Employment Newsletter - Issue 14

26th August 2021

Employment Newsletter - Issue 14
Focus on.. 

In this edition, we will be covering:
  • Minimum Wage
  • Case Update – Redundancy and Furlough
  • Off Pay Roll Workers – It’s Easy to Make Mistakes

Legal Update #1 - Minimum Wage

This month the Department for Business, Energy & Industrial Strategy (BEIS) have named 191 business that were found to have breached national minimum wage law between 2011 and 2018.  As a result of the investigation, a total of £2.1 million was found to be owed to over 34,000 workers and the businesses were also fined an additional £3.2 million.  The story was also picked up by the national and local press, adding to the reputational damage caused by the breaches.

Whilst Business Minister Paul Scully said “This government will continue to protect workers‘ rights vigilantly, and employers that short-change workers won’t get off lightly”, the government also recognise that many national minimum wage underpayments are unintentional and BEIS have produced guidance that highlights some of the typical mistakes that employers should be aware of.

The most common breach involved a deduction from wages or payment by employees that, once accounted for, meant that they were being paid less than the minimum wage.  Examples of the sorts of deductions that caused problems include those made for: food; parking permits; cost for (lost) work equipment including PPE; training costs; Christmas saving schemes; uniform; childcare costs; salary sacrifice schemes such as cycle to work, pension schemes etc.

Another common mistake involved a scenario in which unpaid working time, once included, would take pay below the minimum wage.  Examples here included where additional work either before or after a worker’s shift had been excluded; where clock-in time was rounded to the nearest hour, where travel time should have been included, where pay is for ‘regular’ hours and not adjusted to reflect actual hours; or where a salaried hours worker has actually worked in excess of their basic hours.

There were also a number of instances where employers had forgotten to amend pay following a change in the age or status of the employee, including where apprentices have completed their first year of training or have finished their apprenticeship.  Similarly, a number of employers did not adjust workers’ pay following an increase to the minimum wage rate (this usually happens in April).

Whilst the general principle behind the national minimum wage are relatively simple, the regulations that implement it are complex and, in place, very technical.  Underpayments, whether intentional or made in error, can quickly become costly to correct and can cause significant reputational damage.  Taking a pro-active approach and correcting mistakes quickly can help minimise this damage and the Employment Team at Higgs would be happy to help you do this.

Legal Update #2 - Case Update – Redundancy and Furlough

For a dismissal on the grounds of redundancy to be fair, there must be a genuine redundancy situation (for example a reduction in demand for the type of work the employee does) and the employer must have acted reasonably in treating that reason as sufficient to justify dismissing the employee.  The leading case on reasonableness in this context, Polkey v A E Dayton Services Ltd, suggests that an employer is unlikely to have acted reasonably unless it has: warned and consulted employees; adopted a fair basis for selection for redundancy; and considered a suitable alternative to the redundancy.  When the Coronavirus Job Retention Scheme (or furlough) was introduced at the start of the pandemic with the aim of preserving jobs affected by the pandemic it was uncertain how this new scheme fitted in to this existing law.  Two recent employment tribunal cases, whilst not binding, have provided a useful insight for employers on the interaction between redundancy and furlough.

In Mhindurwa v Lovingangels Care Ltd the tribunal accepted that there was a genuine redundancy situation where demand for live-in carers, Mrs Mhindurwa’s role, had fallen as a result of the pandemic and whilst her employer had offered her other roles, these had all been unsuitable due to their location.  However, the tribunal also held that a reasonable employer would have considered the possibility of using the furlough scheme to avoid the need to make Mrs Mhindurwa redundant and that their complete failure to do so (along with a failure to give Mrs Mhindurwa the chance to appeal the decision to make her redundant) meant that the dismissal was unfair.

In contrast, in Handley v Tatenhill Aviation Ltd, the claimant argued that they could not be dismissed on the grounds of redundancy as they had already been placed on furlough.  The tribunal were critical of some of the steps taken in the redundancy process.  However, it also made it very clear that furlough should not act as a barrier to employers making decisions on how to structure their business including the decision to make staff redundant.  In her judgement, Judge Ayre, emphasised that whilst another employer might have taken a different view and decided to leave the claimant on furlough the tribunal’s role is not to step into the shoes of the employer and substitute its own views and that, provided they are not unfair, employers may decide how to structure their business including making redundancies.

Whilst the furlough scheme is coming to an end in September and will no longer be an option for employers facing redundancy situations, the outcomes of these cases show the importance of engaging fully with the redundancy process.  Where employers have genuinely listened to employees and considered available alternatives to redundancy, then they will be in a much better position to argue any resulting dismissal is fair than if they have followed a formulaic redundancy procedure without really engaging with the specific circumstances surrounding the particular redundancy situation they face.  The Employment Team at Higgs can help support you through this process, if required, and would recommend taking advice at an early stage to minimise risks.  

Legal Update #3 - Off Pay Roll Workers – It’s easy to Make Mistakes

It has been reported this month that a number of government departments, including the Department for Work and Pensions, are facing significant tax bills as they had incorrectly determined the IR35 status of a number of their contractors.  The rules, which make hirers responsible for making determining the status of contractors, were extended to the private sector from 6 April this year and, as these reports suggest, are somewhat complex.

The rules were introduced to counter non-compliance with the existing IR35 regime and now require business to determine whether workers provided under a contract with a relevant intermediary would be treated as employees for income tax and national insurance purposes if they were to provide their services under a direct contract with the company rather than via the intermediary.  If such workers would be treated as employees in such circumstances, then the company will be responsible for the payment of income and national insurance contributions as if they were an employee.  However, the worker will not gain any other employment rights and the intermediary will be remain responsible for payment of benefits such as statutory sick pay and statutory maternity pay.

When do the new rules apply?

The off-payroll rules apply where a worker personally performs (or is under an obligation to perform) services for a client but do not apply where the contract is for a fully outsourced service.  Whether a contract is for a fully outsourced service or not will depend on the particular circumstances, however, HMRC guidance makes clear that this exception is only likely to apply in limited circumstances with factors such as the nature of the relationship between the worker and the client; the nature of the business; and whether other goods and services are also provided being relevant factors.

The rules also only apply where the company or partnership providing the worker fits within the definitions of a relevant intermediary: these vary depending on the type of organisation providing the services but in simple terms the company or partnership will be closely connected to the worker who either owns or controls the intermediary.  The new rules do not apply where the intermediary (usually an agency) is treated as employing the worker and operate PAYE on any earnings it pays to the worker.

The rules will also not apply where the company receiving the services is a small company within the meaning of Income Tax (Earnings and Pensions) Act 2003 or does not have a UK connection. 

What should companies do?

If your company uses workers provided by intermediary companies, you will need to determine whether these new rules apply to that relationship.  This is likely to involve considering complex or technical issues such as:

  • is the company providing the worker responsible for PAYE as an agency;
  • would the relationship the company has with that worker be an employment relationship if the contract was with the worker directly; and
  • is the contract one for fully outsourced services. 

The Employment Team at Higgs will be happy to help advise to help make sure you are compliant with the new rules.

Key Dates

30 September: End of the Coronavirus Job Retention Scheme (furlough).

5 October: Deadline for gender pay gap reporting for any private or voluntary sector employer with 250 or more employees

11 November: requirement for those working in care homes to be fully vaccinated comes into force.  This means that everyone (excluding residents, their visitors, and those attending an emergency) must have received both doses of an approved vaccine or be able to prov


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