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Employment Update 18 March 2011

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United Kingdom

Read the 'Employment Law Update'' newsletter, 18 March 2011, on ffw.com

Welcome to our fortnightly round-up of what's happening in employment law.

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New employment training programme - 2011/2012

Our new employment law training programme for 2011/2012 can be accessed here. Aimed specifically at HR professionals and senior managers, our informative and interactive training programme offers a range of sessions designed to bring you up to speed with the rapid changes in employment law.

All our seminars and workshops are listed in the programme and on the right hand side for ease. If you would like to register for any of our forthcoming events, please click on the relevant link or email us, specifying whether you would like to attend the London or Manchester event. 

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April changes

Every April sees a number of changes to employment law. Here are the key changes, and dates, to remember for April 2011:

  • Additional paternity leave and pay - The right to additional paternity leave will be available to parents of babies due on or after 3 April 2011 (as well as parents who are notified that they have been matched with a child for adoption on or after that date).
  • Default retirement age - From 6 April 2011, the default retirement age of 65 will be abolished. Click here to read our recent update on the key changes and transitional provisions.
  • Equality Act 2010 – the provisions relating to positive action in recruitment and promotion are due to come into force on 6 April 2011. See below in relation to the public sector equality duty.
  • Treatment of termination payments – from 6 April 2011, the PAYE treatment of termination payments will change – see further below.
  • Statutory payment rates - from April 2011, the standard weekly rates will increase for the following payments:
    • statutory maternity pay, statutory paternity pay and statutory adoption pay: these will increase on 3 April 2011 from £124.88 to £128.73
    • statutory sick pay: this will increase on 6 April 2011 from £79.15 to £81.60 

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PAYE - treatment of termination payments

From 6 April 2011, employers making payments to employees after the P45 has been issued will need to operate PAYE using a new "0T code" (with tax withheld at basic, higher and additional rates as appropriate but without the benefit of the personal allowance).

At present, if a termination payment is made after the termination date and the issue of the P45 and is taxable (i.e. it does not fall within the £30,000 exemption), the employer must use the BR tax code for PAYE purposes. Tax is therefore only deducted at the basic rate (currently 20%). The employee will declare the amount of the termination payment in his tax self assessment return for the relevant tax year and pay any further tax due. This has cash flow advantages for employees who pay tax at the higher (40%) or additional (50%) rate.

From 6 April 2011, new regulations will come into force which will require employers to use the OT code, rather than the BR code, for termination payments made to employees after the P45 has been issued. The OT code will require the employer to deduct tax at the basic, higher and additional rates, depending on the amounts involved. It is possible that the operation of the OT tax code could lead to over-deduction of PAYE.

Employers should ensure that payroll has been notified of this change and that systems will be in place by 6 April 2011 to enable the OT code to be applied where relevant. Termination documents should be updated and employees should be made aware of the change and how it may impact on them.  The wording of compromise agreements entered into after 6 April 2011 should not refer to the deduction of basic rate tax.

Where PAYE arises on share-based incentives after termination, employers must take care to ensure that the appropriate rate of tax is deducted from any such taxable benefits, in particular if a third party is involved, such as the trustee of an employee benefit trust. 

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Public sector equality duty

The new public sector equality duty under the Equality Act 2010 applies to public authorities and others carrying out public functions. The duty requires public authorities to have due regard to the need to tackle discrimination and promote equal opportunities. The equality duty consists of a general duty and specific duties (set out in secondary legislation to accompany the Equality Act 2010). The general equality duty is due to come into force on 5 April 2011.

The specific duties, which are designed to help public bodies with the better performance of the general duty, are set out in draft specific duties regulations. The Government published draft specific duties regulations on 12 January 2011, following a public consultation. It has now published a policy review paper seeking views on new draft specific duties regulations. The proposals are designed to deliver a clear focus on transparency, freeing up public bodies to take responsibility for their own performance in delivering equality improvements and to publish the right information so that the public can hold them to account. Comments on the new draft regulations should be submitted to the Government Equalities Office by 21 April 2011.

The Government intends to bring the specific duties into force in July 2011. For the period from 5 April 2011 until the new specific duties are in place, public bodies will still need to comply with the general equality duty. 

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Small employers - statutory maternity pay

There will be a reduction to the amount of relief for small employers relating to statutory maternity pay from April 2011.

Employers generally recover 92% of the statutory maternity pay they pay. Small employers (i.e. currently those who have paid £45,000 or less in gross National Insurance contributions in the previous tax year), may recover 100% of the statutory maternity pay paid out plus an additional compensatory amount, relating to the National Insurance contributions they pay on statutory maternity pay.

The additional compensatory amount, which is expressed as a percentage of statutory maternity pay, has been set at 4.5% since 6 April 2002. This year, the additional amount will change from 4.5% to 3% from 6 April 2011, to reflect the increase in employers' National Insurance contributions thresholds for 2011/2012.

The same reimbursement arrangements also apply to four other statutory payments - statutory adoption pay, statutory paternity pay, ordinary and additional statutory paternity pay. The Statutory Paternity Pay and Statutory Adoption Pay (Administration) Regulations 2002 and the Additional Statutory Paternity Pay (Administration) Regulations 2010 provide for employers who make these payments to recover them at the same rate as statutory maternity pay.

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Dismissal following warning issued in error

The Employment Appeal Tribunal (EAT) has confirmed that the dismissal of an employee following a warning, which was issued to the employee mistakenly under the employer's absence policy, was unfair. The employer's administrative resources were relevant in this case and the decision highlights the need for employers, particularly those with specific HR or personnel departments, to ensure that they are applying their policies fairly and consistently.

In Sakharkar v Northern Foods Grocery Group Ltd t/a Fox's Biscuits, the employer dismissed the employee because he failed to meet the requirements of the employer's absence policy. The relevant manager believed, at the time of the dismissal, that the absence policy had been properly operated but he was mistaken. A warning at a final review meeting had been given in error as the employee's absence did not qualify for the warning. The Employment Tribunal originally found the dismissal to be fair but recognised that their finding seemed harsh. The employee appealed.

The EAT confirmed that the Employment Tribunal was correct to find that the dismissal for breach of the absence policy was for "some other substantial reason". It also confirmed that the essential question posed by section 98(4) of the Employment Rights Act 1996 (ERA), which looks at whether the dismissal is fair or unfair having regard to the reason shown by the employer, was not whether the employer was right but whether the employer was reasonable. The fact that the employer is or may be mistaken is relevant but not conclusive. The essential question was whether the employer had acted reasonably in dismissing the employee. An error by the employer in the operation of the procedure is relevant to the question whether the employer acted reasonably in dismissing, but is not conclusive.

Section 98(4) of ERA requires an Employment Tribunal to examine whether in the circumstances (including the size and administrative resources of the employer's undertaking) the employer acted reasonably or unreasonably in treating the reason for dismissal as a sufficient reason for dismissing the employee. The EAT considered the employer's administrative resources to be of real importance. In this case, the employer had a procedure which specifically deployed its specialist personnel resource to support fair and consistent application of the policy. If the Employment Tribunal had taken account of the employer's resources, and in particular that a member of the personnel department ought to have ensured the proper application of the policy both at the final review and at the dismissal hearing, it would have concluded that it was not reasonable for the employer to treat non-compliance with the absence procedure as a sufficient reason for dismissal. Further, the result of the final review was, having regard to the employer's own procedures, manifestly inappropriate.

Interestingly, the EAT also noted that it is the nature of sickness absence policies and procedures that they are prescriptive. This brings with it advantages both for the employer and employee. They give management a structure within which to manage absenteeism and they afford employers a clear indication of the employer's requirements. It also noted, however, that where a policy is prescriptive there is an increased danger of mistaken or unfair application. The ETA noted that fairness requires that if an employee is to be assessed against a prescriptive policy, care is taken to apply the policy correctly in accordance with its terms and consistently as between different employees. 

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Red tape - exemption for small businesses

Mark Prisk, the business minister, has announced a general moratorium, for businesses of less than 10 employees and for genuine new start ups, from all new domestic regulations for three years. He has stated that the exemption "will kick in very shortly" and that the Government will engage extensively with all business groups about how it should work.

It has also been announced that the Government will withdraw the proposed extension of the right to request flexible working to parents of children aged 17 and under (which was due to come into force on 6 April 2011). It will also continue to exempt companies with fewer than 250 staff from the right to request time to train.

It was also confirmed that the Government is starting a review of all regulations that affect a particular area, starting on 7 April 2011 with those affecting retail companies. Prisk said "we are giving those affected an opportunity to tell us which rules are badly designed, or straightforwardly a bad idea...This will be the first time that such a comprehensive look has been taken at every single regulation on the statute book". 

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