UK Business Information / Local Management/Employment

This section includes:

• Contracts of Employment
• Types of Employment Contract
• Flexible Working Arrangements
• Employee Benefits
• Visas

 

Contracts of Employment 

General

All employees are entitled by law to a written statement of the terms and conditions of their employment covering certain specified matters such as job title or description, hours of work, salary or wages, holiday entitlement, sickness procedure and pay, the date when continuous employment began, and the notice required by either party to terminate the employment relationship.  The statement should also specify relevant disciplinary rules or at least tell the employee where disciplinary rules can be found, and should also state where details of the company’s grievance procedure can be obtained. 

The objective of having a written employment contract is to ensure that both employer and employee are aware of all of the terms of their agreement but to retain a degree of flexibility.  It is, therefore, often best to refer to various policies and procedures which the employer may amend from time to time, for example:  

• Disciplinary and Grievance Procedure;
• Equal Opportunities Policy;
• Race Equality Policy;
• Smoking Policy;
• Internet Policy;
• Maternity/Parental Leave Policy;
• Harassment & Bullying Policy; and
• Social Media Policy.

Key Terms for Senior Employees  

In relation to key employees, namely those holding senior positions or those who have particular technical capabilities, providing a statement of the basic terms and conditions of employment will probably not be sufficient to properly protect the company.  The employee himself may also want to see certain additional terms in his contract.  Key terms could include the following:

• Duties - a detailed description of duties; reporting lines; obligations to provide written reports on activities; an obligation to act in the company’s best interests; and a provision allowing the company to vary his duties; all of these can be important aspects of describing the employee’s basic obligations to the company. 
• Outside interests - consider what restrictions there ought to be on the employee’s third party activities, particularly where they might compete or overlap with those of the company.
• Bonus payments - these should be drafted with particular care especially to ensure that any discretionary elements of the bonus scheme are clearly specified and that the effects of termination of employment on bonus payments are clearly stated.
• Notice of termination - especially where there is a fixed term element to the contract, it is important to be clear whether notice can be given during the fixed term, and to avoid long notice periods generally;
• Post termination restrictions -  there are strict rules governing the enforceability of clauses which seek to prevent employees competing with the company, soliciting its customers or suppliers or employees after termination of employment and therefore it is appropriate to seek legal advice on such arrangements.  It is also appropriate to include a detailed provision relating to confidentiality of information.

Unwritten Terms

Even where there is a comprehensive written contract, it is easy for unwritten terms of employment to develop by custom and practice, for example on sick leave. 

Where it becomes well known that a company always chooses to give a certain amount of sick leave, it can become an employee’s expectation that the same rules will apply to them.  If so, it can be considered a term of the contract.

Certain terms will be implied into all contracts by legislation and cannot be avoided.  These include the right to statutory sick pay in certain specified circumstances, the right to minimum notice of termination of employment and a number of rights under the Working Time Regulations.

Types of Employment Contract

A variety of employment contracts are used to ensure flexibility, including the following:

• Fixed-term contracts;
• Part-time permanent basis;
• Zero hours contracts;
• Annualised hours; and
• Agency workers.

Flexible Working Arrangements

There is no absolute right to flexible working.  Employees with 26 weeks’ service, who have a child under the age of 17 (or 18 if disabled), have the right to request to work flexibly. 

The duty is for an employer to give proper consideration to a request for flexible working from an employee.  The purpose of the change in working patterns must be to allow the employee to care for a child with whom they have an “established and continuing relationship”.  The change may be to:

• the hours or times when the employee is required to work (e.g. part-time, term-time only, alterations to shift work, job sharing, annualised hours, compressed hours or flexitime);
• where the employee is required to work (e.g. home working or teleworking); or
• any other aspect of the terms of employment.

If the request is granted it will be a permanent variation to the employee’s terms and conditions of employment.  It will continue to apply even if the employee ceases to care for the child or their childcare situation changes.  However, the employer and the employee can agree that the change will be temporary or for a trial period.

Although the purpose of the change is to allow the employee to care for the child, there is no requirement for the employee to state why the change is required.  However, if it transpires that an application has nothing to do with childcare then this may be a disciplinary issue.  Only one request is allowed every 12 months, whether or not the application is successful, which is taken as having been made on the date the employer receives it.

If the decision is to refuse the request the employer should specify the grounds for the decision with sufficient explanation and setting out the appeal procedure.  The employer can only refuse the application on one or more of the following grounds:

• Burden of additional costs;
• Detrimental effect on ability to meet customer demand;
• Inability to reorganise work among existing staff;
• Inability to recruit additional staff;
• Detrimental impact on quality;
• Detrimental impact on performance;
• Insufficiency of work during the periods the employee proposes to work;
• Planned structural changes; or
• Other reasons specified by Regulations - none have yet been specified.

An employee has the right not to be subjected to any detriment for exercising or attempting to exercise their right to request flexible working.  It will be automatically unfair to dismiss an employee on the basis that a request for flexible working has been made.

A request for flexible working may also involve issues of discrimination.  It may be indirect sex discrimination to refuse to allow a mother (usually returning from maternity leave) to work part time.  This is because a higher proportion of women than men have childcare responsibilities and therefore requiring employees to work full time imposes a provision, criterion or practice that disadvantages a substantially higher proportion of women than men.  

Employers, depending on their size and nature, may want to consider developing a policy on flexible working. 

Employees also have the right to take a "reasonable" amount of unpaid time off to take "necessary" action in certain circumstances affecting their dependants (for example, due to illness or injury). 

Employee Benefits

Benefits will normally be governed by the terms of the employment contract.  For an employee’s contractual rights, periods of continuous employment may be relevant to enhanced benefits (for example, holidays or enhanced redundancy pay) based on the length of service. 

However, age discrimination legislation means that where benefits are affected by length of service over five years, justification is required.  Employers would have to show that it reasonably appeared to them that the award of such benefits fulfilled a business need. Whether periods of employment with a previous employer count for this purpose depends on the terms in the employment contract.

For statutory rights (for example, maternity pay, unfair dismissal, statutory redundancy pay and so on) entitlement to that right might require a period of continuous employment (for example, two years' continuous service for statutory redundancy pay).

Bonuses

Bonuses are commonly based on the performance of the individual and the company, and sometimes both.  Most employers try to keep these bonuses discretionary (non-contractual), to give them greater flexibility.  However, when exercising their discretion an employer must not act perversely.

There are no statutory or regulatory restrictions on the award of bonuses at present.

Holiday

There is a statutory minimum paid holiday entitlement of 28 days per annum.  Employees are not entitled to have specific public holidays, but these are included in the 28 days general holiday allowance.

Apart from Christmas and Easter holidays, there are regional variations between England and Wales, Scotland and Northern Ireland on the dates of the remainder of the public holidays.

Sick Pay

Employers can offer any sick pay arrangement above the mandatory Statutory Sick Pay (SSP) requirements.

The mandatory Statutory Sick Pay (SSP) scheme provides for up to 28 weeks' sickness absence, which has been increased to £85.85 from 6 April 2012 (reviewed each year).  SSP entitlement is governed by a number of detailed rules, including:

• Employees only receive SSP from the fourth day of sickness.
• Whether periods of intermittent sickness count as a single sickness for SSP purposes.

If SSP and contractual sick pay are payable for the same day of sickness absence, the employee is entitled to the higher of the two figures.

Maternity

All employees are entitled to take up to 52 weeks' statutory maternity leave (SML), with a right to return to the job they held before maternity leave.  The 52 week SML period is made up of 26 weeks' ordinary maternity leave (OML) followed immediately by 26 weeks' additional maternity leave (AML).

An individual on maternity leave has the right to return to the same job. However, if more than 26 weeks' maternity is taken and it is not reasonably practicable for the employee to return to the same job, she has the right to a job which is suitable and appropriate for her in the circumstances and is of no less favourable terms than the job she held before maternity leave. An individual on maternity leave also has a priority with regards to alternative employment in a redundancy situation, the right to request flexible working conditions on her return to work, and protection from dismissal, detriment or discrimination by reason of pregnancy or maternity.

If an employee meets the qualifying criteria, including 26 weeks' continuous service as at the 15th week before the due date, she is eligible for up to 39 weeks' statutory maternity pay (SMP).  This is payable at 90% of average earnings for the first six weeks and is then the lesser of the rate set by the government each tax year, £135.45 per week being payable from 9 April 2012, or 90% of actual earnings.

Employers have a specific duty to protect the health and safety of new or expectant mothers by carrying out workplace assessments and making reasonable adjustments to their role, or offering suitable alternative work or suspension on pay, if necessary.

All pregnant employees are entitled to paid time off for antenatal care.

Paternity Pay and Paternity Leave

An employee, as defined by the relevant legislation, is eligible for statutory ordinary paternity leave (OPL) and ordinary statutory paternity pay (OSPP) if they have both:

• 26 weeks' service as at the 15th week before the due date, or the date of match in the case of adoption, and
• will have or expects to have responsibility for the upbringing of the child.

Eligible employees are entitled to take either one week or two consecutive weeks' OPL within 56 days of the birth or adoption of a child, if they are the father, adoptive parent, or spouse or partner of the mother.

OSPP is also available to eligible employees at a weekly rate which is the lesser of the prescribed rate set by the government each tax year, £135.45 per week being payable from 9 April 2012, or 90% of the employee’s normal weekly earnings.

Eligible employees with babies due on or after 3 April 2011 will also be entitled to additional paternity leave (APL).  In this case, a maximum of 26 weeks' APL can be taken at any time from 20 weeks after the birth or date of matching for adoption, but before the child's first birthday, or the first anniversary of the date of match, provided the employee’s spouse, civil partner or partner has returned to work before the end of their statutory maternity/adoption leave.

The pay for APL is equivalent to statutory maternity pay.

The government intends to introduce a new system of shared flexible parental leave in April 2015, subject to affordability.

Adoption Rights

Employees who have adopted a child through an adoption agency are entitled to take statutory adoption leave (SAL) if certain eligibility criteria are met (including the requirement for 26 weeks' continuous service as at the date of match).

SAL is made up of 26 weeks of ordinary adoption leave (OAL) and a further 26 weeks of additional adoption leave (AAL), and an individual on SAL has the right to return to the same job (or, in certain circumstances, to return to a suitable and appropriate alternative job), protection from suffering a detriment or being dismissed which relates to the SAL and also has a priority with regards to suitable alternative employment in a redundancy situation.

If a couple are adopting jointly, only one person can take SAL (the other may be entitled to statutory paternity leave and pay).  Employees may also receive statutory adoption pay (SAP) for up to 39 weeks of the lesser of the prescribed rate, or 90% of their normal weekly earnings.

Parental Rights

An employee who has both one year of continuous service and has or will have responsibility for a child, is entitled to up to 13 weeks' unpaid parental leave for each child (which is expected to increase to 4 months in March 2013 along with other changes potentially being introduced) and 18 weeks if the child is entitled to disability living allowance.  In most cases, parental leave must be taken before the child's fifth birthday, or fifth anniversary of the date of placement in the case of an adopted child, or before the child's 18th birthday in the case of a child entitled to a disability living allowance.

An individual has the right to return to the same job (or in certain cases a suitable alternative job after the expiry of the parental leave).

Pension

The state pension is made up of two parts, the basic state pension and the state second pension (S2P).  Contributions are paid in the form of national insurance contributions by both the employer and employee.  The state pension age is 65 for a man.  From 6 April 2010 the female state pension age has gradually been increased to bring it in line with the male pension age and it will have risen to 65 for all women by 2018. The government has also proposed to increase the age that all individuals qualify for the state pension, and it is planned that it will increase to 66 between November 2018 and October 2020 for both men and women and further to 67 between April 2026 and April 2028.

The basic state pension varies depending on the number of qualifying years that an individual has paid national insurance contributions.  Each year the national insurance that has been paid counts as a qualifying year. To be eligible for the maximum basic state pension a person must be credited with 30 qualifying years.

In certain circumstances employers of five or more employees have been required to provide their employees with access to a stakeholder pension plan. The employer does not have to contribute to the stakeholder pension plan. Whilst such provision may continue, the emphasis will be on the recent changes outlined in the paragraph below.

From 2012 employers will be under a new duty to automatically enrol all eligible employees into the National Employment Savings Trust (NEST) or another qualifying pension plan.  Most of the key provisions will be implemented gradually over five years starting on 1 October 2012. As with a stakeholder plan, the NEST is a defined contribution arrangement.  A minimum level of contributions will have to be paid by both the employer and the employee unless the employee specifically states he does not want to join.

Otherwise, employers are free to set up their own pension arrangements, such as a defined contribution (money purchase) scheme or defined benefit (final salary) schemes. 

Transfer of an Employee

If an employee transfers employment between associated employers (that is, companies within the same group of companies), continuity of employment is preserved, including if the previous group employer is outside the UK. 

Similarly, if a business is transferred to another employer (or there is a change of service provider), workers employed in the business at the point of transfer are automatically transferred to the new employer on their existing terms and conditions, together with their accrued period of service and the new employer inherits all rights, liabilities and obligations in relation to them. Individuals are protected from dismissal if it is in connection with a relevant transfer and there are obligations for employers to inform and consult with representatives of the affected employees.

Visas

British citizens; Commonwealth nationals who have a grandparent born in the UK and have been granted permission to come to the UK; individuals who have the right to abode in the UK or granted an indefinite leave to remain in the UK, Swiss citizens; spouses of British citizens, Swiss nationals and relevant European Economic Area (EEA) nationals; and EEA citizens do not require permission to work in the UK.  Nationals from eight of the countries that joined the EEA more recently in May 2004 (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) are no longer subject to the Worker Registration Scheme, which closed on 1 May 2011 and are thus able to work freely in the UK.  However, Romanian and Bulgarian nationals do not have an automatic right to work as an employee in the UK and must obtain permission to undertake most categories of employment.

Other foreign nationals must obtain permission before they can take up employment in the UK.  The regime currently in force is the Points-Based System (PBS).  The PBS sets out five tiers of individuals who can come to the UK to work:

• Tier 1. Highly skilled workers, entrepreneurs, investors and post-study workers,
• Tier 2. Skilled migrants with job offers to fill gaps in the UK labour market,
• Tier 3. Low skilled migrants filling specific temporary labour shortages (this category is currently on hold, but will be used if the UK is unable to meet its low-skilled labour needs)
• Tier 4. Students
• Tier 5. Temporary and exchange workers and those coming to the UK for primarily non-economic reasons

Tiers 1 and 2 are of most importance to employers.  To fall into Tier 1, applicants must reach a certain points threshold based on education, salary, age and previous UK experience.  Applicants under all tiers must demonstrate satisfactory English language skills and must show that they hold a certain level of funding.  The specific language and maintenance requirements vary for each tier.

With the exception of Tier 1 migrants, all migrants must be "sponsored" by an employer entering the UK to work.  Employers must have previously registered with the UK Border Agency (UKBA) to be a Licensed Sponsor.  Licences are applied for online.  Sponsors are subject to continuing compliance and reporting obligations and licences must be renewed every four years.  Once the sponsor has issued the migrant with a Certificate of Sponsorship, the migrant must obtain entry clearance before entering the UK.

Foreign nationals are permitted to visit the UK (with a visa if UK immigration law requires a national of that country to have a visa before travelling to the UK) for up to six months as a business visitor.  Business visitors are subject to certain restrictions.

The government introduced an annual quota in April 2011 and businesses should therefore take this into account when planning to employ migrants in certain categories.

 

This guidance is intended to provide certain information which may be of interest to an overseas company wishing to set up in the UK.  It is not intended to be a full and comprehensive guide, nor to provide any specific legal advice and it does not discuss the special rules or regulatory requirements which apply to certain special types of companies in the UK.  Professional advice should always be sought in relation to any specific situation.

 

Copyright SGH Martineau LLP

February 2011