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Human Capital Management

Changes to Parental Rights

Unfair Child Tax Credits for Self-Employed

Determining Employee Status

1) Human Capital Management

There are many factors which combine to make a great company, however, at the centre of any outstanding organisation, you will find that people are its most valuable and important asset. But a new report says that businesses are unprepared for Human Capital Management.

Taking Measures, a series of independent research-based reports, examines the link between people management and business performance and the importance of Human Capital Management (HCM) measurement.

Taking Measures, found that 82% business leaders, surveyed from 200 UK companies, now acknowledge that HCM is fundamental to the success of the business. The research also reveals that 80% of business leaders agree that reporting and measurement are central to the effective delivery of HCM.

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2) Parental Rights

The Government, as part of its commitment to providing parents with more opportunities to balance work and family life, made provisions in the Employment Act 2002 (EA) for the introduction of a range of new "family friendly" rights while extending maternity and parental leave and pay allowances, in the first of two features looking at the changes, Andrew Shapland looks at parental leave changes.

The regulations detailing changes to maternity and parental leave and introducing new entitlements to paternity and adoption leave alongside new rights to request flexible working have been implemented.

Generally, the new rules will apply in respect of children born on, or after, 6 April 2003 or whose expected week of childbirth (EWC) begins on, or after, that date and in respect of children placed or matched for adoption on, or after, that date.

In brief, this new package of benefits for working parents includes:

Changes to parental leave

Following the outcome of consultation, the government decided NOT to increase the length of notice required to request parental leave from 21 days to 28 days.

The regulations introduce the concept of isolated and consecutive periods of leave with regard to the right to return to the same job following parental leave begun on or after 6 April 2003. Under the new provisions:

Employees who return to work after an isolated period of parental leave lasting 4 weeks or less, or after a period of parental leave lasting 4 weeks or less which consecutively followed another period of statutory leave which did not include any period of additional maternity leave or additional adoption leave, are entitled to return to the same job in which they were employed before the absence.

Employees who return to work after a period of parental leave lasting more than 4 weeks, or after a period of parental leave lasting 4 weeks or less, which did consecutively follow a period of additional maternity leave or additional adoption leave are entitled to return to the same job in which they were employed before the absence or, if that is not reasonably practicable, to another job which is both suitable and appropriate in the circumstance.

Changes to maternity leave and pay

The Regulations:

Increase ordinary maternity (OML) from 18 to 26 weeks

Amend allowances for additional maternity leave (AML) which now finishes 26 weeks after the end of OML rather than 29 weeks after the birth

Decrease the qualification period for AML from one year to 26 weeks at the 15th week before the expected week of confinement

Require the employee to provide notification of the intended start date of maternity leave no later than the end of the 15th week before the expected week of childbirth, rather than 21 days before the date of commencement of leave (the employee can subsequently change this date provided the employer is given 28 days’ notice)

Require the employer to notify the employee of the date on which the ordinary (or additional if applicable) maternity leave period will end

Make allowances for maternity leave to start automatically if the employee is absent for a pregnancy related reason after the beginning of the 4th week before the expected week of childbirth

Increase the standard rate of statutory maternity pay (SMP) from £75 to £100 per week with effect from 6 April 2003 and extend the maternity pay period from 18 to 26 weeks. As at present, SMP under the new scheme is subject to earnings meeting the lower earnings limit (LET) for national insurance purposes and will be paid at 90% of average weekly earnings for the first 6 weeks, followed by the standard rate for the remaining weeks (unless 90% of average weekly earnings works out at less than £100 per week, in which case 90% of average weekly earnings will be paid for the whole of the 26 week period)

Increase the length of notice an employee must give if she intends to return to work before the end of her maternity leave entitlement from 21 to 28 days

Apply the concept of isolated and consecutive periods of leave with regard to the right to return to the same job from maternity leave

Make provision for women whose expected week of confinement begins on or after 6 April 2003 to benefit from the new rights even if their babies are actually born before that date; and

Allow women whose expected week of confinement is before 6 April 2003 to continue to be entitled to the old provisions even if their babies are actually born after that date

Introduction of adoption leave and pay

The Regulations:

Provide the right to 26 weeks’ ordinary adoption leave (OAL) followed by 26 weeks’ additional adoption leave (AAL)

Require right to OAL to be afforded to those with a qualifying period of continuous employment of not less than 26 weeks ending with the week of notification of being matched with a child by the adoption agency. No additional service is required to qualify for AAL

Provide for a standard rate of statutory adoption pay (SAP), subject to earnings meeting the LET, of £100 per week (unless 90% of average weekly earnings works out at less than £100 per week, in which case the weekly rate will be 90% of average weekly earnings) payable during the 26 weeks’ OAL

Require the employee to provide notification of the intended start date of adoption leave no more than 7 days after the date on which the employee received notification of being matched with a child (the employee can subsequently vary this date provided the employer is given 28 days’ notice)

Require the employer to notify the employee of the date on which the AAL period will end

Require an employee to give at least 28 days’ notice if intending to return to work before the end of the AAL period; and

Provide that the earliest start date for adoption leave is 14 days before the expected date of placement, the latest start date is the date on which the child is placed

Introduction of paternity leave and pay:

The Regulations:

Provide the right to take a block of either one or two weeks’ leave subject to a qualifying period of 26 weeks’ continuous service by the end of the 15th week before the EWC (or ending with the week in which the child’s adopter is notified of being matched with the child if appropriate)

Require the employee to be the father of the child; or be married to; or the partner of the child’s mother or adopter. “Partner”, in relation to the child’s mother or adopter, means a person (whether of a different sex or the same sex) who lives with the mother or adopter and the child in an enduring family relationship but is not a relative of the mother or adopter. A relative of the mother or adopter is defined as a parent, grandparent, brother, sister, aunt or uncle

Require the employee to provide notice of intention to take paternity leave by the 15th week before the expected week of confinement or, in cases of adoption, no later than 7 days after the date on which the adopter was notified of being matched with a child (the employee can subsequently vary the date of commencement of leave provided the employer is given 28 days notice); and

Require leave to be taken within 56 days of the date of birth/placement or first day of the EWC (whichever is the later)

Provide for a standard rate of statutory paternity pay (SPP), subject to earnings meeting the LET, of £100 per week (unless 90% of average weekly earnings works out at less than £100 per week, in which case the weekly rate will be 90% of average weekly earnings) payable during the paternity leave period

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3) Child Tax Credits for Self Employed

Child tax credits 'unfair on self-employed'

London, April 29 2003, (BusinessEurope.com)

"Self-employed parents could miss out on hundreds of pounds worth of tax credits if they become ill or their business suffers a downturn, an accountancy firm has warned."

Blick Rothenberg says parents should make "protective claims" now for the new child tax credits, even if they earn too much to qualify for the money.

Families with a total income of less than £58,000 are entitled to the credit, which is worth up to £545 a year for each child and more than £1,000 for newborn babies.

However, problems arise if a family starts out the tax year with an income above the claim bracket, but suffers a financial setback because of an unexpected event; like an illness or the loss of a customer.

Retrospective claims for the credit can only be backdated three-months, meaning that families could miss out on up to nine months worth of benefit.

Self-employed people are particularly vulnerable to income changes and so are most at risk, said the company.

The organisation's senior tax partner, Martin Donn, said: "A parent could begin the year with an income above the limit of £58,000 only to find at the end of the year that their income has fallen dramatically."

"This is true for anyone, but the risk is particularly great for the self-employed whose full year income can often only be accurately determined once the year has been completed by which time it is too late to make the full claim.

"That is totally unfair. The only sensible course is for all self-employed parents to make a claim at the beginning of the year irrespective of their income - past or expected," Donn added.

The new credits are designed to transfer cash aid to the carer instead of the highest earner, in many cases equating to a changeover from the father to the mother.

Donn estimates that low-income family of three with self-employed parents could lose £1,635 unless it claims at the beginning of the tax year.

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4)Determining Employment Status

Statutes do not specially distinguish between employees and the self-employed. Individuals will either fall within the definition of an 'employee' or within the wider definition of 'worker'.

To complicate matters, however, different Acts use different definitions.

The main statutory definitions are:

an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment)

employment means, employment under a contract of service or apprenticeship or a contract personally to execute any work or labour

any individual who works for another person whether under a contract of service or apprenticeship or otherwise, but does not include anyone who provides services under a contract for services

an individual who has entered into or works under:

a contract of employment; or

any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual

Employee or self-employed?

Employee status triggers a number of obligations for the employer. The ‘modern’ test for employment status was set out in the 1968 case Ready Mixed Concrete v Minister of Pensions. In that case it was held that:

a contract of service exists if three conditions are fulfilled

the servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master

he agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master

the other provisions of the contract are consistent with its being a contract of service

Mutuality of obligation

For a contract (whether of employment or self-employment) to exist at all, there must be mutuality of obligation. In other words, the employer must be obliged to provide some work and the employee must be obliged to undertake the work.

A lack of mutual obligation is most frequently found with casual and home-workers.

Tribunals will look at a number of factors to determine an individual’s employment status. However, there is no definitive formula and Employment Tribunals will weigh up the evidence.

Considerations include:

what the job advertisement said

the contract between the parties (and any offer letter)

the tax status of the worker, Schedule “D” is a strong indicator of employment; schedule “E” of self-employment

whether there are other workers doing similar duties for the employer, and whether they are employed or self-employed

Specific pointers - employee status

Existence of the following points will strongly indicate that an individual has the status of an employee:

the existence of a staff handbook or collective agreement which governs the individual’s work

provision of a formal induction, or provision of training

the employer can overrule the worker, when the worker decides how or when the job is to be done

the employer has exercised disciplinary powers over the worker, or if the worker has utilised a grievance procedure

Specific pointers - self-employed status

the worker is responsible for his own expenses, rather than being able to reclaim them from the employer

the worker works for other organisations

the worker issues invoices before receiving payment

the worker has their own business cards or advertisements

the worker had some influence over the rate of pay

If the parties agree between themselves whether the worker is an employee or self-employed, this will be a strong indicator but will not be conclusive. The ET may depart from a self-imposed label where the label is manifestly wrong, or where it has been imposed to defraud the Inland Revenue.

It has been held that the formation of a one-man limited company as an “intermediary” between employer and worker does not automatically prevent the status being that of employer/employee. However, recently the Employment Appeal Tribunal has held that if the parties choose to impose a corporate intermediary, this will prevent employment status arising.

Agency workers are commonly known as ‘temps’. The arrangement has two distinctive features. There is a contract between the worker and the agency and the client, but there is no contract between the worker and the client; and, to the extent that any control is exercised over the work being carried out by the worker, such control will be exercised by the client and not by the agency.

Previously, ETs have been prohibited from determining an agency worker as an employee (of anybody). However, following the case of Dacas v Brook Street Bureau in 2002 the door is open to determine workers as employees of their recruitment agency, irrespective of any denials to that effect in the contract between worker and agency. This may have considerable impact on potential liabilities for agencies which may find themselves liable for any actual (or even constructive) dismissals by their client companies, over which they have no control. In the absence of appropriate indemnities in their contracts with their client companies, temp agencies could find themselves liable for significant sums of money.

When engaging a worker through an agency, an employer should ensure terms exist providing:

the worker is not an employee of the employer

the agency has disciplinary control over the work

(if possible) the supply of workers though the agency is rotated

the agency should complete forms such as mortgage application forms

the agency pays the worker directly

Casual, home and outworkers

These workers cannot be categorised as employees or self-employed. The lack of mutuality of obligation indicates this. These types of worker predominantly work from home.

If mutuality of obligation does exist, it is simply a matter of applying the standard test to determine the worker’s status.

Workers under ‘zero hour contracts'

There is no legal definition of a ‘zero hour contract’. It is a name for a contract under which the employer does not guarantee to provide work and pays only for work actually done.

Very often such workers will be unable to establish mutuality of obligation.

However, they are capable of accruing continuity of employment where, in practice, they work regularly.

Officers of a company and non-executive directors

These are not employees but they are taxed as employees. Their rights and duties are defined by the office held and exist independently of the person who fills it.

Labour - only subcontractors

This is known as lump working and is often found in the construction industry. They could be classed as workers.

The rights conferred by various pieces of legislation depend on whether the individual is an ‘employee’ or a ‘worker’. A brief summary of the main legislative rights appear below:

There is also the question of tax and National Insurance contributions and vicarious liability but the greatest benefits of different working arrangements is to allow for flexibility and greater choice to enable business and staff to adjust to changes in the economy and the need to be competitive with flexible working patterns. Nevertheless it is clear that the Government is likely to extend more statutory employee protection to a greater number of workers.