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The going rate

What pay-related problems are commonly encountered by employers and how can your practice keep on top of them?

01 October 2019, at 12:00pm

The Bible may not be top of everybody’s night-time reading list, but it does make a number of valid points, not least of which is that “the love of money is a root of all kinds of evil” (I Timothy 6:10). Prophetic it may be, but problems associated with money, and specifically pay, still persist.

Chloe Themistocleous, an associate in the employment department of Eversheds Sutherland, reckons that the National Minimum Wage and National Living Wage (NMW), maternity pay, sick pay and the threshold of earnings for claiming cause most problems for employers. She says that, “while not necessarily troublesome, they all add increasing cost pressures on businesses every year as the statutory minimums increase due to the rising cost of living”.

John Palmer, senior guidance advisor at Acas, the government’s independent conciliation service, echoes Chloe’s views. He knows from experience that “pay affects the workplace in lots of different ways... and it isn’t regulated by one particular piece of legislation”. This is why he says that in addition to the NMW, he advises employers to be wary of the Employment Rights Act 1996 and the Equality Act 2010.

He clarifies: “The Employment Rights Act 1996 defines what constitutes wages and also the protections afforded to workers against non-payment or for unauthorised deductions. It also outlines the method of enforcement. The Equality Act 2010, on the other hand, outlines the right to equality of pay between women and men for equal work.”

Simmering pressures

It is very apparent to any bystander that the world of work in 2019 is markedly different from that of just 10 years ago. It was for this reason that the government ordered a review of modern working practices. Termed the Taylor Review, after author Matthew Taylor, the government responded with a policy paper called the Good Work Plan, which set out the vision for the future form of the UK’s labour market.

As Chloe explains, “the Taylor Review made 53 recommendations and the government accepted the majority”. These include devising a better definition as to who a worker is as they are entitled to various benefits, NMW, holiday pay, sick pay, etc; ensuring that piece rates meet NMW; having a better alignment of tax between the employed and self-employed; considering a higher minimum wage for zero-hours workers; stopping the rules referred to as Swedish derogations that allow agency workers to be paid less than permanent staff; and giving HMRC the right to enforce holiday and sick pay as it does with NMW.

The Good Work Plan is significant for Chloe as it is “a holistic review of the UK labour market. It demonstrates that the government wants to make change in the labour market in a very employee-friendly and protective manner that could be extremely costly and operationally difficult for business.”

John too can see change coming. He believes that change is overdue precisely because of “the shifting nature of employment arrangements to ‘gig’ agency, zero-hour and part-time working, and the employment status issues that go with them”.

Gender pay differentials have been in the news recently. Despite the legislation being in place for more than a year, it’s telling that, according to a BBC report published at the start of April 2019, fewer than half of the UK’s biggest employers have succeeded in narrowing their gender pay gap.

The report noted that, “across 45 percent of firms, the discrepancy in pay increased in favour of men, while at a further 7 percent there was no change. Overall, 78 percent of companies had a pay gap in favour of men, 14 percent favoured women and the rest reported no difference.”

It is interesting to note that, according to a November 2018 BVA report, Gender Discrimination in the Veterinary Profession, there is gender discrimination and a pay gap. In an experiment, 260 employers in the profession were asked to review the performance of a vet and then advise on that vet’s salary. 44 percent of respondents offered the male a significantly higher salary than the female, ranging from £1,100 to £3,300 more.

But as John can attest, “people are [still] getting to grips with gender pay reporting, especially in terms of how it’s changing over time”. It’s taking enforcement action from the EHRC to gain compliance.

Charles Cotton, senior reward and performance adviser at the CIPD, a professional association for those in human resources, adds another complication: “From 1 April, employers which are publicly listed and employ 250 staff or more will need to report the pay ratio of their chief executive and their employees.” He reckons that around 1,000 companies will be affected. He goes further and says that it’s widely anticipated that from April 2020, all employers will be required to report on their ethnicity pay gaps just as they do now with their gender pay gaps.

Apart from gender issues, there is another pay-related change to reckon with, and it’s one that will be obvious to anyone wondering why their take-home pay may have fallen post 5 April 2019. Pension auto-enrolment saw an increase to the minimum employer and employee contributions. Based on past experience, Chloe says she wouldn’t be surprised if there were further minimum increases in the future too in order to encourage a move away from a reliance on state pensions.

Spilling over from the world of IT contracting come changes to the IR35 legislation, which determines whether someone is truly self-employed for tax purposes. Highlighted by Charles, this is another issue that HR teams will have to deal with: “If an organisation outsources work to a contractor, it will soon be down to the HR function to decide if the individual is self-employed or employed, impacting the amount of tax they pay.” This could have a significant impact on locum vets, who might want to check their position.

Enforcement is altering the pay landscape

Naturally, for legislation to be effective it needs enforcement. For breaches of NMW legislation it is notable that action can be brought by affected employees and workers, while HMRC has the power to carry out audits of potentially non-compliant firms.

Chloe emphasises here the potential impact of the Taylor Review, which suggested that there should be a new enforcement regime for sick pay and holiday pay. Her advice to businesses that may have NMW, holiday pay or sick pay issues is to “think seriously about how to rectify them in the event they become the subject of an audit”.

And if matters do get serious and end up before a court, evidence indicates that they too are taking a hard line when dealing with employers who do not meet statutory pay requirements, especially with regard to the NMW. “Employment tribunals have been given the power to publish names of employers who do not pay tribunal awards. Further, the maximum penalty for aggravated breaches increased from £5,000 to £20,000 as of 6 April 2019,” Chloe says.

More changes

From a legal perspective, Chloe reminds firms to be aware of the regular changes to statutory pay that are subject to annual review – NMW being a case in point. She adds that current hot topics are those relating to agency workers and the gig economy. She says “there is an increasing trend to give rights usually reserved for employees to workers to ensure they are treated fairly and are not taken advantage of. Recent cases on this include Uber and the National Gallery.”

And then there are the Swedish derogation rules that enable some agency workers to be paid less than permanent employees. This will be repealed from April 2020, meaning that agency workers must have pay parity after 12 weeks of service.

There are other changes that some may have missed. The first relates to payslips; these must be given to workers, not just employees, and from April 2019 the payslip must include the total number of hours worked where the pay varies accordingly (for example, for variable or zero-hour contracts).

And new legislation that will apply from 2020 gives employed parents two weeks of leave if they lose a child or suffer a stillbirth from the 24th week of pregnancy. From April 2020, when calculating employees’ holiday pay, the reference period will change from 12 to 52 weeks.

Charles says, “all these changes will increase demand on HR teams, particularly organisations with a large head-count, and they should start preparing for these changes now to ensure they are ready”.

In summary

It is important to stay up to date with the law on pay, which changes frequently. It is good practice for employers to undertake routine checks and reviews to ensure that they are compliant with all legislation. If there is any doubt, they should take advice. With what’s on the horizon, it is best to plan ahead; change is not going away.