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HR Two Minute Monthly: holiday pay; reasonable adjustments; tax on termination payments


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Summary: Our September 2016 update includes a Tribunal decision that voluntary overtime can be included in holiday pay, an EAT decision that not reducing someone's salary can be a reasonable adjustment; the Government’s detailed proposals to reform tax on termination payments; and an update on where we are with the new gender pay gap reporting requirements.

No discrimination where applicant applies for job solely to bring a claim

The ECJ has considered whether a job applicant could claim protection from discrimination under the relevant European equal treatment framework directives if their application is made solely to seek compensation for discrimination, rather than to obtain employment.

In Kratzer v R & V Allgemeine Versicherung (“AV”), AV advertised for graduate trainees who had completed within the last year (or were about to complete) specific degrees. When Mr Kratzer’s application was automatically rejected for not meeting these specifications, he demanded compensation for age discrimination. AV invited him to an interview, claiming his application had been erroneously rejected. He declined to attend an interview until he had received compensation. The ECJ found that protection from discrimination applies to those "seeking employment". In its view, Mr Kratzer's demand to be compensated before he would attend an interview suggested he was not seeking employment. Accordingly, he was not a victim of, or injured by, the automatice rejection of his application, had not suffered loss or damage and was not therefore discriminated against. The ECJ also emphasized that EU law should not be used for abusive or fraudulent ends.

The ECJ’s decision endorses previous UK case law that job applications must be genuine before applicants can claim to have suffered any disadvantage.

Statutory holiday pay should include voluntary overtime if it is worked "regularly"

In Brettle v Dudley Metropolitan Borough Council, the Birmingham Employment Tribunal found that voluntary overtime payments should be included in calculating holiday pay, provided the voluntary overtime was worked regularly enough to constitute "normal pay". The Tribunal considered that one in every four or five weeks was sufficiently regular.

The Tribunal found that such payments should be excluded from holiday pay if voluntary overtime was only worked "very rarely". However, it is unclear where employers should draw the dividing line in determining whether voluntary overtime has been worked regularly enough to be included in calculating holiday pay. Whether or not voluntary overtime pay forms part of "normal pay" for holiday pay calculation purposes will need to be determined on the facts of each case. However, such payments only need to be included in calculating pay for the first 4 weeks of EU derived holiday entitlement (Regulation 13 leave) and not in respect of the additional 1.6 weeks UK law provides (Regulation 13A leave).

As this is only a Tribunal decision, it is not legally binding. It comes after the Northern Irish Court of Appeal also expressed the view in Patterson v Castlereagh that there is no reason in principle why voluntary overtime pay should not be included in statutory holiday pay.

Pay protection can be a reasonable adjustment

In G4S Cash Solutions (UK) Limited v Powell the EAT considered whether an employer can ever be required to maintain a disabled employee's former salary after transferring them to a more junior role by way of reasonable adjustment. Due to his disability, the Claimant was unable to continue working as an ATM engineer and began working in a less demanding role, initially on an unreduced salary. His employer decided to make the lesser role permanent, but at a lower rate of pay. When he refused to accept the 10% pay reduction, he was dismissed.

The EAT upheld the Tribunal’s finding that the Claimant should have continued to receive his higher salary on an indefinite basis as a reasonable adjustment, despite being employed in a lesser capacity. The EAT also found that an adjustment that is incompatible with the terms of the contract (such as one that involves a reduction in pay) cannot be made without the employee's agreement.

It is perhaps surprising that pay protection can be a reasonable adjustment given that previous case law has repeatedly stated that the purpose of disability discrimination legislation is to enable disabled employees to play as full a part as possible in the world of work, but not to treat them as objects of charity. However, the EAT emphasised that it would not be an everyday event for employers to provide long-term pay protection in such situations. It was relevant in this case that G4S had been paying the higher rate of salary for a year and the Claimant had been led to believe the arrangement was permanent. The EAT also took the view that G4S was well-resourced and could easily afford the additional cost.

Injury to feelings awards set to increase to reflect inflation

The EAT in AA Solicitors v Majid has given the green light to inflation adjust injury to feelings awards. The Claimant was dismissed for having rejected her boss's numerous sexual advances. The EAT upheld the Tribunal's decision to award her £14,000 for injury to feelings. Significantly, having not increased the Vento injury to feelings bands since 2009, the EAT announced that Employment Tribunals do not need to await further guidance from the EAT in order to adjust the guidelines for injury to feelings awards to reflect inflation. It also addressed recent conflicting decisions about whether Tribunals should apply the 10% Simmons v Castle uplift to injury for feelings awards. It said that until the Court of Appeal determines otherwise, Tribunals should also apply the 10% uplift, which has applied to general damages awards in the civil courts since Claimants were prevented from recovering success fees and after the event insurance premiums from their opponents in 2013.

The latest Retail Prices Index (RPI) published by the Office of National Statistics for July 2016 suggested an RPI increase of nearly 23% since 2009. This indicates that the upper limit of the top Vento band could now be as much as £48,700, also taking into account the 10% Simmons uplift. Employers should factor this in when assessing their potential liability for injury to feelings in discrimination claims.

HMRC publishes consultation response on simplifying tax and NICs on termination payments

On 10th August 2016, the government published its response to the consultation on simplifying tax and NICs on termination payments, together with draft legislation for further consultation. The government has indicated that, from April 2018, it will:

  • not distinguish between contractual and non-contractual payments in lieu of notice (PILONS). All PILONs will be treated as earnings subject to income tax, employer and employee NICs. There will no longer be any reason not to include a PILON clause in an employment contract.
  • retain the current exemption from income tax and employer and employee NICs for termination payments up to threshold of £30,000. However, rules for income tax and employer NICs will be aligned so employer NICs will now be payable on termination payments above £30,000, which are currently only subject to income tax.
  • remove foreign service relief (with one exception).
  • clarify that injury to feelings payments cannot benefit from the exemption for injury payments.

Note that some of the original proposals set out in the July 2015 consultation have been dropped, including:

  • introducing a variable threshold for the current £30,000 exemption based on length of service;
  • limiting the £30,000 exemption to payments made on redundancy; and
  • removal of the exemption for legal costs.

Government delays Gender Pay Gap Reporting Regulations and consults on extending reporting obligations to the public sector

The final Equality Act (Gender Pay Information) Regulations 2016 for the private and voluntary sectors were originally due to be published this summer and to come into force on 1st October 2016. The Government Equalities Office (GEO) has recently indicated that although the response to the consultation on the draft regulations will be published “in due course”, publication of the final regulations has been delayed until Autumn. The regulations are expected to come into force in April 2017, with employers to publish the first gender pay gap reports by no later than April 2018.

On 18th August 2016, the government also published a consultation on imposing gender pay gap reporting obligations to public sector employers with 250 or more employees. The proposals envisage introducing the same approach for the public sector as for the private and voluntary sector, and for the changes to be implemented within the same timescale. This would mean the first data "snapshot" being captured in April 2017 with employers publishing the relevant pay information by April 2018. The proposals contain some indicators of what changes are likely to be made in the final Regulations. You can read more on this in our blog.

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