Issue 22, Oct 2009. Employment law legislation & recent changes

This month Dippalli Naik from Sydney Mitchell looks at the recent changes to Employment Law Legislation and how it could affect your business.

Changes are set for 1st October when employers are no longer able to pay tips and service charges through the payroll in order to meet the minimum wage. This change will be set to benefit those working in the restaurant trade where tipping is commonplace. But will inevitably put pressure on the employers who have historically been paying the tips through the payroll in order to make up the pay to meet minimum pay requirements.

At present Regulation 31(1)(e) of the National Minimum Wage Regulations 1999 states that service charges, tips, gratuities and cover charges that are not paid to workers through an employer's payroll do not count towards the national minimum wage. However if the payments are collected by the employer and paid through payroll they do count towards the national minimum wage. For some time many employers have used this to their advantage thereby depriving employees and workers of the tips that should by rights be additional pay. The Government has decided that this practice is unacceptable now and all different forms of tip will be prevented from counting towards national minimum wage payments.

During the initial consultation period many companies felt the changes should be delayed until the recession lifted. There was also concern over the administration of such a change within businesses as payroll systems and contracts of employment would need to be updated. Nevertheless the change is taking place in October to ensure a level playing field for all businesses.

Along with the change to tips and service charges, BERR has confirmed a rise in the Minimum Wage. The standard (adult) rate will rise to £5.80 from £5.73, the development rate will rise to £4.83 from £4.77 and the young workers rate will rise to £3.57 from £3.53.

Naturally all employers will need to ensure the changes are implemented by 1st October in order to avoid any concerns from employees that they are not being paid correctly. “These new legislation's will especially have a big impact on any business involved in the restaurant trade where tips are commonplace.” Says Dippalli Naik, employment solicitor at Sydney Mitchell. “Employers will need to ensure that systems are in place to support these changes.”

“Likewise employees will need to be advised of the change in law and encouraged to approach their employers if they have any concerns or questions about their pay or the procedures that will be implemented to ensure that tips are not counted towards their wages.”

Further changes are also being made to redundancy pay. In light of the recession and with the aim of protecting employees in the current climate, the Government are also increasing statutory redundancy pay from £350 to £380.

Given that many companies are going through redundancy programs or are planning to do so over the coming months this change could have a major impact on the size of payments to be made and the knock on effect on those businesses.

Furthermore the weekly limit is considered in the basic award of unfair dismissal claims and it is likely that the increase will be applied in such cases. Therefore respondent employers will need to be aware of the effect this rise will have on basic awards as in unfair dismissal claims this amount is generally always awarded by the Tribunals and is non-negotiable.

For more information contact Dippalli Naik at Sydney Mitchell on 0121 698 2200 or visit www.sydneymitchell.co.uk/