· Features

HR reward special 7/7: legal update on employee benefits

Employment law is complex at the best of times, but when tax, benefits, fuel efficiency and parental leave come into play, HR departments can find themselves facing fresh hurdles in their bid to give staff a competitive offering. Here is our guide through the labyrinth of legislation around employee benefits and reward, current and future…

National Minimum Wage

The Low Pay Commission launched a consultation in June on the National Minimum Wage (NMW). The consultation ended this month, on 10 September, and recommendations made on the rates of NMW are due to be implemented in October 2013. The Low Pay Commission was asking for views from employers on: the level and impact of the NMW; its application in respect of young people, apprentices and interns; its application to salaried hours and the provisions in relation to accommodation offset.

A report on the NMW has also been published, Minimum Wage: Maximum Impact, which recommends that workers aged over either 25 or 30 should be paid a higher rate of NMW, as should workers in London and the South East.

Given economic uncertainty, austerity measures for years to come, and the 11% rise in the NMW as of October 2012, many employers are not going to have an appetite for a further increase in 2013. Employers will need to consider what effect an increase in NMW would have on their business and whether it would allow them to continue to operate effectively and remain sustainable. The proposals in relation to workers aged 25 or 30 and those in the London area being paid more are likely to lead to further cost pressures. Employers need to start planning now for potential recruitment in 2013.

Pensions and auto-enrolment

Employers will soon have to provide pension arrangements for employees to be automatically enrolled into. The largest companies roll out this scheme in October 2012, with smaller firms following, over a five-year period. Employers will also be required to contribute to these pension arrangements.

Employers will need to check the date their organisation is required to enrol by – which is dependent on the number of employees. This will be communicated to organisations; the provisional date can be checked on the Pension Regulator's website.

The next step will be to carry out an initial assessment of the workforce. The rules on auto-enrolment apply to all workers and not just employees aged between 22 and state pension age, working or usually working within the UK and earning above £8,105 per annum. The contract of service of all eligible workers will need to be amended to reflect this entitlement. When the employer is aware of how many individuals are entitled to be automatically enrolled, it must select a qualifying pension scheme.

Once this has been done, the organisation must register with the Pensions Regulator and be aware of the importance of keeping records for the duration of the scheme. The obligation to comply with the auto-enrolment rules sits squarely with employers. Non-compliance could lead to painful penalties.

Annual leave

A recent case that may be of interest is Asociación Nacional de Grandes Empresas de Distribución (ANGED) v Federación de Asociaciones Sindicales (FASGA) et al. The European Court of Justice was required to decide whether to issue the declaration sought by Spanish workers confirming that they were entitled to postpone pre-arranged, paid annual leave which coincided with sick leave, despite contrary provisions in collective agreements.

It was held that if a worker has to take sick leave which coincides with their paid annual leave, they are entitled to take the annual leave at a later time, irrespective of the point at which they became unable to work, even if this will be in a new leave year. This new period of annual leave may be taken outside of the normal period in which annual leave must be taken.

HR departments should be aware of this recent development and ensure this declaration is complied with, in order to avoid claims being brought against their organisation by workers who have been denied this right.

Tax credits

Following the changes introduced in April 2012 to the Working Tax Credit (WTC), which required couples to work at least 24 hours per week in order to continue to be eligible for WTC, further changes are due to come into force next year.

April 2013 will see a change in the threshold of rises in income considered for the purpose of a Tax Credit award: it will be decreased to £5,000 or more in April 2013. This lowering of the threshold may mean many taxpayers are left having made overpayments. To reduce the risk of this, changes in employees' rates of pay should be communicated to HMRC as they happen.

Company cars

On 6 April 2012, the sliding scale used to calculate tax due on company cars changed. This included abolition of the company car tax category, Qualifying Low Emission Car (QUALEC), and the lower threshold for carbon dioxide emissions was reduced. As a result, employees who have been provided with company cars that exceed this level of carbon dioxide emissions can expect to be faced with higher tax increases - and employers have been required to pay increased National Insurance contributions.

Something employers - and in particular, the HR function - may want to consider when it becomes time to renew or purchase a new lease for company cars is whether it would be practical, taking into account the environmental and monetary benefits, to select new company cars with lower emissions.

Childcare vouchers

The 2012 Budget brought changes for many higher rate taxpayers to child benefit, due to come into effect in 2013. Employees earning over £60,000 will no longer be eligible to receive this benefit and those earning over £50,000 will lose 1% of benefit for every £100 they earn over the £50,000 limit.

As a result, employers may begin to get requests from higher rate taxpayers who wish to purchase childcare vouchers using their pre-tax wage. Employees who earn just over the £50,000 limit may be looking for ways to effectively reduce their basic salary and may invest more heavily in the pension scheme.

HRDs should be aware of this and ensure it is able to deal with such requests. More employees may apply to work flexibly: working reduced hours, to bring their salary below the limit or working remotely from home, to reduce their childcare costs

Harmajinder Hayre (pictured) is partner in the employment unit at law firm Ward Haddaway and head of employment within HR magazine's HR Legal Service