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2016 Budget Watch

Kristie Willis

BTMK Solicitors Limited

The recent media attention regarding the 2016 Budget has been focused on Iain Duncan Smith’s resignation and the controversy surrounding disability benefit cuts. There are, however, other important points which employers should be aware of.

The National Living Wage and Increase to the National Minimum Wage for under 25s

From 1 April 2016, the National Living Wage came into force. This will mean that workers aged 25 and over will receive £7.20 per hour. In addition, it has now been announced that the National Minimum Wage will increase from October 2016. For workers aged 21 to 24, this will increase from £6.70 to £6.95 per hour. It has been suggested that employers may attempt to minimise the effects of the National Living Wage by recruiting younger employees who will not qualify. This may amount to age discrimination and the benefit of these recruitment practices would be reduced in any event by the increase in minimum wage.

Employers should also factor into their budgets the related increases in other costs, such as national insurance contributions and pension contributions.

Research by the Social Market Foundation has suggested that more than 1.7 million self-employed workers will earn below the National Living Wage when it comes into force. Official statistics report that one in seven workers are now self-employed, therefore, a significant proportion of the workforce will be excluded from this benefit. In order to minimise the effect of these increases, businesses may seek to engage contractors rather than employees. Businesses should seek careful advice before doing this to ensure that any contractors are not actually considered workers under the National Minimum Wage rules. If employers fail to comply, the overall maximum penalty is £20,000 per worker.

The Taxation of Termination Payments

Prior to the budget, it had been reported that George Osborne considered the tax free status of termination payments up to £30,000 to be a generous allowance and that this may be open to potential taxation. The only change in the budget to the current regime, however, is that from 2018 termination payments over £30,000 will be subject to employer national insurance contributions. The whole termination payment will remain outside of the scope of employee national insurance contributions. It remains to be seen whether taxation will follow in further budgets.

The Apprenticeship Levy

This Levy was initially announced in the Autumn Statement 2015. Employers with a wage bill in excess of £3 million will pay a 0.5% levy to help fund apprenticeships from April 2017. It has now been announced that employers will receive a 10% top-up to their monthly levy contributions, which will be available for them to spend on apprenticeship training through their digital account. This top-up is in addition to the £15,000 allowance which employers will be permitted to offset against their levy payment. Few details have been announced at this stage.

Whilst small employers will be exempt from the apprenticeship levy, it is expected that they will nevertheless benefit from the government’s drive to increase funding and raise the standards of training for apprentices. Employers should await further details on the operating model.

Shared Parental Leave and Pay for Grandparents

It was announced at the Conservative Party Conference last year that the Government intended to allow grandparents to take shared parental leave. This was then affirmed in the 2016 Budget which announced that the first consultation would begin in May. Currently, only the mother’s partner is eligible for shared parental leave, whilst grandparents and other relatives are specifically excluded.

George Osborne has said that the consultation will also consider proposals for “streamlining the [shared parental leave] system, including simplifying the eligibility requirements and notification system”. This is likely to be a welcome relief to both employees and employers in light of the complexities of the current system.

This proposal will supplement the right to request flexible working, which any employee with 26 weeks service can currently request. Grandparents may request this leave in order to assist with the burden of childcare.

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