As we approach summer, it seems appropriate to reflect on the 2016 budget which was unveiled on 16 March.
Although media attention was very much focused on the resignation of former work and pensions secretary Iain Duncan Smith and the controversy over disability benefit cuts, the Chartered Institute of Personnel and Development (CIPD) homed in on what we can expect the impact of the new budget to be on employers.
National Living Wage
On 1 April 2016, the national living wage (NLW) came into force, meaning that workers aged 25 and over are now entitled to £7.20 an hour. It has been suggested that employers may try to minimise the effects of the NLW by recruiting younger employees below the age qualification. But this may amount to age discrimination and in any case the benefit of such recruitment practices will be reduced by increases to the National Minimum Wage (NMW) announced recently. From October 2016 the NMW for workers aged 21 to 24 will increase from £6.70 to £6.95 per hour. Employers should also factor in increases in other costs, such as national insurance and pension contributions, to their staff budgets.
Reports on research by the Social Market Foundation suggest more than 1.7 million self-employed workers will earn below the NMW when it comes into force. Official statistics indicate that one in seven workers is now self-employed, so a significant proportion of the workforce will be excluded from this benefit. Businesses may wish to engage contractors, rather than employees, in order to minimise the effect of these increases, but they should seek professional advice before doing this. They would need to ensure that any contractors they use are not actually considered workers under the minimum wage rules. If employers fail to comply, the overall maximum penalty is £20,000 per worker.
Prior to the budget, it had been reported that Chancellor George Osborne considered the tax free status of termination payments (redundancy and so on) up to £30,000 to be a generous allowance and that it may be open to potential taxation. The only change in the budget to the current regime, however, is that from 2018 termination payments over £30,000 will be subject to employer National Insurance Contributions (NICs). The whole termination payment will remain outside of the scope of employee NICs. It remains to be seen whether further taxation to these payments will follow in future budgets.
The apprenticeship levy was initially announced in last year’s Autumn Statement. Employers with a wage bill in excess of £3 million will pay a 0.5 per cent levy to help fund apprenticeships from April 2017. It has now been announced that levy-paying employers will receive a 10 per cent top-up to their monthly contributions from the government which they can spend on apprenticeship training. This top-up is in addition to the £15,000 allowance that employers can offset against their levy payment but few details have been announced at this stage.
While small employers will be exempt from the apprenticeship levy, it is expected that they too will benefit from the government’s drive to increase funding and raise the standards of training for apprentices. Employers should wait for further details on the operating model due to be released next month, which should provide clarification.
Shared grandparental leave
It was announced at the Conservative party conference last year that the government intended to allow grandparents to take shared parental leave. The budget confirmed that the first consultation on this would begin in May. Currently only the mother’s partner is eligible for shared parental leave – grandparents and other relatives are specifically excluded.
Osborne has said that the consultation will also consider proposals for streamlining the current shared parental leave system, including simplifying the eligibility and notification requirements. This is likely to be a welcome relief to both employees and employers given the complexities of the system. This proposal will supplement the right to request flexible working, which any employee with 26 weeks’ service can request. Grandparents may request this leave in order to assist with childcare.