6 April 2018 marks the start of the new tax year and is synonymous with people getting their finances in order. Charlotte McBride, Solicitor at boutique employment law firm Collingwood Legal, explains why April is an important month in money terms for employment law.
A number of changes come into effect this month which affect employers and employees alike. The changes may be more graciously received by staff but the employers amongst you should take note as the cost of not getting your figures right could be significant. Here we outline the key information you need, to make sure everything adds up for you!
National Minimum Wage increase
Each year the Low Pay Commission publishes its recommendations to the government in relation to minimum wages for various age categories in the UK workforce. From 1 April the increased minimum hourly rates of pay will be:
– £7.83 for those 25 and over (known as the National Living Wage)
– £7.38 for those aged 21-25
– £5.90 for those aged 18-20
– £4.20 for those under 18
Failure to pay the NMW can lead to civil or criminal prosecution and also potential claims in the Tribunal from workers claiming arrears of pay. There is also the reputational damage for businesses to consider should the company be publically “named and shamed” like Primark and Sports Direct were in 2017.
Statutory Pay increases
With varying means of recovering whole or part payment from HMRC, employers will need to be aware of the new increased rates for the following payments to eligible staff: – Family-related leave (incl. maternity, paternity, adoption and shared parental pay) at £145.18 per week.
– £92.05 per week for statutory sick pay.
Compensation limits in the Tribunal
No business ever wants to face a claim in Tribunal from a former member of staff not least because the costs involved can be substantial. Each year limits applied to certain awards are increased in line with inflation. The government recently announced the caps that come into force from 6 April:
– In unfair dismissal cases, tribunals will award a basic award. This is calculated using a formula that is also applied to statutory redundancy calculations. The calculation is based on multiples of a week’s pay which is subject to a cap of £508.
– Compensatory awards for ordinary unfair dismissal claims are also subject to a cap. Since July 2013 this has been the lower of either 52 weeks’ gross pay or a set figure. For dismissals on or after 6 April 2018 this will be £83,682.
Employers should nevertheless be aware that workers and employees can bring other types of claim that have no upper limits such as claims for discrimination or whistleblowing. Taking appropriate independent legal advice on how to handle workplace issues is crucial to minimising the risk of claims.
Tax treatment of termination payments
Finally, new rules are planned to come into force from 6 April 2018 which will affect the taxation of some non-contractual payments in lieu of notice.
Payments in lieu of notice (“PILONS”) are generally subject to deductions for tax and NICs if an employee’s contract gave the employer the right to make such a payment rather than have the employee work their notice. Conversely, where no contractual right exists an employer has traditionally been able to pay the monies that the employee would have earned in their notice period tax free (up to £30,000) as the payment is treated as damages for breach of contract.
However, the new provisions will mean postemployment notice pay (“PENP”) will no longer benefit from the £30,000 tax free exemption. If an employer makes a non-contractual PILON, that element of any termination payment will be regarded as PENP and the basic pay that would have been paid for the notice period will be taxable and subject to NICS notwithstanding the fact the employer has no contractual right to pay in lieu. From April 2019 employer NICs will also have to be deducted from all termination payments (including PENP) over £30,000.
This is a significant change in the tax treatment of some elements of termination payments which employers have been able to use to incentivise employees in the past. Complying with these new provisions will be critical to avoiding scrutiny from HMRC.
If you need any support or advice about any of the topics covered in this article please contact me at charlotte.mcbride@collingwoodlegal.com or on 0191 282 2883
