Education Law Speed Read – 16/04/18

Changes to the tax treatment for payments in lieu of notice (PILON)

Pre 6 April 2018

Prior to 6 April 2018, PILONs were generally, not subject to National Insurance Contributions (NICs) and up to £30,000 of such payments could be payable tax-free. This allowed employees to be paid the value of their notice pay as a gross payment.

Whether or not a school could do this would depend on whether the employer had a contractual right to pay in lieu of notice. If they did not, such payment would generally be afforded the exemptions set out above, as it would not be classed as “earnings” under the contract. If, however, the employment contract contained a term permitting payments in lieu of notice, these would not benefit from such exemptions and the value of the notice pay would need to be taxed.

Post 6 April 2018

The key change for employers to note is that the value of all notice periods not worked will become taxable and subject to both employer and employee NICs, regardless of whether there is a contractual PILON clause, or not.

Effect

It will no longer be possible to agree that an employee leaves work without working their notice period and receives a gross payment without tax.

As such, these changes could potentially lead to increased costs for employers who, in addition to having a higher NIC liability, may have to increase the value of a termination package to take account of the increased tax and NIC liability.

There may be ways to mitigate the effect of the new rules. However, there are wide anti-avoidance provisions, so care will be needed.

This is a complicated area of law and we would advise you to get in contact if you have any queries.

Father refused enhanced shared parental pay was not discriminated against

The Equality Act 2010 stipulates that sex discrimination occurs where a person (A) treats another (B), less favourably than A treats or would treat others because of B’s sex.

However, section 13(6)(b) of the Equality Act provides that in the case where B is a man, no account is to be taken of special treatment afforded to women in connection with pregnancy or childbirth. The Courts have held that this means that women should only be treated more favourably than men, where it is reasonable to do so in order to remove the disadvantages caused by their condition.

Facts

Mr Ali was employed by Capita Customer Manager Ltd (Capita) after he TUPE transferred from Telefonica.

In February 2016, Mr Ali’s wife gave birth to a daughter, and Mr Ali immediately took his two weeks’ ordinary paternity leave. When his wife was diagnosed with post-natal depression and advised to return to work, Mr Ali decided he would stay at home to care for the baby.

Capita informed Mr Ali that under their policy, he was entitled to take Shared Parental Leave (SPL) but would only be entitled to statutory pay. Mr Ali argued that he should be entitled to the same amount of remuneration that female employees received under the enhanced maternity pay policy. Under this policy, women on maternity leave were provided with full basic pay for 14 weeks, followed by 25 weeks of statutory pay.

Capita informed Mr Ali that he would not receive full pay if he took leave, but would be paid at the statutory rate, which a woman would also receive if she took SPL. Subsequently, Mr Ali brought claims of sex discrimination against Capita to the Employment Tribunal (ET).

Employment Tribunal 

The ET found that Capita had committed direct sex discrimination, as the refusal to provide Mr Ali with enhanced pay amounted to less favourable treatment because of his sex.

The ET held that Mr Ali could compare himself with a hypothetical woman who had given birth, after the two weeks’ compulsory maternity period had passed as they would both be taking leave to care for their baby. This was because two weeks’ compulsory maternity leave was associated with the recovery of the mother after childbirth.

The ET held that section 13(6)(b) of the Equality Act did not prevent the comparison, and the enhanced redundancy pay was not special treatment in relation to pregnancy and childbirth, but instead was special treatment for caring for a baby.

Employment Appeal Tribunal

The EAT found for Capita and held there had been no sex discrimination. The EAT found that the ET had erred in deciding that the purpose of maternity leave, after the two-week compulsory period, was no longer associated with recovery from childbirth, but was for care of the newborn child. The purpose of the maternity leave legislation was to promote the wellbeing and health of the mother and these reasons were not applicable to men.

The EAT noted that the correct comparator was a woman on SPL (not a woman on maternity leave), and consequently, as women and men were given SPL on the same terms Mr Ali had not been discriminated against.

Finally, the EAT held that the ET had erred in finding that the maternity pay, which was higher than SPL, did not fall within section 13(6)(b) of the Equality Act as special treatment afforded to a woman in connection with pregnancy or childbirth.

Comment 

This decision by the EAT has clarified the conflicting case law in this area which has caused confusion for employers about whether they should be providing SPL in line with their enhanced maternity policies.

The decision should be welcomed by employers as the position is now clear: employers will not be committing sex discrimination if they provide enhanced maternity leave, but do not provide enhanced SPL as long as they provide SPL on equal terms for both sexes.

If you have any queries on the above and how it will affect you, please do not hesitate to contact a member of our education team.