Author: Ilinca Mardarescu

Employment Law in 2017 – Important Changes

2017 is expected to bring about a few important changes to employment law.

The most anticipated will be the Supreme Court’s decision on Brexit which is due soon. Whilst no immediate employment law changes will happen on the back of this, there will undoubtedly be much speculation as to how Brexit will affect employment law generally in the future.

Similarly, the 2016 Budget and thereafter the Autumn statement both confirmed that changes would be introduced to the tax treatment of termination payments.  The government are consulting on the draft bill now with the changes expected to be implemented at a later date, namely in April 2018.

More immediate changes for employment law in 2017 expected are:

• The current weekly rate of statutory maternity/paternity/adoption/shared parental leave pay (which is currently £139.58, or 90% of the employee’s average weekly earnings if this figure is less than the statutory rate) is being increased to £140.98. This will take affect from 2^nd April 2017.
• The minimum wage for workers over 25 will increase to £7.50 in April, an increase of 30p on the rate introduced last year. There will be smaller increases for 18-20 and 21-24 year olds, to £5.60 and £7.05 respectively.

• From 6^th April, statutory sick pay (SSP) is also increasing from £88.45 to £89.35. This is, as usual, subject to minimum eligibility requirements.

• Gender pay gap reporting. Employers with 250 or more employees will be required to produce gender pay gap reports by April 2018 for the financial period 2016/2017.

• Large employers (with an annual payroll of more than £3 million) will be required to pay a 0.5% levy on their total pay bill, by 6^th April 2017. Larger employers will then be able to access the fund (plus a 10% top-up from the government) to fund accredited apprenticeships within their business. Different rules will apply to smaller employers who are not required to pay the levy – in which case the government will fund the cost of apprenticeships if they contribute 10%.

• Salary-sacrifice schemes will start to be phased out with no new schemes to be introduced from April 2017 and the ones set up prior to this date will be protected until anywhere between 2018-2021 depending on the type of scheme in place.

– Ilinca Mardarescu

For any advice on implementing the changes or any other employment-law related enquiry, contact us here or call us on 01753 486 777.

How will the Autumn Statement affect Employment?

Salary Sacrifice schemes

There were a number of employment related implications in this year’s Autumn Statement. The most controversial of these was perhaps the removal of tax-free incentives on “salary sacrifice” schemes. The schemes allowed employees to “buy” a certain number of employment perks by agreeing to a cut in their wages in return for certain benefits. The schemes would often be used to provide tax-free benefits such as medical insurance, free gym membership, health checks and mobile phone contracts.

The advantage to employees was that any tax and NI would be calculated on their lower, agreed wage discounting the “sacrifice” they have made in lieu of these perks. This could mean substantial savings and even meant some employees who would have been classed as higher earners could sacrifice enough of their wages for these perks thereby taking them into the lower tax bracket. For employers too, the salary sacrifice schemes meant they would benefit by being able to discount the portion of the salary which had been sacrificed when calculating national insurance payments. The more employees a company had, the more beneficial the scheme was and substantial NI savings could be made by larger companies offering a salary sacrifice scheme.

These schemes were never formally part of any Government policy however. The method grew organically some years ago and HMRC allowed the practice to continue unhindered. Recently, the Treasury has looked at the practice and has concluded that it is losing out on tax revenue as a result. The changes to the salary sacrifice scheme have been expected.  However, keeping in line with policy, enhanced employer pension contributions (to registered pension schemes), childcare benefits, cycles and the cycle to work scheme and ultra-low emission cars will be exempt from these new changes.

National and Living wage

Increases were announced, effective from April 2017, as follows:

The National Living Wage for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour.

The National Minimum Wage will also increase:

• for 21 to 24 year olds – from £6.95 per hour to £7.05
• for 18 to 20 year olds – from £5.55 per hour to £5.60
• for 16 to 17 year olds – from £4.00 per hour to £4.05
• for apprentices – from £3.40 per hour to £3.50

And the Chancellor confirmed that he will spend £4.3 million on helping small businesses to understand the rules and on cracking down on employers who are breaking the law by not paying the minimum wage.

Raising the tax-free personal allowance

The Chancellor confirmed that the tax-free personal allowance will be raised to £11,500 in April 2017.  He further confirmed that ‘despite challenging fiscal forecasts” they will continue to raise the personal tax-free allowance to £12,500 by the end of the parliament.

The Chancellor also confirmed that the point at which the higher rate of income tax will kick in will increase from £43,000 this year, to £45,000 in 2017-18

Employee Shareholder Status

‘Employee shareholder’ status (ESS) was introduced in September 2013 as a new category of worker status. Employee shareholders could forgo a number of employment protections, such as the right to a redundancy payment and protection from unfair dismissal, in return for a minimum of £2,000 of shares in the employer’s business. There were various tax benefits to these schemes and employers used them to reward those in management or other employees who have contributed to the growth of a business. These schemes will now be abolished in situations where parties enter into the agreements on or after 1 December 2016. For ESS arrangements entered into before 1 December 2016, the tax advantages will continue to apply. The removal of this benefit is largely in response to evidence that ESS was being used for tax planning.

Termination Payments

The Autumn Statement has confirmed that the first £30,000 of a termination payment will remain exempt from income tax and National Insurance. However, from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NIC. Following a technical consultation, tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked, making it simpler to apply the new rules. This means that certain post-employment and/or bonus payments will not be classed as earnings. However, the government has said it will monitor this change and address any further manipulation.

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