Big employment law issues for smaller employers in 2016

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Alexandra Mizzi, Howard Kennedy LLP Last Published  08 January 2016

What SMEs should look out for in the coming year

Employment continues to be a highly politicised issue and significant changes to the law governing it have been brought in nearly every year during the last decade. This year is running true to form, and small and medium sized enterprises (SMEs) should start planning now for the most significant developments.

National living wage

Despite the name, this is best understood as an increased national minimum wage for workers aged 25 and over. The initial rate to be introduced from April 2016 will be £7.20 an hour (50p more than the current full rate). The National Living Wage will increase every year, with the aim of it being 60 per cent of median earnings. It is expected to be £9 by 2020.

This development is set to have a major impact on the retail, social care and hospitality sectors, and businesses are already looking at ways to mitigate the cost, such as reviewing other benefits (bonuses, for example), implementing staff cuts, and so on. Many staff paid at or near the minimum wage will have lost out financially as a result of changes to tax credits, so securing their agreement to bonus cuts may be tricky. Businesses need to consider carefully how to implement any such changes while staying the right side of the law. 

Pensions auto-enrolment

Although auto-enrolment has been in force for several years now, its phased introduction means that many smaller employers will only begin grappling with it in 2016 and 2017. Businesses can find out their staging date (in other words, the date by which they need to have the auto-enrolment scheme up and running) by checking on the Pensions Regulator’s website but should bear in mind that it takes a few months to select a scheme, get it set up and put the employee paperwork in place.

In most cases businesses need to start planning the process six months before their staging date. In particular, businesses need to determine which of their staff will need to be automatically enrolled and whether the business wants to use a ‘postponement period’ so staff are not automatically enrolled during their first three months of employment. Initially, the minimum employer contribution will be at 1 per cent of ‘qualifying earnings’, but this will rise over time to 3 per cent.  

Zero hours contracts

These contracts continue to be controversial but they can be a vital tool in helping smaller businesses cope with fluctuating demand. In 2015 the government introduced legislation so that exclusivity clauses in zero hours contracts banning an individual from taking on other work, were no longer enforceable. However, as many commented at the time, the legislation did not give such staff any remedy if they were dismissed or punished for taking on other work. The government has now tried to address this and regulations are coming into force on 11 January 2016 giving zero hours employees the right to bring employment claims if they are dismissed or subjected to a detriment for breaching an exclusivity clause. Commentators have already suggested that the regulations are full of loopholes, so this looks set to be a developing area of law. 

Holiday pay

Calculating holiday pay ought to be simple but 2014 and 2015 proved this certainly is not the case. Various cases are still working their way through the appeal system in relation to whether voluntary overtime and commission payments need to be included in holiday pay and how this should be calculated. Businesses should keep a careful eye on this to ensure they understand their legal obligations.

Statutory pay rates

One minor piece of good news for businesses is that Statutory Maternity Pay will not be increased this year and so will remain at its current rate of £139.58 a week (paid for 33 weeks after the employee has received six weeks’ pay at 90 per cent of her weekly earnings). 

SMEs should also bear in mind that reporting requirements on modern slavery (already in force) and the gender pay gap (due later this year) which apply to larger businesses may affect them if they have supplier contracts with bigger organisations, and they should expect these issues to play an increasing role in procurement and contract negotiations. 

Alexandra Mizzi is a senior associate in the employment team at Howard Kennedy LLP

For more information on employment law issues coming up this year, see our 'Employment law dates at a glance'