Labor and Employment Client Service Group

Transcription

1 Employing Staff in the UK Labor and Employment Client Service Group From Bryan Cave, London October 2010 This briefing sets out the main employer responsibilities in the UK. The briefing is primarily aimed at non-uk businesses establishing an initial presence in the UK. It is not intended to replace tailored legal advice but has been prepared to give Bryan Cave clients and friends an initial overview of the main issues that arise when businesses establish themselves in the UK for the first time. Immigration issues As a general rule, most overseas nationals from outside the European Economic Area and Switzerland require approval from the UK Border Agency ( UKBA ) to work in the UK, although there are some exceptions. The UKBA has now established a points-based system which is used to determine whether overseas applicants will be allowed to enter and work in the UK. Currently there are five tiers in the pointsbased system as follows: Tier 1: Highly skilled workers and post-study workers Tier 2: Sponsored skilled workers with a job offer (previously Work Permit holders) Tier 3: Low skilled workers (this tier is currently suspended) Tier 4: Students Tier 5: Temporary workers (e.g. Sponsored researchers and Youth Mobility Scheme) Each tier requires an applicant to score a sufficient number of points to gain entry clearance or to extend his or her leave to remain in the UK. Points are awarded for various criteria specific to each tier. In all tiers, points are awarded for criteria which indicates that the individual is likely to comply with immigration requirements. All migrants applying under tiers 2-5 are required to have sponsorship from a licensed sponsor (an employer or educational institution). Highly skilled tier 1 migrants do not require a job offer and thus do not require sponsorship. There are also certain other visa options for certain classes of person. For example, entrepreneurs with sufficient funds may be able to enter the UK to establish a business, and Commonwealth citizens with UK ancestry (e.g. a grandparent born in the UK) may be able to apply for permission to live and work in the UK for a period of up to five years without restrictions. In addition, temporary visitors are normally allowed to enter the UK for brief periods of time for business purposes. Setting up a local employer There is no requirement under UK law for there to be a local entity to employ staff in the UK (or for a foreign entity to establish a UK branch or other presence), however a failure to have a local UK entity as the employer may complicate immigration applications (see above) and tax matters (see below).

2 Employees vs- self-employed contractors The UK adopts the same distinction between employees and self-employed contractors as most other Western (common law) jurisdictions. New staff sometimes ask to be hired as self-employed contractors, rather than employees, because they expect to make significant personal tax savings in doing so. This can be easily documented but the contractual relationship between the employer client and the contractor must be set up correctly. The distinction between employee and self-employed contractor is also often misused in the UK. If a self-employed contractor relationship does not meet certain tests on a day-to-day basis in respect of how it operates, there can be significant tax and other disadvantages for both parties. The rest of this briefing deals with employees rather than self-employed contractors. Written contracts of employment There is no requirement in the UK for any employee to have a written contract of employment, but it would be very unusual not to have one. It is also advisable because if there is no written contract of employment, UK courts will imply certain terms and conditions (such as a reasonable notice period) that may be vague or not suit the employer. However, by law all employers must provide employees with a written summary of the employee s key terms of employment within two months of commencing employment (this is called a Statement of Particulars ). A failure to provide a Statement of Particulars may lead to the employer receiving a penalty of two-four weeks capped pay per affected employee. A Statement of Particulars must include the following information: the employee s job title the employee s place of work any holiday entitlement any sick pay entitlement the employee s wages the date the employee started with the group 1 a reference to applicable disciplinary, dismissal and/or grievance procedure if the job is temporary, details of the expected duration period the employee s normal hours of work certain details relating to pension provisions the employee s notice entitlement 1 The UK uses the term continuous employment to refer to the date an employee started with the employer or (if earlier) an associated entity (including entities acquired by the employer or its group). Most UK rights which depend upon length of service depend upon length of this continuous service. An employer must also provide the employee with a written statement of any change in the particulars within one month of that change. Written contracts of employment will normally suffice for this purpose and if there is no written contract the Statement of Particulars is often considered to form one. Written contracts of employment in the UK can be formed by offer letters and/or separate agreements. For executives, they are often called a service agreement instead of a contract of employment but there is no substantive difference between the two. 2

3 Health and safety All employers must take appropriate precautions to protect the health & safety of their staff in the workplace (and that of any visitors to the workplace). In addition, employers must insure against liability for personal injury or disease sustained by employees and arising out of and in the course of their employment in Great Britain. UK law currently requires employers to insure for at least 5,000,000 in respect of claims relating to any one or more employees arising out of any one occurrence. In practice, most policies available in the market are for liability of up to 10,000,000 per claim. Tax and social security contributions In the UK, pay-as-you-earn (i.e. PAYE ) is the statutory system of deducting income tax from the employment income of an employee at the time they are paid. Employers effectively act as the tax collector for HM Revenue and Customs ( HMRC ). In the event of any shortfall, HMRC is entitled to recover the loss against the employer directly (plus a penalty based on a sliding-scale percentage of the underpayment). The employer can then seek to recover from the employee concerned, if possible. New employers in the UK usually set up a relationship with a payroll service provider to undertake the administration of paying remuneration and liaising with HMRC. The PAYE system applies to all payments of employment income assessable to income tax in excess of defined limits. The limits are known as the PAYE thresholds and are laid down from time to time by HMRC. The HMRC website provides useful, practical information on the PAYE system and downloadable versions of the necessary forms to be completed. Employers are provided with (among other documents) a deductions working sheet for each employee known to be earning above the PAYE thresholds. The PAYE thresholds for 2009 to 2011 are set out below. Taxable Bands Allowances ( ) ( ) Starting rate 10% 0 2, ,440 Basic rate 20% 0 37, ,400 Higher rate 40% Over 37,400 37, ,000 Additional rate 50% Not applicable Over 150,000 Employers are also charged with remitting national insurance contribu tion payments ( NICs ) to HMRC. There are two main types of NICs which employers need to remit in respect of employment income a charge on employees, deducted from their wages (11%, but subject to limits) and a charge on the employer which the employer is unable to be passed on to employees (12.8%, again subject to limits). There are other types of NICs payments which apply to (for example) self-employed contractors rather than employees. If the employing entity is not present in the UK but has other associated companies in the UK, the UKbased associates may be liable to account for NICs to HMRC under legislation which deems them to be local sponsors of the employee. Minimum terms and conditions required by law There are three key minimum terms required by UK law: the statutory minimum wage, annual holiday, and statutory minimum notice periods. The statutory minimum wage is reviewed each year and changes from 1 October. The statutory minimum wage for adult employees (aged 22+) for 1 October 2010 onwards, is The minimum annual holiday benefit for full-time workers is 28 days, including eight bank (i.e. public) holidays. This equates to a minimum annual holiday entitlement of four weeks (plus the eight bank holidays). In London and in some industries (e.g. the financial services industry) an annual entitlement of five weeks plus bank holidays is more common than the statutory minimum. 3

4 The statutory minimum notice period, for all employees, is as follows: Period of continuous service Minimum notice period One month two years One week Two years 12 years One week per year of service 12 years or more 12 weeks Any provision of a contract that is less beneficial to an employee in respect of wages or notice period, is not unlawful but is superceded by the benefits set out above. Other standard terms and conditions for UK employment contracts Set out below is a list of the usual terms and conditions contained within UK employment contracts. Some of these reflect the requirements of Statements of Particulars (see above). Standard terms and conditions found in UK employment agreements: job title holiday entitlement normal hours of work place of work sick pay entitlement health insurance, medical insurance and pension benefits basic salary and bonus arrangements any applicable disciplinary, dismissal and/or grievance procedure of the employer restrictive covenants (e.g. non-competes, non-solicits) start date and continuous service start date notice periods and (if relevant) the date the contract automatically ceases (if a temporary engagement) data protection permissions car entitlement intellectual property and confidentiality provisions provisions dealing with suspension and garden leave Sickness, working time limits, and special time off Statutory sick pay Employers are responsible for paying Statutory Sick Pay ( SSP ) to their employees for up to 28 weeks of absence due to sickness during any three year period (part of which payments can be recovered from HMRC). SSP are currently capped at per week (from April 2010). Working Time Regulations Employers must take all reasonable steps to ensure that workers do not work more than an average of 48 hours a week over a 17 week period. Employees over 18 may opt-out of the limit in writing, and it is common for contracts of employment to contain appropriate opt-out provisions. Time off work Employees have a statutory right to time off work in certain circumstances. Employees who (i) have agreed to accompany a colleague to a disciplinary or grievance hearing; (ii) have public duties (e.g. membership of statutory tribunals or local authorities); or (iii) are members of a recognised trade union and involved in industrial relations duties must also be allowed a reasonable 4

5 amount of paid time off to fulfill these responsibilities. Members of recognised trade unions are also allowed reasonable time off to take part in trade union activities which do not constitute industrial action, but there is no statutory right to pay. Employees are also allowed paid time off: (i) if they have two or more years continuous service, are being dismissed because of redundancy and need to look for new employment or training; or (ii) are pregnant and attending antenatal appointments. Bonuses UK employers often choose to incentivise an employee by way of a variable bonus, as well as a fixed base salary. Bonus schemes vary significantly and can contain discretionary and non-discretionary elements. In recent years, the UK courts have dealt with a number of high-value bonus claims, particularly in the context of discretionary payments. As a result, the UK courts place certain implied restrictions on the exercise of a discretion in the context of bonus payments. In addition, the UK regulator of financial services businesses, the Financial Services Authority (the FSA ) has recently introduced new rules on remuneration, aimed at ensuring that remuneration is aligned with appropriate risk-management strategies. The rules affect around 2,500 businesses operating in the financial services industry (including overseas businesses with a presence in the UK). Discrimination, whistle-blowing and family-friendly provisions Discrimination The Equality Act 2010 has replaced and unified existing separate discrimination legislation in the UK. Discrimination in employment is prohibited under English law on the basis of the following protected characteristics: age pregnancy/maternity race disability sex marriage/civil partnership gender reassignment religion or belief sexual orientation UK law also prohibits discrimination on the basis of an individuals association with someone who has one of the above characteristics (such as a parent being discriminated against because of his or her disabled child), as well as discrimination based on someone s perceived characteristics (such as a man perceived to be gay but who is not in reality). The legislation also has special provisions dealing with discrimination on the basis of a combination of two of the above characteristics ( dual discrimination ) as well as harassment by third parties (for which an employer may be liable if it has occurred on two or more previous occasions). Potential compensation for discrimination is uncapped, but is essentially calculated by reference to the amount of income lost by an employee who leaves his/her employment as a result of discrimination (for a reasonable period of time.) Whistle-blowing UK legislation prohibits dismissing or treating detrimentally, any worker who has blown the whistle on potential corporate wrongdoing (either past wrongdoing, current, or future). There is a detailed definition of what constitutes corporate wrongdoing for this purpose. Like the UK s discrimination legislation, the potential compensation for breach of the legislation is uncapped. Maternity leave and pay In the UK, all mothers are entitled to 52 weeks statutory maternity leave ( SML ). If a woman satisfies certain conditions she is entitled to receive statutory maternity pay ( SMP ). In particular, she must have been continuously employed by that employer for 26 weeks up to and including the 15 th week before the expected week of childbirth and have stopped working. 5

6 Paternity leave and pay Eligible employees can take up to two weeks paid statutory paternity leave ( SPL ) to care for their new baby and support the mother. Statutory Paternity Pay ( SPP ) is the same as the standard rate of maternity pay, i.e per week, or 90% of the weekly average earnings if lower. Employers can recover the amount of SPP they pay out in the same way that they can claim back SMP. Additional statutory paternity leave ( ASPL ) and additional statutory paternity leave pay ( ASPLP ) is available to eligible employees in respect of babies due on or after 3 April ASPL will allow an employee to take up to 26 weeks' leave to care for the child. However, the employee will only be able to start their ASPL 20 or more weeks after the child's birth and once their partner has returned to work from SML. The employee will only receive ASPLP during the time their partner would have been receiving SMP. The above rules apply where a child is newly placed for adoption. Parental leave Employees are entitled to take a total of 13 weeks unpaid leave for each child before its fifth birthday, or 18 weeks for a disabled child before its eighteenth birthday. Parental leave is in addition to maternity leave and paternity leave and the period of leave already taken carries over from one employer to the next. Data Protection In the UK, legislation governs the collection and processing of personal data (being information relating to a living individual who can be identified from that data, including any expression of opinion about the individual and any indication of the intentions of the employer or any other person in respect of an individual). Legislation places responsibilities on any organisation (including employers) to only collect and use personal information that it holds in a fair and proper way. The legislation is overseen and enforced by the Office of the Information Commissioner, which has published guidelines for employers to follow. There are particular limitations on the export of personal data outside the European Economic Area, and it is now common for employment contracts to contain provisions dealing with data protection issues. Ending the Relationship A contract of employment can be ended by mutual agreement or by the employer or employee giving the required notice of termination. Notice of termination The appropriate notice period for any employee is usually set out in his or her contract of employment. If it is not, then the courts imply a requirement of reasonable notice (though the parties may differ as to what is or is not reasonable in any particular case). An employee s notice period will always be at least the statutory minimum period of notice, even if the parties have agreed to a lesser notice period in the employment contract (see above). Employers can elect to release an employee immediately by making a payment-in-lieu-of-notice (often abbreviate to PILON in UK human resources terminology). Sometimes the contract of employment expressly provides for this (in which case the PILON is taxable) and sometimes it does not (in which case the PILON is probably not taxable unless it exceeds 30,000). In the UK it is also common to place executive staff on garden leave during their notice period. Garden leave is shorthand for requiring the executive to remain away from the office and to not have any business contact with other staff or clients. Garden leave is normally dealt with in the employment contract but in some cases may not be. Wrongful dismissal claims An employee will have a claim in damages if the employer, in dismissing him/ her, breaches the contract of employment. This is usually called a wrongful dismissal in the UK. 6

7 The most usual situation in which wrongful dismissal is claimed is where the employee is dismissed without the correct notice. In that situation damages are normally limited to the net amount that the employee would have earned during the minimum period of notice which the employer could have lawfully given under the terms of the contract. Unfair Dismissal An employee who has been dismissed by his employer (whether with or without notice) may be able to bring a claim for unfair dismissal before an Employment Tribunal. This is a statutory claim independent of any claim the employee may be able to bring under the employment contract for wrongful dismissal. To be eligible to bring a claim for unfair dismissal employees must first satisfy a number of conditions; in particular, they must have been employed for a continuous period of not less than one year. In the UK, a dismissal must be for a fair reason and also follow a fair procedure. Compensation is the most common remedy in the UK (in almost all cases); reinstatement to the position is very rare. Compensation is normally capped at circa 65,000 but depends on length of service, age, and how long the dismissed employee is expected to be out of work. There is no cap on compensation in discrimination or whistle-blowing cases. Redundancy Employees who are dismissed by reason of redundancy (e. g. a corporate downsizing) may be entitled to a statutory redundancy payment in addition to any other payment due under their contract. Employees must have two years continuous service before they are eligible to claim statutory redundancy payment. Additionally, employees may have an express or implied contractual right to an enhanced contractual redundancy payment. Disciplinary and Grievance Procedures The compulsory statutory procedures for handling discipline/dismissal and grievance issues introduced in October 2004 were widely criticised and were repealed in their entirety with effect from 6 April This now means that a dismissal will not be automatically unfair simply because the employer has failed to follow a particular procedure. However, the dismissal may still be unfair as Employment Tribunals will consider whether employers have acted in a broadly fair manner, and they will take into consideration the relevant code of practice on disciplinary/dismissal procedures, that has replaced the compulsory statutory procedures. A failure by either party to follow the code of practice will be taken into account by an Employment Tribunal as evidence when assessing a case. Employment Tribunals may, in certain cases,increase an award of compensation by up to 25 per cent if they find that an employer failed unreasonably to follow the guidance set out in the code, or decrease compensation by up to 25 per cent for an employee s unreasonable failure. Business and asset sales in the UK Where there is a transfer of a business or an identifiable undertaking (which includes business sales and outsourcings), the UK s Transfer of Undertakings (Protection of Employment) Regulations 2006 ( TUPE ) may apply. TUPE implements in the UK a European directive widely known as the Acquired Rights Directive. The aim of TUPE is to protect employees rights. The fundamental rights are set out below: employees assigned to the business which is transferred transfer with it (i.e. they move with the job) and become employed automatically by the buyer; the employees cannot usually be dismissed as a result of the business transfer, unless due to a legitimate downsizing by the buyer after the transfer occurs ( any such dismissal will automatically be an unfair dismissal); the terms and conditions of employment contracts cannot be varied as a result of the and 7 transfer;

8 there are certain pre-transfer consultation obligations placed on both the old and new employers regarding the transferring employees. Similar protections do not exist for acquisitions by share transfer (i.e. company sales). It should be noted that TUPE has broad application it can apply to outsourcings overseas, for example, as well as to business transfers within subsidiaries of the same holding company. To discuss this issue further, please speak to your Bryan Cave contact, or to: Darren Isaacs Rachel Lewis Direct Dial: (+44) Direct Dial: (+44) rachel.l Bryan Cave's Labor and Employment Briefings are available online This bulletin is published for the clients and friends of Bryan Cave LLP. To stop this bulletin or all future co mmercial from Bryan Cave LLP, please reply to: and either specify which bulletin you would like to stop receiving or leave the message blank to stop all future commercial from Bryan Cave LLP. Information contained herein is not to be considered as legal advice. Under the ethics rules of certain bar associations, this bulletin may be construed as an advertisement or solicitation. 8