Employers can legitimately seek to manage attendance by giving warnings where absence levels are unacceptably high. However, as this case shows, the employer must adopt a different approach where the absences are connected by an underlying disability. In such cases, the employer should seek medical advice to determine whether adjustments could be made to help improve attendance. If, after exploring all available adjustments, high absence persists, the employer should treat this as a capability, rather than disciplinary, issue. Any decision about the employee's ongoing employment must be taken against the backdrop of medical advice about whether the situation is likely to improve and clear evidence as to the impact the absence is having on the employer's business and service levels.
DL INSURANCE SERVICES LTD V O'CONNOR
Pay ratio disclosure
Draft regulations have been published which will require quoted companies with more than 250 UK employees to report pay ratio information in their annual directors' remuneration reports. The ratio information will need to compare the total remuneration of the company's CEO with the remuneration of employees at the 25th, 50th and 75th percentiles of the workforce. Going forward, it is intended that the ratio information should cover a ten-year period. In scope companies will also need to include a narrative explaining changes to the ratios from year to year, and whether the ratio is consistent with the company's policies on employee pay. The reporting duty applies in relation to the individual company's employees and also the employees of any subsidiaries. Once approved by Parliament, the requirement will apply to financial years starting on or after 1 January 2019, meaning that reporting will begin in 2020 to cover pay information from 2019.
Corporate governance for large private companies
Draft regulations have been published which will require large private companies to include a statement about their approach to corporate governance in their directors' reports. The statement will need to set out which corporate governance code the company has applied (if any), how it did so and the reasons for any departure from that code. The Financial Reporting Council is currently consulting on new corporate governance principles for large private companies which can be used for this purpose. The requirement will apply to companies that have either more than 2,000 employees or a turnover of more than £200 million and a balance sheet of more than £2 billion. Public companies which currently make a corporate governance statement would be exempt but not their large subsidiaries. Subject to Parliamentary approval, the new requirement will apply to financial years starting on or after 1 January 2019, meaning that the first statements will need to be published in 2020.
Reporting on employee engagement
Draft regulations have been published which will require all companies with at least 250 UK employees to report on employee engagement as part of their annual directors' reports. The report will need to describe what measures were taken during the financial year to introduce or develop arrangements for providing information to employees and consulting with them about decisions likely to affect them. Directors will also need to explain how they had engaged with employees and had regard to their interests, and how this has impacted on key decisions of the company. The new requirement will apply to financial years starting on or after 1 January 2019, meaning that the first reports will be published in 2020.
Tax on termination payments – did you know…?
As reported in the March 2018 Employment Update, since 6 April this year, new rules have applied to the taxation of termination payments, so that all notice payments are subject to income tax and NICs, regardless of whether there is a PILON clause in the contract. There are a few unexpected quirks in the rules which are worth highlighting:
- If the employee has any salary sacrifice arrangements, then the notice pay calculation uses the pre-sacrifice salary – so the notional notice pay on which tax is due will be higher than the actual notice pay
- If an employee is dismissed for gross misconduct, and subsequently receives a settlement payment, then the notice element of this will be taxable (even though the employee was not actually entitled to notice because of the gross misconduct)
- If the employment contract contains different notice periods from the employer and employee, then it is the notice period from the employer which is used to calculate the notice payment for tax purposes (regardless of who actually terminated the contract).
We have been working with our Incentives & Remuneration team to advise on these and similarly tricky scenarios. The new rules are detailed and employers who are making termination payments should check them carefully given the potential pitfalls.
Changes to taxing contractors?
The Government has published a consultation paper on extending rules on taxing contractors. These rules already apply in the public sector and the extension would apply them to the private sector. The so-called "off-payroll working rules" were introduced in the public sector in April 2017. Under the rules, where an individual contractor or consultant supplies their services to a public sector client via a personal services company, the client must decide whether the "IR35 legislation" applies. This broadly involves the client asking whether, without the personal services company, the individual would be regarded as an employee of the client for tax purposes. If so, the client (or the body responsible for paying the contractor's company) must deduct income tax and national insurance contributions from payments to the contractor's company.