HR professionals need to be aware of a few legislation changes coming into force today. Craig Havard explains what you need to know.
There are only a few pieces of employment legislation coming into force on 1 October this year. These are summarised below.
1. National minimum wage: Tips
The effect of tips (and other gratuities), when calculating the minimum wage, will change on 1 October. This change in the law has arisen as a result of what has been widely viewed as sharp practice within the catering and entertainment industry.
Before the National Minimum Wage Regulations 1999 came into force, case law had determined that only tips paid by cheque or credit card and then distributed by the employer counted as remuneration. Regulation 30(a) of the National Minimum Wage Regulations 1999 states that remuneration for the purposes of calculating the minimum wage included ‘all money payments paid by the employer to the worker …’. DTI guidance notes (issued with the Regulations) interpreted this as meaning that tips paid through payroll are included in calculating the minimum wage (i.e., also including tips paid by cash).
The situation is complicated by the rules governing payment of Class 1 NICs – which are only payable if the tips are allocated by the employer to the employee. Some employer’s therefore sought to avoid liability for Class 1 NICs by coming up with avoidance schemes whereby they did not allocate the tips to staff.
In 2008 the EAT held (HMRC v Annabel’s) that tips distributed via a ‘tronc’ system could not be included in calculating the minimum wage. A tronc system operates by the employer appointing a troncmaster (usually a senior employee) to distribute tips or gratuities amongst staff (thus avoiding liability for Class 1 NICs). The troncmaster is responsible for PAYE deductions. In Annabel’s, the employers (there were a few) all operated tronc systems and argued that the tronc payroll was effectively part of their own payroll for the purposes of calculating the minimum wage (they argued this because the basic pay paid to numerous staff through the normal payroll was below the minimum wage). Effectively they wanted to have their cake and eat it: on the one hand avoiding liability for Class 1 NICs on tips, by separating tips from basic pay; yet on the other hand, trying to argue that the tips be added to basic pay when calculating remuneration for the purposes of the minimum wage.
The Court of Appeal upheld the decision in Annabel’s earlier this year.
With effect from 1 October, tips (including service charges and other gratuities) can no longer be included in calculating the NMW. This amendment comes in via regulation 5 of the National Minimum Wage Regulations 1999 (Amendment) Regulations 2009.
Query whether employers will now amend employment contracts to increase basic pay but remove or reduce entitlement of staff to receive tips, gratuities and service charges.
2. National minimum wage: Rates
2.1 The NMW rates increase with effect from 1 October, as follows:
2.1.1 Age 22 or over, from £5.73 to 5.80 per hour;
2.1.2 Age 18 to 21, £4.77 to £4.83 per hour;
2.1.3 Age 16 to 17, £3.53 to £3.57 per hour;
2.1.4 Accommodation offset, £4.46 to £4.51 per week.
3. Increase in statutory redundancy pay rate
In his April Budget, Alistair Darling announced an increase in the rate of statutory redundancy pay from £350 per week to £380 per week with effect from 1 October 2009.
Whilst this increase was much trumpeted by the government as a measure to help the beleaguered redundant masses, its effect is likely to be minimal. The increase merely brought forward the annual increase (normally effective from 1 February each year). In February 2010 there will be no increase in the rate of statutory redundancy pay.
The effect of this increase will therefore only be felt by those employees with over two years’ continuous service, who are dismissed by reason of redundancy and whose last day of employment falls between 1 October 2009 and 31 January 2010.
4. Supreme Court replaces House of Lords
The House of Lords – our supreme court, is no more. That long established bastion of the English legal system and our final appellate court (if one disregards the European Court of Justice where European law is concerned) ceased to exist in the summer.
The House of Lords is to be replaced on 1 October by the Supreme Court. The Supreme Court will be separate from Parliament, thus finally separating our judiciary from the legislature.
In practice, there is likely to be little difference, especially bearing in mind the convention that judicial law lords did not vote on legislative matters.
Craig Havard is a partner at Moorcrofts LLP
