The Autumn Budget
You won't have missed the fact that the Autumn budget was released on Wednesday. Aside from a couple of points to note on the National Living Wage (to be increased by 4.4% from £7.50 to £7.83) and the tax-free personal allowance (increasing from £11,500 to £11,850), from an employment law perspective it was more interesting to see what wasn't there...
In a blink and you'll miss the announcement on 2 November, the Treasury communicated the delay of the introduction of employers' national insurance contributions (NICS) on termination payments. As a reminder, the change was expected to make employers liable to pay NICs on termination payments on any amount above £30,000. As we previously reported here, the indication from the Spring Budget was that the change would take place in April 2018. The measure is now pushed back by a year and is likely to have effect from 6 April 2019 instead.
There is limited explanation given for the delay in implementation. However, with no draft legislation yet published, it may simply be that a workable policy will not be ready by the initial deadline. Regardless of the reason, employers can relax for one more year.
The wider picture here is that the government is keen to prevent the lure of tax exemptions from incentivising employers to structure termination payments in a way that minimises their tax obligations. Employers should therefore take note that it currently appears that the Government's proposed changes to payments in lieu of notice (PILONs) will still take place on 6 April 2018. This change means that all PILONs – contractual or otherwise – will be both taxable and subject to Class 1 NICs. The take away point is that the tax and NICs consequences of a departing employee will be the same for everyone, regardless of how the employment contract is drafted or how the termination payments is structured.
One practical measure employers may want to consider as a result of this change is whether to include a PILON in their contracts if there is not one there already. Since the tax reasons for not including a PILON will soon disappear, it seems to us that there is little benefit in not including one (and indeed several risks, such as the risk to the enforceability of restrictive covenants in the event a PILON is made without an express clause and so in breach of contract).
Matthew Taylor Report – an update
In other news, we questioned in a blog post here, whether the high aspirations and laudable ideals of the Matthew Taylor's review of modern employment practices would make it into legislation anytime soon. The answer, it appears, is yes, possibly. Well, at least, the first step has been taken in the form of a draft bill. A fortnight ago, two House of Commons Select Committees produced a new report ("A framework for modern employment") which aims to take 'the best' of the Taylor Report recommendations forward into law.
To give a flavour of what is under consideration: the draft bill includes a push to make worker status clearer putting on statutory footing a list of factors to help courts decide whether an individual is an employee. The bill also makes provision for a pilot scheme for workers who have non-guaranteed hours to be entitled to a premium on the national minimum (or living) wage. Interestingly, the bill also proposes 'class action' claims in Employment Tribunals. Currently limited to consumer protection cases, class actions would be extended to claims for unlawful deduction of wages, worker status and claims under the Working Time Regulations. If a class action is brought successfully by a claimant, the result will apply to everyone in the class. The draft also deals with the increasingly thorny issue of worker status. It proposes a presumption of 'worker' status, unless proved otherwise, for companies who have a self-employed workforce above a certain size – something which has the potential to impact significantly on some employer's working practices if it ever comes into force (Uber springs to mind!).
This draft bill ties in with the Government's announcement in the Autumn budget that it intends to publish an "employment status discussion paper" as part of its response to Matthew Taylor's review, exploring the options for reforming the employment status tests for both employment rights and tax.
Next steps? We'll keep you posted.