Legal Article - Employment Law

Employment Contracts, Working Conditions and the Payment of Employees

The amount of wages or salary paid to employees for doing a fair day’s work, holidays, sickness etc is determined by the contract of employment.

Once the employer has agreed the amount to be paid and how it is to be paid (i.e. weekly or monthly; in cash or cheque or credit transfer), this becomes part of the contract of employment and the employer must then pay these amounts, otherwise any lesser amount paid, or different payment methods used, could involve the employer in a breach of contract claim or a claim under the Employment Rights Act 1996.

For example, the employer can agree to pay an employee in cash at weekly intervals and must continue doing so unless they can secure the employee’s agreement to change the contract. There is no longer a legal right for manual workers to insist that they are paid in cash.


Statutory Pay Requirements

Statutory Pay Requirements

There are specific circumstances where the law requires the employer to pay at least a minimal amount. These relate to:

I. National Minimum Wage
II. Where an employer is not allowed to unilaterally make deductions from an employee’s pay packet where the Employment Rights Act 1996 applies.
III. For employees of different sex who do similar or equivalent jobs where equal pay applies
IV. For sickness and injury where Statutory Sickness Pay (SSP) applies
V. Where a woman is pregnant and Statutory Maternity Pay (SMP) applies
VI. For lay-offs where guaranteed minimum pay applies

These circumstances are described in detail below.

SSP requirements

Under the Social Security Benefits Up-Rating Order 2011 and associated Regulations, an employer is obliged to pay an employee off work due to sickness or injury (however caused) a minimum payment.

This varies at the discretion of the Secretary of State but from April 2011 it is £81.60. Employers are able to reclaim SSP from the Government in any month in which its SSP payments exceed 13% of their national insurance liability for the month. 

 Any SSP paid out which exceeds that figure is recoverable in full.

SSP must be paid to employees who are incapable of carrying out their contractual duties due to physical or mental illness or disablement. The employer can, however, withhold payment if they have reason to believe that the employee was not ill, or the employee failed to notify the employer of their absence in accordance with the employer’s rules, contained in the employee handbook. If withheld the employer must give the employee, if requested, a written statement on why liability is not accepted.

Case Study:

For an employee to be entitled to SSP the employee must be ill or injured for at least four consecutive calendar days, called a period of incapacity for work (PIW), and been absent for at least 3 qualifying unpaid days, unless the period of incapacity is linked.

Qualifying days are agreed between the employer and the employee and are normally days on which the employee is required to be at work, although this can also include bank holidays. PIWs are linked to form just one period if there is not more than 56 calendar days between them. SSP is only paid in respect of qualifying days.

For example an employee works Mondays to Fridays and these are all qualifying days. They are off work for illness from Thursday to the following Tuesday (i.e. returns to work on Wednesday). Thursday, Friday, Saturday and Sunday are the PIW.

Thursday, Friday, Monday are the qualifying days. The employee is entitled to be paid SSP for Tuesday only.

Once the above rules apply the employer must pay SSP in each PIW for a maximum of 28 weeks or until the employee returns to work, whichever is the soonest, unless any of the following apply:

• The employment is terminated, unless this is to avoid paying SSP
• The employee is detained in legal custody
• The employee’s linked PIW reaches three years
• The employee is pregnant and receiving Statutory Maternity Pay, or is incapable of work because of pregnancy or childbirth on any day which falls on or after the beginning of the sixth week before the expected week of confinement.

The following employees are excluded from SSP.

a) The employee is over the age of 65 or under the age of 16

b) The employee is engaged on a fixed-term contract of three calendar months or less and has not been employed for longer than 13 weeks (Note: two separate contracts separated by no more than 8 weeks are counted together to determine whether or not the employment has lasted, or is likely to last, for more than 13 weeks)

c) The employee’s average weekly earnings are less than the lower limit for National Insurance purposes - £102 per week from April 2011.

d) In the period of 57 days immediately before the first day of incapacity the employee was entitled to (or would have been entitled had he or she fulfilled the National Insurance contributions conditions) and claimed a national insurance sickness or invalidity benefit or maternity benefit. In such cases the employee will be given a “linking letter” by the Department of Social Security to pass on to the employer

e) A new employee has done no work at all under the contract, unless he or she was previously employed by the same employer and the two contracts are separated by no more than eight weeks

f) There is a stoppage of work due to a trade dispute at the employee’s place of employment, unless the employee can show that he or she did not have a direct interest in the dispute

g) The employee has provided an SSP leaver’s statement, which shows that 28 weeks’ SSP has already been due from the former employer, and there is a gap of 56 days or less since the last day of SSP shown on the SSP leaver’s statement

h) The employee is or has been pregnant and is within the disqualifying period

i) The employee is abroad in a non-EEA country; or

j) The employee is detained in legal custody or is serving a period of imprisonment.

SSP is treated as earnings so tax and NI must be deducted. Employers must keep the following records for 3 years:

a) The dates of each reported period of incapacity
b) Details of agreed qualifying days
c) Details of SSP paid to each employee, broken down into weekly, monthly and yearly figures
d) Dates when SSP was not paid, together with the reasons
e) Leaver’s statements given to the employer by employees who were not excluded from SSP; and
f) Copies of any leaver’s statements issued.

SMP Requirements Qualifications

A women who is pregnant qualifies for SMP when she

• Has been continuously employed for at least 26 weeks (irrespective of the number of hours worked) ending with the 15th week before the expected week of confinement (EWC). This 15th week is known as the Qualifying Week (QW).

• Has average weekly earnings in the eight weeks up to and including the QW of not less than the lower earnings limit for the payment of National Insurance contributions (from 6 April 2011 £102 per week)

• Is still pregnant at the 11th week before the EWC, or has already been confined

• Has stopped work because of her pregnancy or confinement

• Has provided her employer with notice of her maternity absence, in writing if the employer requests it. The notice must be given at least 21 days before the absence is due to start or as soon as is reasonably practicable

• Has provided her employer with evidence of the date of her EWC (normally on form Mat B1).

An employer can recover some or all of the SMP contributions they pay depending on the amount of National Insurance Contributions they make a year. If an employers pay £45,000 in National Insurance Contributions or less during the tax year then they can claim 100% of the SMP back, if they pay more than £45,000 they can recover 92%.

Payment

Payment

SMP is treated as earnings and so is subject to deductions for tax and National Insurance contributions. It is payable for a maximum period of 18 weeks (known as the Maternity Pay Period - MPP), but cannot start earlier than the 11th week before the EWC. Otherwise, a woman can decide when to start her leave any time after that until the date of confinement, except that if she is absent due to a pregnancy related illness after the sixth week before the EWC then the employer can count the leave as starting and pay SMP rather than SSP.

Once entitlement to SMP has been established in the qualifying week, the employer must pay SMP even if the employee leaves employment before she wants her SMP to start. If for any reason an employee is not entitled to SMP, her employer should complete and give her the Department of Social Security Form SMP1 (an explanation of why SMP is not payable). This will help the employee to claim any maternity allowance which is due to her.

SMP is a weekly benefit and the benefit week begins on a Sunday. The first six weeks of SMP are paid at 90% of the employee’s average weekly earnings and the remaining weeks are paid at the same or £124.88 per week, whichever is the lower.

Small employers, those whose total gross National Insurance liability in the previous tax year was £20,000 or less, can deduct 100% of the SMP they have paid out, plus 5% to cover other costs. All other employers can deduct from their next payment of PAYE and National Insurance contributions to the Inland Revenue an amount equal to 92% of the SMP they have paid out in the preceding period.

Maternity Records

Maternity Records

The employer must keep the following records for at least 3 years after the end of the tax year in which the relevant Maternity Pay Period ends:

• Dates of maternity absence notified by employees, and if different the actual date of the first day of such absences

• Weeks in the relevant tax year for which SMP is paid and the amount paid in each week

• Weeks within any MPP for which SMP is not paid, together with reasons for this

• Maternity certificates, including Mat B1 Form, or other medical evidence provided by employees for whom SMP is paid (and copies of these where liability ends and originals are returned to the employee).

Exemptions

Exemptions

If any of the following events happen prior to the 18 week entitlement ending, the employer must not pay SMP:

• The employee is taken into legal custody
• the employee goes abroad outside the EU
• the employee dies
• The employee works for her employer in any week, or part of a week during the Maternity Pay Period. If she falls ill for a whole week for a pregnancy related reason within the 18 week period, she can receive SMP.

Guaranteed Payments

Where the employer is unable to provide work on a day when the employee would normally be expected to work in accordance with their contract of employment (due to, for example, reduced demand, or lack of components) the employee is entitled to receive a guaranteed payment (£18.40 per day from 01/02/2005 but subject to annual review) for up to five days in any period of three months.

Such a payment will not be payable if:

• The employee has not completed one month’s continuous employment with the employer

• The employee unreasonably refuses suitable alternative work

• The employee fails to comply with the employer’s reasonable requirement to be available to work

• The lay-off or short-time is due to industrial action involving any employee of the employer or associated employer.
Any contractual payment in respect of the workless day can be offset against the employer’s liability to make a payment for that day.

Despite these provisions on guarantee pay, the employer has no automatic right to lay employees off without pay. The right to do so must be expressly laid down in the contract of employment, or be implied by past action and practice, or the lay-off must be by mutual agreement.

Otherwise the employer may be liable for claims for damages for breach of contract or the employees may resign and claim constructive dismissal.
Equal Pay for Equal Work

The Equal Pay Act 1970, as amended by the Equal Pay (Amendment) Regulations 1983, provides for equal pay between men and women in the same employment.

Equal pay is not just “wages”, but is any contractual terms and condition, whether or not it relates to money, but excludes those relating to death or retirement (e.g. it covers sick pay, holidays, cars, BUPA but not pensions, death benefit etc although these are covered under other legislation and may be equal).

Employees are in the same employment where they do work that is:

i. the same, or broadly similar, where differences between the things done by a man and a woman, having regard to their frequency as well as to their nature and extent, are not of practical importance in relation to the terms and conditions of employment;
ii. where work has been rated as equivalent under an analytical job evaluation system, provided the system does not give different values to the demands made on men, or on women, under any heading (Note: you are not required to use job evaluation);

iii. Work is of equal value in terms of the demands made on the people performing the jobs.

A male or female member of staff can compare pay with other employees of both sexes, currently employed or where there are no male or female employees currently employed, comparisons with either a former employee or successor is acceptable where their employment overlaps.

Where a company has more than one establishment, or has other associated companies, employees can compare themselves with male or female employees in another establishment (or associated company) where common terms and conditions are generally applied.

The legislation applies to all employees, whether on full time, part time, casual or temporary contracts regardless of length of service, as well as the self-employed. It applies to each individual contractual term, and you cannot argue that the woman’s (or man’s) “total remuneration package” taken as a whole is no less favourable than the man’s (or woman’s).

An employee who considers themselves likely to be disadvantaged by a discriminatory term in a collective agreement or employer’s salary scheme can challenge that term under section 6 of the Sex Discrimination Act 1986 as amended by Section 32 of the Trade Union Reform and Employment Rights Act 1993.

The employer can refute an equal pay claim if they can prove that the difference between the woman and man’s pay is genuinely due to a material factor, which is not the difference of sex.

This defence is the reason put forward by the employer to explain why the comparator, although doing equal work, is paid more than the applicant. To be successful this factor must be significant and relevant; that it must be an important cause of the difference and apply to the jobs in question.

The difference in pay must be genuinely due to the material factor, which must not be tainted by sex discrimination.

The employer must be able to justify objectively, in terms unrelated to gender, the reason given. This means in practice that he or she must explain why the factor, which causes the difference in pay, is necessary to a business objective of the organisation; how it is achieving that objective and that there is no other practical way of achieving that objective.

For example, if the reason given for paying the comparator more is that they have certain skills which the applicant does not have, then the employer would have to demonstrate that these skills are necessary for the job, are genuinely applied during the performance and are not simply rewarded because past pay agreements recognised and rewarded skills which are no longer applicable.

To succeed in a defence the employer needs to show that the material factor accounts for the whole of the difference in pay.

Where it accounts for only part of the difference equal pay can be awarded for the rest. For example, if the material factor defence relates to pay determined by skill shortages, but on examination it is found that these shortages can only justify part of the higher pay of the comparator, then the Tribunal will award the applicant the difference.

It is not sufficient to explain how the difference in pay came about, such as traditional values or separate bargaining arrangements or have been placed in separate grades with different job titles, but that the difference is due to the above material factors.

Further, the European Court of Justice has held that where the organisation concerned applies a system of pay, which is wholly lacking in transparency and appears to operate to the substantial disadvantage of one sex, then the onus is on the employer to show that the pay differential is not in fact discriminatory.

 In terms of UK law this means that the objective justification of the material factor defence could involve an examination of all the elements of the pay system, which contribute to the pay differences between applicant and comparator.

Employment Rights Act 1996 (ERA)

An employer can only lawfully make deductions from wages or receive payments from a worker in the following circumstances:

• It is required or authorised by legislation (e.g. income tax, national insurance, or an order for an attachment of earnings by a court);

• it is authorised by the worker’s contract of employment, so long as a copy of the terms of the contract which authorise the deduction (or a written explanation of these terms) been given to the worker before the deduction is made;

• It was agreed to by the worker in writing before the deduction was made;

• It is to recover an earlier overpayment of wages or expenses by the employer to the worker (i.e. administrative errors);

• Because the worker takes part in a strike or other industrial action (i.e. does not have to pay for work that is not done).

Wages mean any sums payable to the worker by his employer in connection with his job and include

• Any fee, bonus, commission, holiday pay or other payments in connection with the worker’s employment (not expenses incurred in employment)

• Statutory payments such as SSP and SMP

• Luncheon vouchers, gift tokens or other vouchers of a fixed monetary value that can be exchanged for money, goods or services.

The Courts have also concluded that unilateral withdrawal of regular overtime payments is also a deduction of wages. However, failure to pay wages in lieu of notice would not be a deduction of wages under the Employment Rights Act, but would be a claim for damages for breach of contract, to be resolved normally in the ordinary Courts not the employment tribunals.

An employer may ask a worker to agree to a change in the terms of their contract, or to give their consent to make a deduction on account of certain conduct that took place before the contract was varied or the consent obtained, this is unlawful.
For example, if a worker is late, the employer is not entitled to alter the terms of the contract or obtain consent to enable them to make deductions for lateness and then promptly reduce the worker’s wages for the incident of lateness that has already taken place.

Where the employer makes an unauthorised deduction from wages an employment tribunal will order the employer to reimburse the amount to the worker. The employer will not be able to recover the amount by any other means even if it is contractually due from the worker.
The employer is penalised for taking the easy route of docking pay, rather than pursuing a contractual remedy in the ordinary courts.

For example, if an employee owes money to the employer when they leave the company (because of a loan made to them to buy a car) but no agreement was made authorising the employer to deduct payments from the employee’s wages and the employer decides to deduct the amount owed from the fixed wages, this will breach the ERA and the employer will not then be able to sue in the ordinary courts for this amount.

Normally a worker who thinks their employer has broken the contract between them can only complain to the civil court.
 However, if they think that in making a deduction from wages the employer has failed to follow the provisions outlined above as well as breaking the contract, the worker can choose either to complain to a tribunal about an unlawful deduction of wages in breach of the Employment Rights Act, or to a civil court about the breach of contract.

 

The Employment Rights Act within Retail Employment

The Employment Rights Act within Retail Employment

Special rules apply to workers in retail employment in respect of deductions or payments to employers because of cash shortages or stock deficiencies. Such deductions or payments must comply with both the general rules set out previously and the following additional rules.

A person works in retail employment if their work involves selling or supplying goods or services directly to members of the public, fellow workers or other individuals in their personal capacities, or in collecting money in connection with the sale or supply of such goods or services.

Workers covered include:

• Those who do not regularly undertake selling activities to the public or fellow workers but do so on odd occasions;
• those who collect or receive money in connection with retail transactions with the public or fellow workers but are not themselves involved in the sale or supply of goods or services. Rent collectors and cashiers who do not service customers are examples.

Retail employment does not include those who only sell or supply goods or services to companies, such as van drivers or parts personnel who only supply goods to other depots or other companies.

If an employer operates a bonus scheme under which workers are paid a bonus if there is no loss of stock or cash or a loss that falls short of a certain allowable level. Failure to pay this bonus is treated as a deduction due to a cash shortage or stock deficiency. The special protections set out below therefore apply.

In addition, deductions made or payments received because of dishonesty or other conduct which results in a shortage are to be treated as deductions or payments because of a shortage and are covered by the special protections. It does not matter whether the amount of the deduction or payment is equal to the value of the shortage.

It is unlawful for an employer to deduct more than 10 percent of the employee’s gross wages. This limit does not apply to deductions from the final payment of wages.

Any deduction from the wages of a retail worker because of a shortage is entirely unlawful if made more than 12 months after the employer established the shortage, or ought reasonably to have done so.
This is not the case, however, if the deduction is one in a series resulting from a particular shortage and the first deduction is made less than 12 months after the shortage was (or ought reasonably to have been) established.
Any payment received by an employer from a worker in retail employment because of a shortage is only lawful if certain conditions are met. These conditions are:

• that the employer must, before receiving the first payment for any particular shortage, let the worker know in writing of the full amount which he owes for the shortage;

• That the employer must have a written demand for payment on one of the worker’s pay days;

• that a demand for payment (or the first in a series of demands) relating to a particular shortage must not be made earlier than the first pay day after the day on which the employer informed the worker of the full amount owed (or, if the worker is informed on a pay day, that day). Likewise it must not be made more than 12 months after the shortage was (or ought reasonably to have been) established;

• that any such demand must not require the worker to pay more than 10 percent of the gross amount of income payable to the worker on the pay day; and
• that the payment (or payments) demanded on a pay day, added to any deductions made on the pay day because of shortages, must not exceed 10 percent of the gross amount of wages payable to the worker.

A demand for payment can be made by being given to or posted to the worker, or left at his last known address, on a pay day. If the pay day is not a working day of the employer’s business, the demand must be made on the first working day following the pay day.
If an employer goes to the courts to recover money which he has asked a retail worker to pay him because of shortages, but which the worker has not paid, the court must make sure that payments does not exceed instalments of 10 percent of gross wages.

This does not, however, apply to any amount paid by the worker from his final payment of wages or sums paid by him once he is no longer working for the employer.
 
The limit on deductions for shortages to 10 percent of gross wages does not apply to the worker’s final payment of wages. This means either the wages due a worker under his contract for his final period of employment or, if paid later, a payment made in lieu of notice.
Correspondingly, any payment made by the worker to the employer on or after the day the final payment of wages is made is not subject to the 10 percent limit.

National Minimum Wage (NMW)

The National Minimum Wage (NMW) was developed to ensure employers pay their employees fairly depending on their age and the type of work they undertake.
 
The NMW is constantly being updated to fall in line with the economy to ensure workers are making enough money to live. The most recent changes to the NMW will occur in October 2011.
 
As from 1st October 2011, workers aged between 16 and 17 are entitled to £3.68 per hour minimum, between 18 and 20 employees are entitled to £4.98 per hour and for those aged 21 and over, they are entitled to £6.08 per hour.
Workers are people employed under a contract of employment, or who do work personally for someone else. For example home workers, agency workers, casual labourers, freelancers. Genuinely self employed people are not entitled to National Minimum Wage.

Apprentices, including Modern Apprenticeships, and other employed trainees on National Traineeships, Skill seekers and Job Skills traineeships aged under 19 are only entitled to £2.60 per hour according to the NMW guidelines. If a trainee is aged over 19 but they are still within their first year of the apprenticeship then they too are only entitled to £2.60 per hour.    

What is National Minimum Wage pay?
 
The starting point is the gross pay including the following:

• Incentive pay
• Bonuses
• Tips paid through the payroll
• Income tax and employees national insurance contributions
• Deduction or payment of a penalty
• Deduction or payment to repay a loan
• Deduction or payment to repay an advance of wages
• Deduction or payment to pay for purchase of shares/securities
• Deduction or payment to refund accidental overpayment of wages
• Union subscriptions
• Worker’s pension contribution
• Any deduction made by the employer but not for his/her use or benefit
• Unforced payments by the worker for goods and services from the employer
• Accommodation up to the limit, maximum offset is, as of October 2011, £33.11 per week (£4.73 perday.) 
 
Items that do not count as NMW are:

• A loan
• An advance of wages
• A pension payment
• A lump sum on retirement
• A redundancy payment
• A reward under a staff suggestion scheme
• Overtime and shift premier
• Allowances that are not consolidated into pay
• Expenses
• Refund of money spent on work
• Deduction or payment for tools, uniforms etc.
• Deduction or payment for the employer’s own use or benefit
• Payments by the worker to another person connected with the job
• Accommodation above the limit of £26.25 per week (£3.75 per day) (from 01 October 2004)
• benefits in kind e.g. meals, luncheon vouchers, fuel, car, medical insurance, assistance with removals, employer’s contribution to worker’s pension fund.

 

Pay Reference Period

Pay Reference Period

The worker does not have to be paid the NMW for each hour worked, but he/she must be paid the NMW on average for the time worked in the pay reference period.
This is usually the period of time for which a worker’s wage is actually calculated i.e. daily, weekly, or monthly. This is the longest pay period allowed under the NMW rules, even if someone is paid over a longer period.

The pay that is allocated to a pay reference period is:

• Pay received during that period, and
• Pay earned in that period, but which is not received until the next period e.g. a worker may earn extra bonus towards the end of the current period that is paid in the next period. In this case the NMW will not be known until the end of the next.

There are special rules for worker’s receiving an annual bonus or whose pay is based on time sheets.

Types of Work

Types of Work

The hours for which the National Minimum Wage must be paid dependant on the type of work which the worker is doing. The employer and worker must identify the type of work that the worker is doing, in order to calculate the hours for which the NMW must be paid.

There are four types of work:

Time work when a worker is paid for working a set number of hours or a set period of time i.e. pay varies depending on the number of hours worked. This includes people on piece work or commission who work within set hours.

Time work hours that count are: time spent at or near the workplace where worker is available for work, including being on standby or on-call, but excluding rest breaks; travelling time on business;
training or travelling to training time during working hours; and time spent awake for the purposes of working during sleeping time.

Time work hours that do not count are: travel between home and work; absences from work; rest breaks; holidays/sick and maternity leave; industrial action; and sleeping between duties.

Salaried-hours work when a worker has a contract to work for a set number of basic hours each year in return for an annual salary paid in equal instalments e.g. weekly or monthly.

Work hours that count are the same as for time work except that periods of absence for rest, sickness etc. where they are part of the basic hours under the contract are also included.
Work hours that do not count are: long term absences where no pay or less pay applies; and industrial action.

Output work when a worker is paid according to the number of things produced, or the number of deals or sales that are made. The number of hours worked has to be identified.
There is an option for a worker to have a written agreement with their employer stating a “fair estimate” of the number of hours to be worked.

This must be in place before work begins at the start of each reference period; states the “fair estimate” of hours to be worked; is accompanied by a contractually agreed piece rate; and is backed by records of hours kept by the worker. Time spent travelling in connection with the job must be paid.

Unmeasured work when a worker has to do a number of specific tasks, but do not have any set hours. Again there is an option to have a written agreement with the employer setting out the average number of hours to be worked each day, a “fair estimate” but with the added requirement that it must be realistic. This measure is only used when the other three ones do not apply.

 

Keeping Records

Keeping Records

All employers must keep sufficient records to establish that they are paying their workers at least the National Minimum Wage, including copies of any relevant agreements. These records have to be kept for a minimum of three years after the pay reference period following the pay period that the records cover.
 
They do not have to be in any particular form. Examples of records that may be sufficient are: gross pay paid to the worker; overtime/shift premia; amount of unconsolidated allowances; any benefits received by the worker; any deductions or payment for accommodation; any absences e.g. rest breaks, sick leave, holidays etc.; any travel or training during work hours and its length; bank statements or other commercial documentation; the total number of hours worked or “fair estimate” or “daily average” of hours to be worked.

 

Other Statutory Requirements

Other Statutory Requirements

Itemised Pay Statement

Employers must give all employees an itemised statement of pay containing the following details:

a) The gross amount of wages or salary
b) Net amount of wages or salary
c) Variable deductions and the purposes for which they are made
d) fixed deductions and the purposes for which they are made
e) Where different parts of the net amount are paid in different ways, the amount and method of each part-payment.
 
The statement must be given on or before pay day.

The statement of fixed deductions does not have to be given each time if:

a) Instead a cumulative statement of aggregate fixed deductions is given; and
b) Employees have been given a standing statement of fixed deductions, which sets out:
I. the amount of the deduction
ii. The intervals at which the deduction is made; and
iii. The purpose for which it is made

The statement can be amended by notice in writing, and must be reissued every 12 months in an updated form.

Attachment of earnings

An attachment of earnings order (AEO) is a means by which certain types of debts owed by employees may be recovered by deductions from their wages. Under the Attachment of Earnings Act 1971 the courts (county court, magistrates court or High Court) can impose a duty on employers to make deductions before paying employees and pay the amount directly to a third party.

Similarly, under the Community Charges (Administration and Enforcement) Regulations 1989 a local authority can make an AEO to recover council tax owed by a defaulting employee.

Under the 1971 Act the following obligations may be enforced by AEO

• Maintenance orders
• Judgement debts exceeding £5
• Administration orders in insolvency proceedings
• Sums to be paid on conviction for a criminal offence
• Legal aid contribution orders.

The employer must make periodical deductions from the debtor’s earnings (which includes wages/salary, contractual pension and SSP, but not state benefits), after PAYE, National Insurance and any other statutory authorised deductions have been made.

The AEO will specify the normal deduction rate and the protected earnings rate i.e. the rate below which the debtor’s earnings should not fall, usually the social security “subsistence level”. Any arrears will be carried forward.

Employers must also notify the Court making the AEO of any relevant matter concerning the employee e.g. if the employee leaves the job. Failure to make deductions or inform the Court of required matters may result in the employer being fined and/or imprisoned for up to 14 days.

For local authorities the procedure is different. They can only issue an AEO, after issuing reminders and notices to poll tax defaulters and then obtaining a liability order from a magistrate’s court. Once an AEO is made the local authority must specify the total amount owed and the employer must then calculate the correct amount of deductions to make on each pay day.

Child Support Pensions and Social Security Act 2000

This empowers the Secretary of State to seek information from employers when it is needed for certain purposes, specified in associated regulations, connected with child support maintenance and maintenance calculations (e.g. to trace an absent parent, or to establish their level of income).

The duty to provide the information applies to any current and recent employers of the absent parent in question. Such disclosure does not breach the Data Protection Act.

Stakeholder Pensions

Recent legislation has enabled people to take out Stakeholder pensions at a lower cost which will increase their income after their retirement. This legislation will affect employers who employ 5 or more members of staff. From 8 October 2001 employers have the following obligations;

• To designate at least one registered stakeholder pension scheme as available to the employees, after consulting the employees and/or their representatives

• To provide details of the scheme and how to take out a pension to the employees

• To give a representative of the scheme access to the employees to canvass for members
 
• To operate payroll deductions of employee’s pension contributions if so requested and pay them to the scheme.
The legislation regarding stakeholder pensions in due to change in 2012. Employers must now ensure the employees they provide with pensions are ‘relevant’.

Non Relevant Employees;

• Under 3 months continuous employment
• Member of an existing pension scheme
• Employees who are under 18 or those who are within 5 years of pensionable age
• If employees are under the National Insurance weekly threshold of £102 per week
• HMRC restricted employees e.g. Non UK residents

Employers must enrol eligible employees and must contribute 4% of annual earnings as a minimum.
Employers cannot be held liable if they select a stakeholder provider that turns out not to be the best provider.
Some employers are exempt from providing stakeholder pension schemes. These are:

• The employer has fewer than five relevant employees
• The employer already has a contracted out occupational pension scheme open to all employees
• The employer has a contractual obligation to contribute to a personal pension scheme for all employees who take out such a scheme and to collect the employees’ contributions by payroll deductions.

Employers are also exempt from providing schemes for employees under 18, those who are within five years of retirement, those earning below the National Insurance lower earnings limit and those eligible to join an occupational pension scheme after p to twelve months qualifying service.

Employees have the following options open to them:
• To contribute to an occupational pension scheme as well if they earn less than £30,000 per year

• They can use the stakeholder scheme as a top-up to an occupational pension scheme instead of Additional Voluntary Contributions (AVCs). One advantage in doing so is they will be able to take up to a 25% tax-free lump sum

• They can contribute the higher of £3,600 including tax relief (irrespective of earnings) or a proportion of their relevant earnings. The proportion is determined by age and level of earnings e.g. from 17.5% for people aged 35 or less to 40% for those aged 61 and above

• Very small contributions can be made, with £20 the minimum. These can be irregular and contributions can be from any source

• Contributions will be paid net of basic rate tax. Higher rate tax payers can claim higher rate tax relief through their annual return. People who pay no or lower rates of tax will receive relief at the basic rate even though they are not paying basic rate tax on earnings

• Benefits may be taken between the ages of 50 and 75 irrespective of whether they are still working. Up to 25% of the accumulated fund can be taken as a tax free lump sum on retirement the remainder being used to purchase an annuity.

 

Payment of Employees and the Contract of Employment

Payment of Employees and the Contract of Employment

If you wish to make deductions from employees wage packets for discipline reasons, poor workmanship, or to repay loans you must obtain the employee’s written consent in advance of any deduction being made. The contract of employment should be amended to allow deductions, but for existing employees their written consent is needed.

The guaranteed pay arrangements do not apply where employees are absent from work, even where this is perhaps not their fault e.g. heavy snowfall; rail strikes; road accidents. There is no requirement on an employer to pay wages when the person is not at work, unless the contract of employment says so e.g. sick pay when absent because of ill health. Some employers allow staff to count the day of absence as part of their holiday entitlement, or allow them to work extra hours on other days to make up the loss.

Equal Pay Considerations

Equal Pay Considerations

Equal pay problems can be anticipated and resolved by introducing an analytical job evaluation scheme into the company. Job evaluation is concerned with assessing the relative demands of different jobs within the company on the people performing them.

Only the job is evaluated not the person doing it. Job evaluation is not concerned with differences in individual performance or seniority etc, but simply with the work which anyone doing a particular job has to do.

The Equal Pay legislation requires the use of an analytical method of job evaluation i.e. one which assesses the demands a job makes on a person in terms of such factors as the skills required to perform the job satisfactorily, the responsibilities of the job for money, people, materials etc, its physical and mental requirements and working conditions for example.

Needless to say care must be taken that the scheme itself is free from bias in the factors chosen to assess jobs and the importance (i.e. weight) allocated to each factor.

The Equal Opportunities Commission have produced a Code of Practice on Equal Pay. The recommendations in this Code should be complied with unless there are good objective reasons for not doing so, otherwise any claims made under the Sex Discrimination Act and Equal Pay Act are likely to succeed where the employer has not followed the Codes recommendations.

At the heart of the Code are the Commission’s recommendations that employers adopt an equal pay policy, carry out a pay review and take action to deal with pay inequality. An internal pay review is “the most appropriate method of ensuring that a pay system delivers equal pay free from sex bias,” says the Code. It recommends an eight stage review.

The initial stages of the review require: an analysis of the pay system to produce a breakdown of all employees; the use of that data to examine each element of the pay system; and identification of any elements in the pay system which the review indicates may be a source of discrimination.

The Code gives guidance on carrying out these three stages. It looks at the particular elements of a pay system, e.g. basic pay; bonus payments, performance pay, competency-based pay etc, and highlights some of the discriminatory practices that might arise along with recommended action to address them.

Where the review finds that particular rules or practices are likely to give rise to discrimination in pay, the Code recommends that these should be changed.

Employers should, however, avoid further discrimination as a result of such a change by analysing the likely effects of such a change and rectify any discrimination, which could be caused. Once this has been done, the next stage is the introduction of equal pay for existing employees.

The pay review, however, does not end there. A system of regular monitoring should be set up to allow checks to be made to pay practices followed by the drawing up and publication of an equal pay policy.

Published: 25 May 2011

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