Employment law changes in April 2021

IR35 reforms

This is certainly the most important change to be aware of. Having been postponed last year due to the coronavirus pandemic, the new IR35 regime will be coming into effect on 6 April this year. We have written here about what to expect from the reforms, which represent the biggest change to employment tax for decades.

New rates and limits

As usual, it’s the time of year for increases in compensation limits and statutory payments. In cases involving dismissal, the new figures will apply where the effective date of termination falls on or after 6 April 2021.

Here are the key ones:

• Unfair dismissal/redundancy pay: A statutory “week’s pay” is used for a number of different calculations, including statutory redundancy payments. The amount is capped for most purposes and, this year, the cap increases from £538 to £544. The maximum compensatory award for unfair dismissal increases from £88,519 to £89,493. Full details can be found in the Employment Rights (Increase of Limits) Order 2021.

• Statutory sick pay and family rights: SSP will go up to £96.35 a week. Statutory maternity, paternity, adoption and shared parental pay will rise from £151.20 a week to £151.97. Full details can be found in the Social Security Benefits Up-rating Order 2021.

• Vento bands: The so-called Vento bands will also increase. These operate as the parameters for injury to feelings awards in successful discrimination claims. For claims presented on or after 6 April 2021 in Employment Tribunals in England or Wales, the new Vento bands will be: lower band - £900 to £9,100 (less serious cases); middle band - £9,100 to £27,400 (cases that do not merit an award in the upper band); and upper band - £27,400 to £45,600 (the most serious cases), with the most exceptional cases capable of exceeding £45,600. Full details can be found in the Joint Presidential Guidance.

Changes to national living wage (NLW) and national minimum wage (NMW)

Following the Low Pay Commission’s recommendations, from 1 April 2021 the new NMW rates are: age 23+ (NLW) - £8.91; age 21-22 - £8.36; age 18-20 - £6.56; age 16-17 - £4.62. The apprentice rate will be £4.30. The accommodation offset will rise to £8.36 per day. These rates are set out in the National Minimum Wage (Amendment) Regulations 2021. Aside from changes to the rates, the NLW will be extended to 23 and 24-year-olds for the first time.

Post-employment notice pay

A further change will be made to the already complex formula for calculating post-employment notice pay (PENP) with effect from 6 April 2021, as a result of the Finance Bill 2021.

The PENP rules are designed to ensure that all payments in lieu of notice are subject to income tax and NICs in full. Our inbrief guide to taxation of payments in lieu of notice explains the calculations in more detail but, generally speaking, PENP is calculated using the following formula:

((BP x D)/P) -T

Where:

BP = basic pay in the pay period which ends prior to the date on which notice is given or, if no notice is given, the termination date (the relevant pay period);

D = the number of calendar days in the unworked notice period;

P = the number of calendar days in the relevant pay period or (as a result of an HMRC concession) 30.42 if this is to the employee’s advantage; the relevant pay period is a month; the employee’s salary is paid in 12 equal monthly instalments and the unworked notice period is not a number of whole months.  This useful concession means employees are not penalised if the relevant pay period has less than 31 days.

T = contractual payment in lieu of notice.

A simplified formula may be used where the employee is paid on a monthly basis; the contractual notice period is a number of whole months and the unworked notice period is a number of whole months.  Under the simplified formula D is the number of whole months in the unworked notice period and P is 1.

With effect from 6 April 2021, there are two changes:

• The HMRC concession of allowing a standard 30.42 day pay period (referred to above) will be put on a statutory footing.

• An additional condition will need to be satisfied before the simplified formula can be used.The additional condition is that the employee’s salary must be paid in 12 equal monthly instalments.This change means that the simplified formula cannot be used if the employee’s basic pay varies from month to month, although in practice this is unlikely to catch many employees.

Covid-related changes

The law and guidance continues to be updated as the situation evolves. The key changes in April 2021 are the end of shielding for the clinically extremely vulnerable in England (with effect from 1 April) and the planned move to stage 2 of the roadmap out of lockdown on 12 April. For the latest FAQs and guidance, see our Covid-19 Hub.