National Minimum Wage, Maternity Pay and Sick Pay to go up in April 2018
As of April 2018, the amount you will need to pay your staff will change. But what are the key changes to hourly rates and for those taking time off from work?
From 1st April 2018
National Minimum Wage and National Living Wage
Statutory payments for time off work
From 6th April 2018
Statutory Sick Pay (SSP)
SSP will increase from £89.35 per week to £92.05 per week.
A successful employment tribunal claim could cost your business more.
- Maximum statutory limit on a week’s gross pay for calculating redundancy and unfair dismissal basic award increases: from £489 to £508
- Maximum basic award for unfair dismissal and statutory redundancy increases: from £14,670 to £15,240 payment (30 weeks’ pay subject to the limit on a week’s pay)
- Unfair dismissal compensatory award maximum statutory cap increases: from £80,541 to £83,682. There’s no cap in compensation for automatically unfair dismissal claims such as whistleblowing and health & safety.
- Breach of right to be accompanied (up to 2 weeks' pay capped at the statutory amount) increases: from £978 to £1,016
- Failure to give written statement of particulars (two or four weeks’ pay capped at the statutory amount) increases: from £978 or £1,956 to £1,016 or £2,032
- Breach of flexible working regulations (up to 8 weeks' pay capped at the statutory amount) increases: from £3,912 to £4,064
Tax on severance and exit payments
Your business may decide that the best and safest way to end an employee’s employment is through a settlement agreement. In a settlement you will pay an employee their contractual notice and holiday pay. You would also pay an “ex gratia” severance payment in return for them waiving their right to bring an Employment Tribunal claim against you.
When employers enter such an agreement, they commonly pay the employee in lieu of notice, rather than the employee working out their notice period. But employers must consider income tax and National Insurance contributions (NICs) before making these payments. As this can increase the costs of settlement payments.
What’s changing for those paid lieu of notice?
From 6 April 2018, payments made to employees for a notice period they don’t have to work must be taxed before any additional tax-free severance payments can be made. This is regardless of whether or not there’s a “Pay in Lieu of Notice” (PILON) clause in the contract.
As a result these payments will be treated as earnings. They will be both taxable and subject to Class 1 NICs. They will not be subject to the £30,000 Income Tax Exemption. But they are expected to be collected as part of employers’ standard weekly or monthly payroll returns, and payments to HMRC.
Severance payments will need to be clearly divided up into:
- An amount representing notice and holiday pay (subject to income tax and Class 1 NICs)
- The remainder of the payment (payable free of tax and NICs up to £30,000 if payable as compensation for loss of employment).
These new rules will not apply to redundancy payments, which will remain tax free up to £30,000.
Employers who don’t comply with these new rules risk being pursued by HMRC for unpaid tax and NICs.
If you need any guidance or support in relation to these changes, our employment law specialists can help.