HR 2017 – 6 essential HR tasks for the New Year

6th January 2017

Given the recent pace of changes to the employment landscape, the first quarter of 2017 will see no slowdown for HR departments across the UK. Developments such as Brexit, worker status claims, gender pay reporting and the imminent General Data Protection Regulation place the focus for 2017 on assessing exposure and setting strategy.  Our employment team have prepared a checklist of 6 essential HR tasks for the New Year.

1. Assess your exposure to ‘worker status’ claims

The recent Employment Tribunal ruling that Uber taxi drivers are not self-employed but are, in fact, ‘workers’ (entitled to employment rights such as the national minimum wage (NMW) and paid holiday) sent shockwaves through many business sectors. Other ‘gig economy’ companies (e.g. Deliveroo and Citisprint) are facing a wave of new claims in the wake of the Uber decision. Companies who use the services of self-employed individuals or contractors need to assess their exposure in this field.  To read our recent article please click here.

As the Uber case showed us, an Employment Tribunal will always consider the reality of the day to day relationship between the company and the ‘self-employed’ individual, rather than the label used to describe the relationship or the terms of any written agreement. This is business critical because once an Employment Tribunal has found that an individual who was previously labelled ‘self-employed’ is in fact a ‘worker’, they can claim for:

• breach of contract in respect of a failure to pay the NMW
• unlawful deductions from wages in respect of unpaid holiday pay and/or the NMW (and a declaration to ensure they receive holiday pay/NMW going forward).
• other breaches of the Working Time Regulations such as failure to provide rest breaks.

The company may also be exposed to regulatory issues including investigation by HMRC.

We advise that employers:

• review current arrangements with self-employed individuals, such as independent contractors or consultants. We strongly recommend that your solicitors are involved in this review to ensure that any documentation that is prepared as part of this review is covered by legal privilege. Otherwise, any review documents that you produce could be shared in a future claim
• if your business is clearly exposed you may wish to make some financial provision against the risk of future claims or consider what steps could be taken to reduce the risks
• if you don’t already, keep records on all self-employed individuals working for you including the number of days and hours worked per week, what they have been paid and whether they have provided any substitutes if they are unable to provide the services themselves. This could be essential evidence in any future claims.

2. Assess exposure to overtime/commission based holiday pay claims and set a strategy

The cases of British Gas v Lock and Bear Scotland v Fulton confirmed that overtime and commission payments must be included in holiday pay calculations and the knock-on impact has been significant. Only this week, Argos is reported to have been hit with the threat of strike action over alleged unpaid holiday pay for its delivery drivers. The practical challenge for HR is in implementing this. Remember that because the EAT’s decision is based on interpretation of EU law, the requirement to include commission and overtime pay in holiday pay only applies to the 4 weeks ‘Euro-leave’ and not to the full 5.6 weeks holiday granted by the Working Time Regulations 1998. That said, some employers may find it too onerous to run two different holiday pay calculations for different periods and will therefore adopt a pragmatic approach of using the same calculation for the full 5.6 weeks.

Employers who operate commission based pay structures must continue to take stock and assess their position. There may be significant potential exposure to claims that will need to be accounted for. A strategy for calculating holiday pay (and reducing this cost) going forward will also need to be thought through.

3. Get set for gender pay reporting

The first gender pay gap reports (in respect of April 2017 pay data) will be due by 4 April 2018 and must be published for three years on the employer’s website.

The final draft of the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 has been published and will come into force on 6 April 2017. A number of important changes have been made since the previous draft Regulations published in February 2016. In particular:

• the introduction of the concept of a “full-pay relevant employee”, primarily to exclude those on sick leave or maternity leave from the hourly pay comparison
• the exclusion of partners or LLP members
• a change in the “snapshot date” from 30 to 5 April
• a clearer definition of bonus pay and a requirement to publish the difference in both the mean and median bonus figures for men and women
• clarification of how the quartile pay bands are to be calculated.

In the current climate of pay scrutiny and public awareness (brought to the fore by the large scale equal pay claims currently being heard against major supermarket retailers), employers need to be aware of any gender pay gaps in their organisation and the reasons for it. This can form the basis of a strategy to address any issues.

Employers should be finalising their preparations for their first gender pay gap reports as soon as possible in 2017. Key preparations include:

• double-check whether your organisation is ‘in scope’ (in terms of the 250 employee threshold) given that the final draft Regulations now use the broad definition of ‘employee’ from the Equality Act 2010 therefore potentially including self-employed workers, consultants and independent contractors
• ensure that you are ready for the pay ‘snapshot’ that must be taken in the pay period that covers 5 April 2017. The Regulations say that only ‘full pay’ relevant employees should be taken into account in calculating hourly pay rates (employees on reduced pay during the snapshot period are not included) so you need to be clear about who is and isn’t included
• ensure you are clear on how to calculate ‘hourly pay’. The Regulations set out 6 steps to assist with the calculation
• be clear about what you will include in your ‘bonus’ data. The new Regulations specify that securities, options and interests are included in the definition of bonus
• carry out a dry-run of your gender pay report if you have not already done so to help identify any issues or areas where action is needed.

4. Prepare for the General Data Protection Regulation (GDPR)

The GDPR comes into force on 25 May 2018. This will introduce significant changes to current data protection laws and increased penalties for non-compliance. Businesses will need to invest time in preparing for the changes well in advance.

Under the GDPR, consent for data processing must be ‘actively and freely given’ and it is unlikely that standard consent clauses in employment contracts will be sufficient. The rules on subject access requests will also change and there will be increased obligations on employers to ensure that data processing complies with the new law. For further information on this topic please click here.

5. Corporate governance – are you shipshape?

The Government’s Corporate Governance inquiry is shining the spotlight on executive pay, directors’ duties and the composition of boardrooms, including worker representation and gender balance in executive positions.

The inquiry follows the well-documented corporate governance failings identified by the inquiries into BHS and Sports Direct. The prime minister has made no secret of the fact that corporate governance is a priority for her government.  Some key questions that will be looked at by the inquiry include:

• how executive pay should take account of companies’ long-term performance
• whether executive pay should reflect the value added by executives to companies relative to more junior employees and how
• whether there is sufficient worker representation within organisations
• what more can be done to increase the number of women in executive positions on boards.

Company boards may appreciate a ‘heads-up’ from HR on these issues given the current level of political scrutiny. This is certainly one to keep an eye on as the outcome of the inquiry is likely to inform future legal changes in this area. Click here to read our recent article.

6. Be aware of immigration rule changes

2016 saw several key changes to immigration rules and employers need to stay one step ahead. The Immigration Act 2016 created a new criminal offence of illegal working. The existing offence of ‘knowingly employing an illegal migrant was widened to cover situations where an employer has ‘reasonable cause’ to believe that a person is an illegal worker. This change means that the burden of proof for prosecution has lowered significantly and conviction on indictment for this offence has also increased from two to five years imprisonment.  The Act will also introduces a provision whereby, in the case of continued breaches, a notice can be issued to shut down a place of work for up to 48 hours where there is reason to believe that illegal workers are being employed.

From April 2017, employers will be denied the National Insurance Contributions employment allowance for a period of one year if they are subject to a civil penalty for employing illegal workers. April 2017 is also when the immigration skills surcharge of £1000 per sponsored employee comes into effect.

The ongoing Brexit negotiations will have an impact on free movement of labour and UK immigration rules generally and it is essential that employers affected by this stay up to date.

If you would like any advice or assistance with any of the above topics please contact David Smedley or Andrew Rayment.