent of four weeks’ holiday each year in addition to bank holidays. In the consultation document, the DTI asked for views on a number of proposals, in particular:

The DTI has now published a further consultation document. It indicates the Government’s intentions in the light of the comments already received and seeks further views on the draft Regulations, how the change should be implemented and what guidance should be given to employers. The document also includes a draft version of the Annual Leave (Amendment to Working Time Legislation) Regulations 2007, which will make changes to the Working Time Regulations 1998 and to the equivalent Regulations for workers in inland waterways and sea fishermen. These Regulations are referred to as the “Amendment Regulations” in these notes.

Scope

The proposals will apply to all workers covered by the Working Time Regulations 1998, including agency workers. They will also apply to workers with their own equivalent working time provisions, namely the Road Transport Regulations 2005, the Fishing Vessels (Working Time: Sea-fishermen) Regulations 2004 and the Merchant Shipping (Working Time: Inland Waterways) Regulations 2003.

They will not, however, apply to agricultural workers in Scotland covered by Orders made by the Scottish Agricultural Wages Board or to workers covered by the Civil Aviation (Working Time) Regulations 2004 or the Merchant Shipping (Hours of Work) Regulations 2002.

The proposals do not apply to Northern Ireland. A separate consultation document was issued by the Department for Employment and Learning in July 2006, in particular to seek views on whether Regulations should accommodate the 10 bank holidays that apply in Northern Ireland. No decision on that issue has been published yet.

New entitlements

The proposals are that the current four weeks’ annual leave entitlement will be supplemented by an additional leave period of 1.6 weeks, introduced in two stages, namely

The resulting 5.6 weeks will be subject to an absolute maximum of 28 days. This gives five-day workers an entitlement to 28 days paid leave in a year but limits the number of days leave for six-day workers to their current 24 days, plus an additional four days only.
These are statutory minimum entitlements and do not prevent employers from providing greater contractual entitlement, as many already do. As all paid days of holiday count towards the statutory entitlement, including paid bank holidays, many employers will realise at this point that they are already providing at least 28 days paid holiday to their five-day workers – the minimum entitlement from October 2008.

Payment in lieu of taking holiday

One of the options considered in the consultation process was to allow employers to pay in lieu of the additional entitlement. In the light of comments received, that such an arrangement would be open to abuse and, in any case, contrary to the objective of ensuring that all workers have four weeks’ holiday in addition to bank holidays, the Government has decided not to allow any of the additional entitlement to be “bought out”, other than on termination of employment. However, the Regulations do not prevent employers buying out holiday entitlement in excess of the 5.6 statutory weeks.

Carrying holiday over to the following holiday year

Another consultation option was the facility to carry leave over from one year to the next. Concerns over the potential increase in administration that this might cause were outweighed by the effect that not being able to carry the additional leave forward would have on employers who already provide more than the new entitlements and permit days in excess of four weeks to be carried forward, for example to make extended family visits abroad possible. The Amendment Regulations will allow, therefore, for some or all of the additional entitlement to be carried forward to the next holiday year, subject to contractual arrangements.

Transitional arrangements

The transitional rules will require workers’ entitlements to be increased in proportion to the period remaining of their holiday year at each October.

Example: A workers’ holiday year runs from the beginning of January. There are three months of the holiday year remaining at each October. The statutory holiday leave

The Amendment Regulations do not define the way in which the “proportion” of the period remaining of a holiday year should be calculated. The example above, which is based on the DTI’s own example, uses whole calendar months. As most employer’s holiday years run from the start of a month, whole months can be used to calculate the proportion. If a holiday year starts mid-month, a proportion using the number of weeks or days remaining in the holiday year would have to be used.

Transferring the results from the example to actual working arrangements introduces the problem of rounding when calculating entitlements. The problem already exists but is aggravated by the additional entitlements not being whole weeks. The following chart shows the new entitlements from the example above for workers who work from one to six days in a week.

Leave year starting		Annual Entitlement	Number of Days in the Working Week
Leave year starting		Annual Entitlement	1 day	2 days	3 days	4 days	5 days	6 days
January 2006	4 weeks		4 days	8 days	12 days	16 days	20 days	24 days
January 2007	4.2 weeks		4.2 days	8.4 days	12.6 days	16.8 days	21 days	25.2 days
January 2008	5 weeks		5 days	10 days	15 days	20 days	25 days	28 days
January 2009	5.6 weeks		5.6 days	11.2 days	16.8 days	22.4 days	28 days	28 days

The rounding problem becomes more apparent if, for example, we take a holiday year that gives a proportion that is not a quarter or half of a year.

Example: A workers’ holiday year runs from the beginning of May. There are seven months of the holiday year remaining at each October. The statutory holiday leave

Transferring those annual entitlements to workers who work different numbers of days each week gives the following results.

Leave year starting		Annual Entitlement	Number of Days in the Working Week
Leave year starting		Annual Entitlement	1 day	2 days	3 days	4 days	5 days	6 days
May 2006	4 weeks		4 days	8 days	12 days	16 days	20 days	24 days
May 2007	4.47 weeks		4.47 days	8.93 days	13.4 days	17.87 days	22.33 days	26.8 days
May 2008	5.27 weeks		5.27 days	10.53 days	15.8 days	21.07 days	26.33 days	28 days
May 2009	5.6 weeks		5.6 days	11.2 days	16.8 days	22.4 days	28 days	28 days

The following chart summarises the annual entitlements for holiday years over the transition period.

Month	Holiday Years Starting in
Month	2006	2007	2008	2009
January	4 weeks	4.2 weeks	5.0 weeks	5.6 weeks
February	4 weeks	4.27 weeks	5.07 weeks	5.6 weeks
March	4 weeks	4.33 weeks	5.13 weeks	5.6 weeks
April	4 weeks	4.4 weeks	5.2 weeks	5.6 weeks
May	4 weeks	4.47 weeks	5.27 weeks	5.6 weeks
June	4 weeks	4.53 weeks	5.33 weeks	5.6 weeks
July	4 weeks	4.6 weeks	5.4 weeks	5.6 weeks
August	4 weeks	4.67 weeks	5.47 weeks	5.6 weeks
September	4 weeks	4.73 weeks	5.53 weeks	5.6 weeks
October	4 weeks	4.8 weeks	5.6 weeks	5.6 weeks
November	4.07 weeks	4.87 weeks	5.6 weeks	5.6 weeks
December	4.13 weeks	4.93 weeks	5.6 weeks	5.6 weeks

Employers that handle holiday entitlements in hours rather than days may continue to do the same with the additional entitlement. A workers’ normal working hours may be multiplied by the appropriate number of weeks’ annual leave plus additional leave. Using the same example of entitlements for a four-day worker and a holiday year starting in May, if the worker’s weekly contracted hours are 30, the annual and additional entitlement would be 134.1 hours (4.47 × 30) from May 2007 and 158.1 hours (5.27 × 30) from May 2008.

Rounding rules

The existing Working Time Regulations provide rounding rules for calculating the holiday entitlement of workers between the day they start a new job and the end of their first holiday year. For example, a five-day worker starting a new job on 5 August in a holiday year that runs from 1 April is entitled to 13.1 days paid leave (i.e. 20 days ÷ 365 × 239) in the remainder of the holiday year, but the Regulations require that to be rounded up to 14 days.

When the Amendment Regulations come into force, these rounding rules will be removed. (Note, however, that the rounding rules, which apply to the accrual procedure for managing the rate at which holidays are taken in the first year of employment, are retained. See Accrual in the first year of employment, below.)

The effect of the removal of the rounding rules for

is that the minimum statutory entitlement will, in many cases, include decimal fractions. So, for example,

Employers may, if they wish, round the minimum entitlements up for administrative convenience and, of course, many employers are already providing holiday entitlements in excess of the October 2008 entitlement of 5.6 weeks when bank holidays are included. But those employers who include bank holidays in the 4 weeks entitlement are likely to have great difficulty in handling holiday entitlements that include decimal fractions. How is an employer to give a worker 0.1 paid days holiday, as example (a), or 0.07 paid days holiday, as example (b)? The entitlements may not be rounded down. But perhaps that dilemma is better than being required to round 0.1 or 0.07 days up to a whole day of paid holiday.

Accrual in the first year of employment

The Working Time Regulations include a special provision, enabling employers to limit the rate at which a worker takes paid leave in the first year of employment. It is an accrual arrangement that limits a worker, if the employer wishes to use the facility, to one twelfth of the annual four-week entitlement in the first month of employment, two twelfths in the first two months, three-twelfths in the first three months, and so on. The result of this calculation, as long as it is not an exact half or whole day, is rounded up to the next half or whole day.

The Amendment Regulations make provision for this same approach to apply to the additional leave entitlement. For example, an employment with a leave year starting April 2007 has a leave entitlement of 4.4 weeks. If a five-day worker starts in that employment on 4 June 2007, the employer may, by applying the special accrual rules, limit the holiday taken in

Calculating weekly working hours

The Working Time Regulations limit the average number of hours that a worker may work in a “reference period” to 48 hours per week. The reference period is a period of 17 weeks, although it can be extended to 26 weeks or to 52 weeks in certain circumstances. The average number of hours per week is calculated by dividing the number of hours worked in the reference period by the number of weeks in the reference period. However, if there are any “excluded days” in the reference period, the number of hours worked in the equivalent number of days following the end of the reference period must be added to the total number of hours worked.

Any part of the four weeks annual holiday entitlement that falls within a reference period is treated as being “excluded days”, with the result that paid leave cannot be used to reduce the average hours worked in a reference period. However, the Amendment Regulations make no changes to this arrangement, with the effect that any days of additional statutory holidays are not excluded days and therefore serve to reduce the average worked hours in the reference period.

Understanding the new entitlements

The current right to four weeks’ paid annual leave, as set out in the Working Time Regulations 1998, meets the UK’s obligations under the European Working Time Directive. Not having any statutory authority of its own to increase the four-week period of holiday leave, the Government gave itself the necessary domestic powers by means of provisions in the Work and Families Act 2006. These powers allow the Government to change almost any aspect of statutory holiday pay as long as the minimum requirements of the Working Time Directive are maintained.

The distinction between the holiday entitlement provided under the Working Time Directive and the additional entitlement provided under the Work and Families Act is maintained in the way that the new provisions have been added to the Working Time Regulations 1998. In particular, a workers’ “annual leave” is still fixed at four weeks – the extra 1.6 days is defined separately as “additional leave”. They are two separate entitlements and, by treating them separately in the Regulations, the Government is able to apply different rules to each of them. The principal differences in the rules are:

Other holiday provisions

The changes made by the Amendment Regulations only affect holiday entitlement and how the additional entitlement must be handled. Other holiday provisions in the Working Time Regulations, including the calculation of a week’s pay, are unchanged. Employers may continue to require holidays to be taken at specific times, e.g. plant closures and bank holidays, set notice periods for booking holidays, and refuse requests to take leave, e.g. at peak work times.

Cost impact on businesses

The Government estimates that the cost of introducing additional leave will be between £3.3 and 4.4 billion, spread over the transition period. However, there should be no impact on those employers who already provide at least 28 paid days holiday, or 20 days holiday plus bank holidays, other than where

Of particular note for employers in hospitality and retail, where the impact is expected to be the greatest, the Government has passed on its research and summary of consultation responses to the Low Pay Commission, requesting that the impact of the increased holiday entitlement be taken into account when recommending the future level of the National Minimum Wage.

Timetable for introduction

The further consultation period will end on 13 April 2007 and the Government’s response will be published within three months of that date. Regulations will be laid before Parliament no later that three months before coming into effect on 1 October 2007. The Regulations will follow the affirmative resolution procedure, requiring consideration and debate by both Houses of Parliament for approval.

Further information:
Increasing the holiday entitlement - a further consultation http://www.dti.gov.uk/consultations/page36462.html
Summary of consultation responses and the Government’s response to the consultation http://www.dti.gov.uk/files/file36448.pdf

National Minimum Wage compliance

Government’s policy on issuing penalty notices

The Government has published its policy to consistently fine employers who have paid their workers below the National Minimum Wage (NMW) and defaulted on an enforcement notice to repay arrears. The document outlines the policy to do this through the issue of penalty notices.

The minimum penalty an employer could face for defaulting on an enforcement notice would currently be £224.70 for each named employee. The calculation would be:

Statutory Adoption Pay

Payment of SAP to foster carers who adopt

The following item appears in the latest issue of News On Line from the Institute of Payroll Professionals and is reproduced with their kind permission.

“We received a query from a Member asking whether SAP could be paid to an employee who is fostering a child. The current E16 indicates that this is not the case, however, the Website says otherwise. We referred this to HMRC who advise as follows:

There was a change in the Department for Trade & Industry (DTI) view of Foster parents going on to adopt a child, during last year.

It is now accepted that Foster parents can be eligible to receive SAP where they go on to adopt a child under a concurrent planning arrangement. This relates to people who foster with a view to adoption. There is a fostering placement first and then an adoption placement.

In response to a question in the Lords, Ministers were asked to clarify whether prospective adoptive parents in concurrent placement situations could be eligible for SAP. Following further consideration and discussion with the Department for Education & Skills (DfES) adoption team the DTI concluded that they could indeed be eligible provided they satisfy the requirements, i.e. if they have been matched with the child for adoption through an adoption agency and if there is a readily-identifiable date that the adoption starts.

This is not the same thing as entitlement to SAP for all foster carers - it's a very specific group of foster carers who are prospective adopters using concurrent planning arrangements, of whom there are very small numbers.

Our guidance in the E16 has therefore been amended to include SAP/SPP entitlement to this group of foster carers, although it is unfortunate that this revised guidance will not be available to employers until distribution of the 2007 Employer pack next month. So the information on the HMRC website that you identified is the more up-to-date and correct version. The contradictory current E16 is out of date.”

Developers’ Corner

NI Supplement for 2007/08 published

HMRC has published the 2007/08 supplement to the NI Guidance for Software Developers 2003+. The document provides the new NICs earnings rates and limits, updated calculation examples and the latest NI number tables.

Further information:
Supplement to NI Guidance for Software Developers 2003+ http://www.hmrc.gov.uk/employers/supp-ni-2003_07-08.pdf

January 19 – This is the deadline for payment of tax and NICs to the Accounts Office, for tax month 9 by employers who pay monthly, for tax months 7 to 9 by employers who pay quarterly, unless they make their payments electronically.

January 21 – For employers who pay their tax and NICs to the Accounts Office electronically, this is the deadline for electronic payments to be cleared into the HMRC bank account. Payments through BACS must be initiated by January 18 at the latest.

February 2 – This is the date by which any changes to the provision of company cars in the three months to January 5 must be reported using form P46(Car).

Payroll Tip

In view of recent press articles about a man who, it is claimed, may not have died if certain ambulance workers were not taking a rest break, the following notes have been prepared to clarify the statutory rules set out in the Working Time Regulations 1998.

The collective agreement between the London Ambulance Service NHS Trust and the recognised trade unions makes the following provisions for rest breaks:

Rest Break Policy – Operational staff (November 2006)

1 Introduction
1.1 The London Ambulance Service NHS Trust in partnership with the Trade Unions has recognised the need to introduce a formal Rest Break Policy for operational staff. The joint approach taken in producing this Policy is in keeping with the national partnership approach applied to Agenda for Change. This Policy has been designed to comply with the requirements of the Working Time Directive.

1.2 The aim and intention of this Policy is to ensure that all operational staff benefit from a formal rest break when working shifts of six hours or greater. It is recognised that due to the demands placed upon our service this will be a significant challenge, however, the intention is that interruption of the paid element of rest breaks or non-allocation of breaks will be by exception.

2. Rest Break Entitlement
2.1 For shifts greater than 6 hours but less than 10 hours in duration, a single rest break of 30 minutes will be allocated. The first 20 minutes of the break will be unpaid and uninterruptible, with the last 10 minutes paid and thus interruptible.

2.2 For shifts of 10 hours or more in duration, the rest break allocated will be a single rest break of 45 minutes. The first 30 minutes will be unpaid and uninterruptible, with the last 15 minutes being paid and interruptible.

2.3 The paid element of the rest break will only be interruptible for the most serious and life threatening calls, which have a Red 1 determinant, and when there is no other suitably qualified LAS resource available to respond. The decision to interrupt a rest break will only be taken with the authority of a manager within EOC or UOC.

3. Compensatory arrangements
3.1 Any interruption to the paid period of a rest break as a result of an emergency call (red 1) will be compensated with a payment of £10.00; this replaces all previous arrangements for subsistence payments for interrupted breaks and will be subject to a joint annual review.

3.2 In the event of no rest break being allocated within the rest break period (detailed at 6.2), staff will be entitled to compensatory time at the end period of their shift. In these circumstances, the paid element of the rest break will be at the start of the compensatory rest period followed by the unpaid element. This will mean that staff working a shift of less than 10 hours will finish their duty and may go home, 20 minutes prior to the end of the rostered shift. Similarly, staff working shifts of 10 hours or greater will finish 30 minutes prior to the end of the rostered shift.

Source: http://www.lasunison.com/resource/policies/rest break policy dec 06.pdf

Rest breaks under the Working Time Regulations

Does the Working Time requirement to provide rest breaks apply to all workers?
The right to take rest breaks

Under the provisions of the Working Time Regulations 1998, adult workers whose daily working time is more than six hours are entitled to a rest break, e.g. a meal break. If the duration and terms on which the rest break is to be taken are not otherwise defined in a collective or workplace agreement, the break must be for an uninterrupted period of not less than 20 minutes. Young workers (under age 18) whose daily working time is more than four and a half hours are entitled to a rest break of not less than 30 minutes. The break should be uninterrupted “if possible”. Both adult and young workers are entitled to spend the break away from their workstations, if they use them.

There is no requirement imposed by the Regulations for the rest break to be paid. Payment is a contractual matter between the employer and workers.

Collective and workforce agreements
The entitlement to rest breaks for adult workers (but not young workers) may be amended or excluded by collective or workforce agreements. A collective agreement is one made between one or more independent trade union and one or more employers or employers’ associations. A workforce agreement is one made between an employer and the whole workforce or certain groups of workers, in circumstances where there cannot be a collective agreement. Representatives of the workers must be elected specifically for the purpose of making such an agreement.

The Regulations allow collective and workforce agreements to change the length of the rest breaks and the terms on which they are provided, or exclude the requirement altogether. However, if as a result of a collective or workforce agreement, workers are required to work during a period that would otherwise have been a rest period or rest break, they must be permitted to take an equivalent period of “compensatory rest”. Such a period of rest should be the same length of time off to which the worker would otherwise have been entitled. Exceptionally, if such “time in lieu” cannot be taken, the employer is required to take whatever action is appropriate to safeguard the worker’s health and safety.

Excluded groups of workers
The requirement in the Working Time Regulations 1998 to provide rest breaks does not apply to:

Rest breaks are an entitlement and some workers may choose not to take them. However, the provisions are a health and safety matter and employers should ensure that all workers have the opportunity to take advantage of their entitlements. The employer does not have to force workers to take rest breaks, but it must not be the fault of the employer if a worker does not take them.

If you have any HR or payroll related questions that you think other people who receive this newsletter will be able to answer, please email us and we will add your question to our newsletter.

Council Tax Attachment of Earnings Orders

Uprating financial limits from April 2007