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PPMA Annual Seminar 2017 - Reward Strategies


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This session will provide an update on where we are with all matters pay related: Progress of the Pay Spine/NLW negotiations for 2018, IR35 updates, £95k cap and £80k redundancy

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PPMA Annual Seminar 2017 - Reward Strategies

  1. 1. The NLW, exit payments and other reform Simon Pannell Principal Adviser (Employment & Negotiations) Philip Bundy Senior Employment Law Adviser 27 April 2017
  2. 2. Pay settlement for 2016 • NLW not a significant issue in 2016 • 2 year deal – 1% in each year for most with bottom- loaded amounts of up to 10% (over 2 years) to begin to meet the NLW challenge • 2.4% addition to pay bill over 2 years • Recognition of structural issues at the bottom end of the pay spine caused by likely NLW rates up to 2020 • Commitment to early work on longer term structural changes
  3. 3. The Living Wage Foundation rates • 155 councils in England, Wales and Northern Ireland apply them • For another 20 the grading structure starts above LWF rate but they have not formally adopted it • Reduction of 20 councils applying LWF rates in last 18 months – waiting to see impact/level of NLW? • London rate (£9.75) will clearly outstrip NLW • National rate (£8.45) almost certain to outstrip NLW
  4. 4. National Living Wage (1) • 60% of median hourly earnings by 2020 • OBR estimate (March 2017) of £8.75 per hour by 2020 – impact of Brexit on wages? • Political aspiration for ‘at least £9 by 2020’ – political adjustment to economic data? • If introduced now £9.00 would exceed the bottom 10 pay points • Allowing for 1% annual increases, the bottom 9 points would still be below NLW by 2020 if it is £9 per hour
  5. 5. National Living Wage (2) • About 83,000 FTE are employed on those pay points (excluding schools) • This includes about 10,000 FTE paid LWF rates • This is about 18% of FTE workforce and a far bigger proportion of headcount • Those pay points are likely to capture bottom 3 grades in council structures • Almost certain to capture 1st line supervisors of lower skilled roles (learning from LWF councils) • Reduction in differentials (e.g.23% to 6%?) • Huge impact of NLW on procured services: £2b in adult social care by 2020
  6. 6. Responses to the challenge • A new national pay spine? – Longer? Shorter? Even steps? – Delete all pay points below likely NLW in 2019-20? • Restructuring rarely cost-neutral: difficult in ER terms if headline ‘cost of living’ increases remain low • No suggestion that NLW in local government is to be paid via supplements or limited to workers aged 25+ • IDR research • Job redesign – national, regional or local activity? • Employer sounding board to support our approach
  7. 7. NJC Working Group • Technical examination of possible models – not adopting negotiating positions, but not operating in a vacuum • ‘Simple’ compliance with vastly reduced differentials in bottom third of pay spine? Anyone want single status v2? • Potential costs - assumption of no offsetting of bottom- loading? • Evening out of pay spine with assimilation to a new spine in 2019 or 2020? • Whether to achieve headroom and if so how much? • With limited headroom how can a new pay spine have a shelf life in an era of 1% pay awards?
  8. 8. • Further meetings of technical working group • Union claim (mid June?) • Consultation with councils (late June and July?) • Reaching agreement as inflation starts to increase? What next?
  9. 9. Exit pay reforms • £95k cap on exit payments • Recovery of exit payments made to those earning £80k or more and who return to public sector within 12 months • Further reforms e.g. cap of 15 months’ actual pay
  10. 10. When? • £95k cap – Consultation on draft Regs to be issued …soon? – Followed by Parliamentary process (Summer recess 20 July – 5 September) • Recovery of exit payments – Draft Regs consulted on in January 2016 – Will go before Parliament …soon? • Further reforms to be in place by end of June 2017
  11. 11. £95k cap • Applies to all public sector bodies (ONS definition: few exemptions) • What’s included? – Most payments including pay in lieu of notice – Settlement agreement payments – Costs arising from early pension access (LGPS will be amended to limit strain costs)
  12. 12. £95k cap • Exceptions – Payments for injury, death, serious illness etc, – Contractual bonuses, accrued holiday – TUPE protected entitlements – Court/ET Orders • Waiver: can be made by ‘specified person’ in line with Treasury directions • Treasury has power to increase level of cap in future
  13. 13. £95k cap • Statutory redundancy payment must be paid but flexibility in respect of payments in excess • LGPS members will be able to pay part of strain cost themselves • LGPS members will still be required to take retirement pension after redundancy even if reduced because of cap
  14. 14. £95k cap example • 58 yr old employee made redundant • Exit payments: – £35,000 redundancy payment (inc £14,370 statutory component) – £80,000 LGPS strain cost • Options: – Receive full redundancy payment and have reduced pension – Receive reduced redundancy payment and full pension – Something in between/ employee contributes to pension
  15. 15. Recovery provisions • Applies to those earning £80k or more if return to any public sector body within 12 months of leaving prior employer • Return includes as a self-employed contractor/employee of another • Must repay a proportion of exit payments • Tapering principle: always keep sum equivalent to statutory redundancy and what you would have earned in interim
  16. 16. Recovery provisions • Pro-rata for ‘part-time’ return (compared to hours worked on exit) • Includes strain on fund payments made to pension fund, but not pay in lieu of notice • Exceptions: Waiver by SoS/ prior local authority in line with Treasury directions • Implementation: will apply to exits after date in force
  17. 17. Recovery provisions • Individual must tell old and new employer of return and repay/agree repayment • New employer must not permit return until repayment/agreement in place • Old employer must keep record of exit payment for 3 years and take all reasonable steps to recover payment • If no repayment or breach of agreement new employer must consider dismissal
  18. 18. What’s next? • Further reforms announced September 2016 – Maximum tariff of three weeks’ pay per year of service – A cap of 15 months’ pay: could be lower for compulsory redundancies and higher for non- redundancies – £80k maximum salary that can be used to calculate exit payments – Tapering lump sum closer to retirement
  19. 19. What’s next? • Reducing or ending employer-funded early access to pension: three options – Capping payments at redundancy pay entitlement – Removing employer’s ability to make payments (employee could still make payment) – Increasing the minimum age at which employee may receive employer-funded early retirement. Five years before NPA or 55 or 58?
  20. 20. What’s next: implementation • Government proposes that each department responsible for a particular workforce will devise its own scheme within the framework • This will be introduced through negotiation with the trade unions, where existing schemes form part of a collective agreement • Draw up scheme by 26 December 2016 • Agreed by 26 June 2017 ?? or legislation
  21. 21. What’s next? implementation • Local government exit pay not in collective agreement • 2006 Discretionary Compensation Regulations – authority must have policy, 104 week cap • Pension legislation amendments • LGA speaking to DCLG • Proposals expected soon…
  22. 22. QUESTIONS and-hr-support