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March 2018 - CHANGES IN APRIL

Posted on Tuesday 20th Mar 2018

Taxation of PILON

6 April 2018 sees the introduction significant changes in relation to the way termination payments are taxed. Our Newsletter of August 2016 refers. Except in cases of very serious misconduct when an employer terminates an employee’s contract, that employee is generally entitled to notice. Where there is a Payment In Lieu Of Notice clause (PILON clause) in the employment contract, the employer is entitled to terminate the employee’s employment immediately and pay a sum in respect of the salary and benefits the employee would have received had they worked the notice period. PILON in these circumstances will continue to be subject to tax and national insurance contributions. For this reason, we have never advocated a PILON clause.

The benefit of contractual silence on PILON is he employer can pay the net equivalent of notice period earnings as damages and not have to account for NI or tax. This saves secondary NI contributions.

Understandably HMRC does not like this practice and has taken action to recover tax where, for example, the employer habitually makes payments to his employees in lieu of notice.

This will change from 6 April 2018, even where there is no contractual PILON in the contract, employers will have to deduct tax from any amount which equates to “post-employment notice pay”. Post-employment notice pay” is the basic salary, i.e. excluding overtime and other payments such as bonus, the employee would have earned had they remained in employment for the notice period.

 

Minimum Wage

As we pointed out in our January 2018 newsletter from 1 April 2018, the national living wage increases to £7.83 for those aged over 25 and the national minimum wage increases as follows: £7.38 for 21-24 year olds; £5.90 for 18-20 year olds; £4.20 for under 18s; and £3.70 for apprentices.

Clients may have seen in the news HMRC‘s naming  and shaming of various employers who did not comply with the National Minimum Wage Regulations 2015 (NMW) including well known high street brands like Debenhams. No doubt some unscrupulous employers do flout NMW laws but in many cases the underpayment is accidental, caused by the sheer complexity of the legislation.

In many cases employers did not understand the rules relating to uniform and tools purchased for work: whether purchased from the employer or by the employee direct in order to meet criteria laid down by the employer.  So, items of clothing required to be worn to work e.g. black trousers, flat black shoes etc. are considered to be 'uniform' by HMRC when assessing whether NMW had been met.

NMW regulation 12 and 13 provide that any deductions made by an employer for the cost of uniform provided or for the cost of uniform to be purchased (by the employee) must not reduce a worker’s pay below the minimum wage in the relevant pay period. The same principle also applies for essential tools which workers are required to provide or be provided with for the purposes of their work: for example, good hairdressing scissors but not hairdressing tools the worker desires. 

 

PPE

On 21st April 2018, the current PPE Directive 89/686/EEC will be repealed by the new “PPE Regulation (EU 2016/425). The Regulation imposes significantly increased obligations on Manufacturers, Importers & Distributors of PPE & Safety Equipment which are beyond the scope of this Newsletter.

 However, in brief;

  • A suppliers EC Declaration of Conformity (or a web link to it) must accompany each product.
  • New EU Type Examination Certificates will have a maximum validity of 5 years.
  • Current EC Type Examination Certificates are required to be renewed by 21st April 2023.

 Although the Regulation largely affects manufacturers and importers of PPE, if you have responsibility for purchasing PPE you need to ensure that your providers are able to meet with the new Regulation.  The easy way to do this is to ask your suppliers for a declaration of conformity that shows original certification for the PPE you are purchasing and ensure your suppliers are members of the BSiF Registered Safety Supplier Scheme.

 

ISO 45001

The much anticipated International Standard for occupational health and safety ISO 45001:2018 has just been published.  Designed to help organizations of all sizes and industries, Occupational health and safety management systems – Requirements with guidance for use is intended to transform workplace practices globally by providing a robust and effective set of processes.

If you are interested in obtaining ISO 45001 accreditation or wish to make the transition from the old standard OHSAS 18001 Acton Jennings LLP is able to provide expert assistance.

 

Holiday Pay and Casual Employees

If you employ casual workers and pay them an hourly supplement when they work, to be paid at the time they take holiday, then a recent case throws considerable doubt upon this practice.

Mrs Brazel worked as a music teacher under a zero hours’ casual contract. Her work was undertaken mainly during term time, which usually involved working between 32 and 35 weeks per year.  Mrs Brazel’s employment contract reflected the statutory minimum for holidays, i.e. 5.6 working weeks’ holiday per year, which had to be taken during school holidays. The issue, however, was not the holiday entitlement but the amount of holiday pay.

The case of Brazel v Harpur Trust proceeded to the EAT upon the appeal of the claimant after the respondent employer’s practice of paying 12.07% of earnings, in accordance with ACAS advice and the Gov.UK holiday calculator, had been adjudged legal by the Employment Tribunal.

Overturning the employment tribunal decision, the EAT’s conclusion was that Brazel’s holiday pay should have been calculated using the 12-week averaging method. The EAT did not consider there to be a requirement to pro-rata the leave entitlement of part-time employees (which is what the 12.07% formula achieves).

The Brazel decision leaves businesses with uncertainty and any client who uses the 12.07% hourly supplement method of calculating holiday pay for casual staff must consider modifying it. The situation seems to be that calculating holiday accrual can still be done using the 12.07% rule but working out holiday pay for such workers should be based on an average of the previous 12 weeks of earnings, disregarding any weeks where there were no earnings.

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