Employment law outlook for 2018
2018 is another busy year for employment law. There are a number of significant changes in the pipeline. Changes give rise to opportunities for employers to make employment contract mistakes and under calculate the payroll costs.
To help employers, we have shortlisted the most important employment law developments emerging in 2018:
- Calculation of holiday pay;
- Increase in number of Employment Tribunal claims;
- UK Immigration Rules Changes;
- Data protection; and
- The use of PILONs.
Employment law developments over the calculation of holiday pay
The Court of Appeal (CA) in the case of Lock v British Gas confirmed that UK businesses must include results-based commission in statutory holiday pay calculations. Failing to include these payments in future holiday pay could lead to claims under the Working Time Regulations or the deduction from wages provisions in the Employment Rights Act 1996.
The Supreme Court refused to hear an appeal by British Gas and this has implications for employers:
The Lock decision is only about results-based commission
There is no guidance as to whether other types of remuneration, such as bonuses, should be taken into account when calculating statutory holiday pay.
Should overtime be included?
Employment Appeals Tribunal (EAT) cases say that compulsory and non-guaranteed overtime must be taken into account. Employment Tribunal (ET) cases also suggest that voluntary overtime should also be included. However there is no EAT decision on this.
What is the appropriate reference period?
The wider question of what is the appropriate reference period to use when calculating the commission element to holiday pay remains unaddressed.
The effect of Brexit
EU law underpins statutory holiday pay rights. It is unclear how Brexit will affect this. However, the current UK government has indicated that it intends to guarantee existing EU employment rights.
Given these uncertainties, employers will have to make a judgement call. They may wish to think carefully about how to take account of the latest holiday pay developments when making changes to employees’ holiday pay rights.
Implications when hiring consultants or contractors
The recent EU case of King v Sash Window Workshop adds a further dimension to the issue of holiday pay in relation to consultants or contractors.
The case of King suggests that if a contractor wins an Employment Tribunal case which says that he is a ‘worker’ rather than genuinely self-employed, he will be entitled to all the rights that go with being a worker. Workers’ rights are not as extensive as employment rights but do include the right to 5.6 weeks’ paid holiday a year. In the case of King, Mr King was awarded 13 years of holiday back-pay.
This case is likely to expose some business to the risk of large holiday pay claims from people they thought were self-employed.
Increase in the number of Employment Tribunal claims
Employment Tribunal claims are expected to rise substantially. Latest figures indicate a 90% increase in the number of claims.
The government will now have to repay claimants. The refund scheme is estimated to cost £33 million.
Changes to Immigration Rules from January 2018
Key policy changes to the Immigration Rules came into force on the 11 January 2018. The purpose of the main changes is to:
- Clarify and remove inconsistencies from the rules relating to indefinite leave to remain for main applicants and their dependants in work categories.
- Double the number of available places in the Tier 1 (Exceptional Talent) category to 2,000, and allow accelerated settlement for certain applicants.
- Consolidate and clarify the rules for Tier 1 (Entrepreneur) applicants.
- Make new Tier 2 provisions for research positions and for students switching from Tier 4.
- Introduce new exemptions to the Resident Labour Market Test for researchers.
- Provide for entry clearance to be issued electronically to specific groups initially with a wider roll out at a later date.
- Allow standard and marriage/civil partnership visit visa holders to transit using the same visa.
Employment law developments to data protection
The UK’s Data Protection Act will replace the Data Protection Act 1998 and should become law by 25 May 2018. The commercial point is new heavier fines for non-compliance. The Data Protection Act 2018 is not variable depending upon the outcome of Brexit.
The GDPR deals with the maintenance and processing of personal data. However, there is greater emphasis on transparency. Individuals will know what personal data concerning them is being kept and used. There is also an emphasis on accountability so that data controllers should be able to demonstrate compliance.
Extending the current scope of data protection
The GDPR expands the territorial scope of European data protection. The data protection laws will apply to all organisations that control and process personal and sensitive personal data of any EU citizen. It will apply to European and non-European businesses alike. This means that an organisation does not need to have an office in the EU for the full data protection force of GDPR to apply to them.
Huge increase in penalties for breaches of data protection
There are some onerous obligations which will take organisations time to prepare for. The penalties for non-compliance are substantially increased. The maximum penalty is 4% of annual global turnover or up to 20m Euros (whichever is the higher).
Considerations for employers
The considerations for employers include:
- The requirement to carry out audits of employee personal data they collect and process to ensure it meets the GDPR conditions for employee consent;
- New governance and record-keeping requirements;
- The overhaul of policies and processes on privacy notices, data breach responses and subject access request.
Employment law development on the use of PILONs
On 6 April 2018 changes to the taxation of non-contractual termination payments will be introduced. There will be unnecessary commercial risk if account is not taken of the changes. The main changes include:
Taxation of non contractual payments
The changes will effectively remove the distinction between contractual and non-contractual payments in lieu of notice (PILON). All payments made in lieu of notice will be treated as fully taxable and will be subject to Income Tax and employer and employee NICs.
For employers, PILON clauses offer flexibility. The change means that there is no reason not to include a PILON clause in an employment contract. PILONs do help protect the business from anti competitive behaviour by an employee.
(Before April 2018, PILONs were not included in the employment law contract to permit greater use of the £30,000 tax free limit. The basics were that the employer could breach the contract by not serving notice and then pay up to £30,000 tax free.)
Abolishment of the foreign service relief exemption
Abolishment of the foreign service relief exemption will affect employers terminating the employment of employees with foreign service. Foreign service means where the employee has been non-UK resident whilst assigned to overseas offices. The use of enhanced tax free payments is being phased out.
April 2019 – Increased employers NIC burden
The introduction of the requirement for employers to pay NIC on non-contractual terminations payments above the £30,000 tax free limit has been put back to April 2019. This will be an additional payroll cost to budget for.