In this update, we cover new rules and limits in relation to the national minimum wage, penalties for unpaid tribunal awards, state second pension and tribunal compensation, all of which have changed in April 2016.
National minimum wage
As has been widely publicised, the new National Living Wage came into effect today. As a result, workers aged 25 or over are now entitled to be paid a minimum of £7.20 per hour.
The National Living Wage is effectively the new ‘top rate’ of the National Minimum Wage (NMW). Perhaps as a result of this, the recent announcement of the new rates of the National Minimum Wage for workers under 25 have received less publicity. It is important to be aware that these new rates for younger workers do not come into force until 1 October 2016, from which date the following minimum hourly rates will apply:
For workers aged 21 to 24, £6.95.
For workers aged 18 to 20, £5.55.
For workers under 18 but above compulsory school age, £4.00.
For apprentices aged under 19 or in the first year of their apprenticeship, £3.40.
Employers paying below the NMW currently face a fine equal to 100 per cent of the underpayment owed to each worker, but this doubles to 200 per cent of the arrears owed if the debt is not cleared within 14 days. The maximum penalty is £20,000 per underpaid worker.
The Department for Business, Skills and Innovation has written a guide on calculating the minimum wage, which can be found here.
Penalties for unpaid tribunal awards
In a bid to enforce payment of tribunal awards or settlement sums, the government has introduced new regulations imposing tougher penalties on employers who fail or refuse to pay such awards.
From 6 April 2016, employers can be given a penalty of 50% of the sum awarded, up to a maximum of £5,000. The new rules allow for the penalty to be reduced by half if the payment of the penalty (and the award) is made within 28 days of the penalty notice. The recipient of a penalty will have a right of appeal.
State second pension
From 6 April 2016, a single-tier state pension will replace the current two state pension elements, ie the basic pension and the state second pension (S2P). Until now, occupational pension schemes have been allowed to contract-out of S2P by providing similar alternative benefits to those the worker would have received under S2P. In effect, members and employers of contracted-out schemes currently pay lower rates of national insurance in return for not participating in S2P.
However, as S2P will no longer exist from 6 April 2016, occupational pension schemes will no longer have the ability to contract out of it. As such, both employers and members of contracted-out schemes will see an increase in their national insurance contributions.
There may be options for employers to offset this additional financial burden, and employers operating contracted-out schemes may wish to seek expert pensions advice.
Tribunal compensation limits
The compensation limits available for various claims at the Employment Tribunal will increase from 6 April 2016, including an increase in the maximum compensatory award from £78,335 to £78,962. The maximum amount of a week's pay, used to calculate statutory redundancy payments and the basic award for unfair dismissal, will also rise from £475 to £479.
Various other employment-related awards, entitlements and allowances will be subject to an index-linked increase on 6 April 2016. You can view the full list here: