In 2006 the European Court of Justice ruled that rolled up holiday pay was illegal, however, almost ten years later some businesses in the UK still use this to pay casual staff on zero hours contracts. The law in the UK remains confusing on this issue so here are some tips on rolled up holiday pay.
The decision by the ECJ decided three things:
1) it is contrary to the working time directive for holiday pay for statutory holidays to be rolled up into normal pay instead of actually being paid during the holiday.
2) Countries who are members of the EC must take ‘appropriate measures’ to ensure that the practice of rolling up ceases.
3) However sums already paid would still count towards pay for holidays.
When the decision came from the ECJ it took a year for the UK government to state that rolled up holiday pay was unlawful. However, the focus was on the worker to approach their employer to re negotiate the contract and if the employer was unwilling to then the worker could go to an employment tribunal. Many casual workers on zero hours contracts have precarious security with their employment as the terms are mutual no obligation. The employer has no obligation to offer the worker work and under these circumstances an employer if challenged could arguably decide not to provide any further work to that person. For the worker to take a case to an employment tribunal they would need to pay a hefty fee which is arguably prohibitive for someone who has received a relatively low wage then ultimately may have no income. These two things create a barrier for a worker trying to sort out rolled up holiday with their employer.
Nevertheless, the ideal thing is for an employer to review and amend a zero hours contract that operates rolled up holiday pay and this is what I would advocate given that the government decreed, in accordance with the Working Time Directive, that holiday pay should be paid at the time of holiday. To renegotiate the contract there should be consultation and written agreement in the form of a signed new contract. To comply with the government’s proposal an employer should keep accurate records of hours worked and provide holiday pay when the worker actually requests holiday.
However, this can be quite onerous if a business operates with a large pool of casual workers on zero hours contracts and in many cases casual workers like to have rolled up holiday pay. If a business wishes to continue to operate rolled up holiday pay because they find that easier there are ways to reduce the risks and costs of an employment tribunal claim.
The main principle is to operate rolled up holiday pay comprehensively and transparently. Workers should clearly know and understand how the process will operate. As with all things HR, written records are essential for the paper trail. Rolled up holiday pay should be clearly stated in the contract showing the 12.07% allowance in the hourly rate. Wage slips should also clearly show the percentage payment of rolled up holiday pay. In addition the employer should operate a holiday booking system where workers have to book their 5.6 weeks pro rata holiday and be encouraged to take their entitlement in a twelve month period. If that is proving difficult because a worker is doing many hours on a weekly basis that is a definite impetus for the employer to review and amend the contract to accurately reflect the working practices with an employment contract.
The summer time often means that many employers take on extra staff to meet increased work demands eg fruit farms, holiday parks. Employers will have to consider the impact of seasonal workers and auto enrolment.
The first task is to assess the workers and see which category they fall into – eligible worker, non eligible worker or entitled worker.
Following on from that the employer must consider whether postponement is more beneficial rather than auto enrolling those staff particularly if the employer knows that the temporary staff will not be needed after three months.
An employer can only postpone automatic enrolment from:
the staging date
a staff member’s first day of employment
the date a staff member first becomes eligible for automatic enrolment.
To postpone auto enrolling a member of staff the employer must write to them within six weeks from the date postponement starts. An employer can postpone for a maximum of three months, but it can be for much less than that. An employer can postpone as many or as few staff as is required and the postponement period does not have to be the same length for everyone.
Staff who have been postponed can choose to opt in during the postponement period.
On the last day of the postponement period, an employer needs to know whether any member of staff whose automatic enrolment who has been postponed is still eligible to be automatically enrolled. If they are, an employer must put them into a pension scheme straight away. An employer can not apply a further period of postponement even if postponement has been for less than three months.
Auto enrolment is set to ramp up as the country heads for complete auto enrolment of all employers by 2018. So far only 3% of employers have needed to comply but in the next few years the outstanding 97% will be implicated. There are obviously challenges ahead as resources become stretched both outside and within smaller businesses.
In 2015 45,000 employers are set to enrol and in 2016 it will be 45,000 employers per month. So far it seems that medium sized businesses have coped well however some have struggled to find a pension provider that will enrol all of the workforce and some businesses turned down completely by a private pension provider. As with all businesses return on investment is essential and it seems that some pension providers do not think that providing a pension scheme to a small to medium sized business is worthwhile. Others will disagree but may add hefty ongoing annual charges in order to ensure they make a profit. This leaves the smaller business in a difficult situation with the choice of pension schemes available dramatically reduced.
Research has shown that medium sized businesses have so far taken less time to prepare for auto enrolment and have had reduced implementation costs than the larger businesses who have had to comply since October 2012.
Many small and micro businesses have no experience of implementing a pension and do not have an active scheme in place. Many did not bother offering a stakeholder pension despite the fact that having 5+ employees this was required. Auto enrolment, however, can not be ignored. It seems, that awareness of the process is quite high, but action is required and early planning essential to comply with the staging date and avoid the hefty fines.
Demand for help with auto enrolment remains quite high. A high percentage of businesses will turn to their accountant. However, many are not able to offer any support. The IFA industry on the other hand has geared up to provide advice and guidance, but often will charge high fees to implement the process.
In 2014 the opt out rate for employees was running at 8% which is relatively low. Research shows that only 5% of younger workers are opting out whilst 28% of older workers are doing so. Affordability seems to be the key with these older workers as well as having an alternative means of saving for their pension.
It is thought that overall opt out rates is because of good communication processes offered by the larger employers that have had to comply so far. However the medium and smaller businesses that are now being affected do not have the huge resources available to provide communication processes such as seminars and workshops. Communication about the process is essential so that employees fully understand the implications of auto enrolment and saving for future retirement. The possible lack of communication resources may impact negatively on opt out rates in future, time will tell. There are a range of communication methods that smaller businesses could use including team meetings and newsletters. Ideally one to one meetings is best, but is obviously time consuming and may be difficult timewise.
The Pension Regulator has recently published it latest quarterly bulletin which shows that employers are failing to understand their automatic enrolment duties.
It seems that the Pension Regulator has found that many employers assume their duties only relate to staff who are eligible to automatically enrol according to age and salary criteria. This is incorrect as staff who have the right to join or opt in must be included in the automatic enrolment process.
The Pension Regulator found one employer who was using a master trust and had misunderstood the role of the scheme and had assumed that the scheme would be responsible for calculating contributions and making the correct staff deductions. This is a fundamental error and one that leads to a hefty fine for failing to comply correctly to automatic enrolment regulations and attracts the highest number of fines.
The Pension Regulator lists the various offences that employers can be fined for:
Information Notice – The power to demand information and documents under section 72 of the Pensions Act 2004.
Inspection – The power to inspect premises under section 74 of the Pensions Act 2004
Warrant – The power to search premises and take possession of content under section 78 of the Pensions Act 2004
Compliance Notice – A Compliance Notice under section 35 of the Pensions Act 2008 The power to remedy a contravention of one or more automatic enrolment employer duty provisions
Unpaid Contributions Notice – An Unpaid Contributions Notice under section 37 of the Pensions Act 2008 to remedy a late or non-payment due to a qualifying pension scheme
Fixed Penalty Notice – A Fixed Penalty Notice under section 40 of the Pensions Act 2008 of £400 for failure to comply with a statutory notice or some specific employer duties
Escalating Penalty Notice -An escalating penalty under section 41 of the Pensions Act 2008 of between £50 and £10,000 per day (depending on size) for failure to comply with a statutory notice
Employers who don’t understand what their compliance duties fully entail should take advice from an advisor who fully understand what needs to be done. Pension Regulator research has shown that accountants and book keepers have the lowest level of understanding out of all the available intermediaries.
When seeking advice and support, an employer should understand exactly what they are getting for their money whether it is just advice or a full automatic enrolment service. Both parties should be clear on the responsibilities for each task in the automatic enrolment process.
The recent case of Lock v British Gas lodged in the employment tribunal has tested the claim that commission is due on holiday pay. The employment tribunal has now ruled on 25 March 2015 following the Court of Justice of the European Union’s judgement on this subject to give a final decision.
The Lock v British Gas claim came about being lodged by a sales consultant who was paid a basic salary plus a sales commission which made up about 60% of his earnings. He took holiday in December 2011 and was paid his salary and commission earned on sales prior to taking leave. While on leave he made no sales and earned no commission. This would potentially affect his holiday pay if he had taken annual leave later in the year. He claimed this was unlawful.
The Court of Justice of the European Union said holiday pay was meant to reflect workers’ “normal remuneration” and should put workers in a position “comparable to periods of work” with regard to salary. In the UK commission payments had not been accounted for in holiday pay.
It has now been ruled ruled that employers must take commission payments into consideration when they calculate holiday pay.
Employers could potentially have to pay more when they offer commission schemes to enhance employees’ pay. The employees should receive normal pay during periods of holiday that are consistent with how they are paid during working hours. There is no reference in the ruling, however, to the correct reference period for calculating holiday pay where an employee receives commission – perhaps that will be determined by the employment contract which should clearly specify how commission payment should operate.
This will have a future cost impact to various industries that offer commission payments; this will, of course, include those employees with sales roles. It will may provide a possible additional headache with retrospective claims. At least 40% of the UK workplaces receive incentive payments to boost their employees salary so the ruling has far reaching consequences.
This is a key employment tribunal ruing and an interpretation of the Working Time Regulations, however, it sets a precedent and paves the way for other employment tribunal claims to be lodged.
The clock is ticking for all employers in the UK with pension auto enrolment. The process began in October 2012 with very large companies and from now until 2018 the process affects small businesses. The role of HR with pension auto enrolment can be quite key due to the high administrative requirements. Planning ahead is essential to ensure statutory deadlines are met.
The CIPD code of conduct states that HR professionals can not provide on pension schemes, but as HR often has an administrative role to play in most employer businesses the support with pension auto enrolment can be invaluable. An in house HR Manager or external HR consultant with auto enrolment proficiency can help streamline what may seem to be an administrative nightmare.
The key HR responsibilities in auto enrolment will include:
Identifying workers eligibility based on age and salary criteria. Workers aged 22 to retirement age and who, 2015-16 earn £10,600 are deemed to be eligible workers. Non-eligible workers are 16-22 and from state pension age to 75. Entitled workers are those who earn £5824.
Provide workers with information about auto enrolment. This will take the form of an appropriately worded letter. Additional ways to provide information can be with presentations, lunch and learn sessions, posters, email communication and face to face consultations.
Arrange deductions in pay with effect from the auto enrolment date, unless the process has been brought forward. Contributions are based on qualifying earnings. This is defined as gross earnings and can include bonus, commission, overtime, etc within a band 2015-16 will be set at £5284 and £42,385. Employers must make contributions of at least 1% for eligible and non-eligible workers, but do not have to make contributions to entitled workers.
Manage opt outs. It is illegal for an employer to encourage opt out of a pension, and currently 9/10 employees remain auto enrolled, nevertheless some employees may feel they do not want to be in a pension scheme. Workers can not opt out before they are auto enrolled, but need to be able to access an opt out form and understand the process that needs to be followed. If a worker opts out within the one month period HR must inform the scheme, stop payroll deductions and arrange for contributions to be refunded.
Inform the Pension Regulator about compliance. Within five months of the staging date HR will have to provide a compliance declaration to the Pension Regulator, this is a legal requirement. This will include contact details, business details, pension scheme information
Keep records which will include opt outs and opt in notices, enrolment and contribution information. Records have to be kept for six years except opt out notices that are kept for four years.
The process is continual. HR needs to remain vigilant to ensure that workers that become eligible due to age and salary changes are auto enrolled. Should salary changes tip the balance of a worker becoming eligible for auto enrolment, once auto enrolled they remain in the pension scheme unless they opt out.
The recently published Small Business Enterprise and Employment Bill includes a number of employment law initiatives amongst its extensive provisions. It is designed to make the UK the most attractive place to start, finance and grow a business.
The Employment The Bill will introduce measures to;
• Reform Whistleblowing procedures to achieve a consistent standard of best practice for handling disclosures and provide greater reassurance to the whistle-blower that action is being taken by the prescribed person and as a result increase the confidence in the actions of the prescribed person.
• Deter business non-payment of employment tribunal awards by creating strong financial consequences of non-payment.
• Reduce the delays in Employment Tribunals caused by frequent and short notice postponements, and addressing the costs arising from short notice postponements.
• increase the penalties imposed on employers that underpay their workers in breach of the national minimum wage legislation on a per worker basis.
• Make exclusivity clauses in zero hours contracts invalid and unenforceable so that no one is tied into a contract without any guarantee of paid work. This will enable employers and employees to benefit from the flexibility of zero hours contracts whilst addressing abuse of these contracts.
• recover exit payments from public sector employees that leave and re-join the same part of the public sector organisation within a year
It has always been an offence to drive whilst taking drink and drugs that impair driving and this is laid out in Section 4 of the Road Traffic Act 1988, however, on 2 March 2015 new laws relating to drug driving come into force. There will be a new offence of driving with certain controlled drugs including some prescription drugs. Drivers will need to make sure they are fit and legal to drive. Employers need to be prepared for the drug driving laws and and implement HR policies and procedures to protect the workforce covering all employees who drive on company business either in company or their own vehicles.
The ability of the police to prosecute for drug driving offences has always been difficult meaning that there have been few prosecutions due to inability to prove impairment.
Drivers who are impaired by drugs can already be arrested. However, being over the limit with prescription drugs will be an offence. Unlike the existing ‘impairment’ offence, the new law provides a medical defence for patients who are taking their medicine in accordance with instructions – either from a healthcare professional or printed in the accompanying leaflet – provided they are not impaired. If they are impaired it will be an offence and prosecution may result. This new offence will be section 5A of the Road Traffic Act 1988
The government has produced guidance that advises patients who take legitimately supplied medicines to keep evidence with them in case they are stopped by police; this could include a GP letter or copy of the prescription. This will help speed up any investigation into the medical defence and reduce the inconvenience to the patient.
The new regulations will come in to force at the same time as new equipment to test drivers for cannabis and cocaine at the roadside is expected to become available to the police. If a driver tests positive they will be taken to a police station where a further evidential test will be taken. If this is positive it will allow police to arrest and charge a driver for being over the limit. Detection levels for illegal drugs will be low.
The limits for each of the following drugs were set out by the government in 2014. A medical panel of experts have advised on the most commonly used drugs and levels have been set where a road safety risk arises.
Cannabis (tetrahydrocannabinol, THC)
Although only a few benzodiazepines and opioids are included in the list above, all benzodiazepines and opioids can impair driving ability. The risk of driving impairment is increased if the medicine is taken with alcohol. Warnings on the risks of driving impairment are already in the patient information leaflet.
Employers need to ensure that there is a robust drugs use policy in the employee handbook that covers issues such as driver safety and link to the disciplinary procedure for any misdemeanours.
We recently spoke to Duncan Mitchell of CED Accountancy Services about employer provided cars. The tax and national insurance effects impact the employer as well as an employee or director who has an employer provided car.
Duncan explained “An employer provided car results in a benefit to an employee or director upon which income tax is payable. The employer will suffer a Class 1A National Insurance Contribution (NIC) charge at 13.8% of the amount which is assessed as a benefit on the employee.
The amount of the benefit rises each year and the increases should be considered before a car is purchased by the employer. For most cars, we have got used to the amounts increasing by 1% each year but, from 6 April 2015, the amounts will increase by 2% each year.
Also the current cap on the percentage charge, currently 35%, will increase to 37% in 2015”
We reproduce a table that Duncan gave me illustrating his point:
A car was purchased for use by a director on 6 April 2013. A car is normally kept for four years before it is replaced. The CO2 emissions are 130 gm/km and the list price is £30,000. If the car is a petrol car, the benefit on the director (and the income tax cost) and the NIC cost on the company are:
Tax year Benefit Tax Employer
% £ (at 40%) NIC
2013/14 18 5,400 2,160 745
2014/15 19 5,700 2,280 787
2015/16 21 6,300 2,520 869
2016/17 23 6,900 2,760 952
Duncan explained that “The future increases may affect a decision as to when to replace a car. One of the reasons for the annual increase in the percentages is the work undertaken by car manufacturers to lower the polluting effects of a car which means lower carbon dioxide emissions. So, an equivalent new car purchased after April 2015 may have a lower tax cost if the CO2 emissions for that type of car have fallen significantly. Or you may decide that private ownership by an employee of a car would be a better option. Some research on the different types of car may well be worthwhile, Hybrid and electric cars tend to be tax efficient, and even high end marques such as Porsche and BMW have cars which demonstrate attractive tax efficiencies”
Duncan then spoke about the car fuel benefit
“For most businesses and employees it is not beneficial to have private fuel paid for by the employer. The CO2 emission percentage is applied to a set figure. The figure for 2014/15 is £21,700.
It is therefore, in many cases, better for the employer to pay only for the business mileage.
There are two ways to achieve this. The employee can claim a mileage allowance from their employer for business travel or the business pays for all the fuel with the employee subsequently making good the whole of the cost of the private fuel provided. Both methods are based on HMRC issued rates although they are different rates and often confused.
The requirement to reimburse in full for private fuel has caught many employers out when HMRC have conducted an Employer Compliance visit”
Duncan Mitchell is a director at CEDAS (www.cedas.co.uk) . You can call him on 01327 358866.
Driving at work is one of the most dangerous activities as a quarter of all vehicle mileage travelled annually on UK roads is for work purposes and a third of all crashes involve a vehicle that is being used for work. Every week around 200 road deaths and serious injuries involve drivers who are at work. Corporate manslaughter law that was implemented in 2008, dictates that an employer can be held responsible for the actions of their employees whilst driving at work. A company can be prosecuted and face huge fines if they have done nothing to reduce liabilities, therefore, there are certain steps that need to be taken and possible financial costs. This week (17-11 November) is Road Safety Week http://www.roadsafetyweek.org.uk/ so in this blog we provide some employer tips for driving at work and managing the HR issues.
Driving at Work Policy
An employer should have a driving at work policy and procedure in place that is well communicated to staff. This should entail the employer explaining all the details either on a 1:1 or group basis and ideally having the employees sign a paper document to show agreement which is then held on file. The policy should contain clauses on licence checking, safety, breakdowns, use of mobile phones, driver breaks, training, maintenance, accidents, fines and disqualifications, smoking and mobile phones. A list of authorised drivers should also be held to include company vehicle drivers and employees who drive their own car on company business.
An employer should check the validity of licences on a regular basis by taking a photocopy to be held on the personnel file. How regular that can be is up to the employer’s judgement but ideally at least once a year. If an employee provides a copy of a clean licence, an annual check should suffice. However, if the licence shows quite a few points then an employer may need to check more regularly. It is very easy to rack up additional points particularly with driver who has a careless history. If the employee is disqualified from driving they will not be insured. If they have an accident whilst driving a company vehicle the company is liable and not the insurance company. If a disqualified employee drives their own vehicle on company business and has an accident if a claim is progressed in the civil courts the employer may be pursued. The employer may, therefore, incur financial costs.
It may be quite onerous to check the validity of licences with regular photocoping, however, it is essential for an employer to do so to reduce liability. An alternative to checking and photocopying licences is to use form D888/1 to gain written permission from the employee to contact the DVLA about licence validity and driver entitlement. The form is sent off with a £5 fee – https://www.gov.uk/government/publications/d8881-request-by-a-company-about-driver-entitlement
It is important for employers to take ownership of this process. An employer can not guarantee that an employee will tell them if they have been fined, endorsed or disqualified particularly if their job might be on the line. Whilst the matter may be dealt with using the disciplinary procedure should untoward behaviour come to light, the repercussions for the company are much wider.
For employees that drive their own car on company business copies of MOT, tax and insurance documentation should be photocopies annually and held on file.
Fit and Safe to Drive
Employees should be requested to inform their line manager if they are fined, endorsed or disqualified. Failure to do so should result in use of the disciplinary procedure. They should be fit to drive, wearing prescribed glasses or contact lenses as appropriate. Employers can offer to pay for employees eye tests and contribute to glasses if they are essential drivers. Eye tests can be organised on an annual basis. Employees should take care when taking any prescribed drugs that may affect their ability to drive and should inform their line manager of any medication that may cause them to be at risk.
Company vehicles should be regularly maintained with responsibilities assigned to key members of staff. This should include servicing, MOTs, documentation updating and essential checks for drivers before starting a journey. Employees should be well aware of how to deal with a breakdown and who to contact within the company should this happen.
If an employee is involved in an accident in a company vehicle many employers require the employee to pay the insurance excess. This can be made a contractual obligation. Employees should take responsibility for any fines, traffic offences or other breaches of the law committed when driving.
To reduce liability an employer can provide safety and efficiency training. The Energy Trust holds a list of driver trainers who can deliver often 100% funded sessions on site. If done on an annual basis employees are educated in how to drive safely.
Tool box talks are also another way to educate drivers with short timely sessions that focus the mind on awareness related to speed, braking and motorway safety for example.
Providing training reflects well on a company’s reputation and keeps costs down.