Doing business in the UK: human resource issues

This is part 4 of 7 of our guide: 'Doing business in the UK'.

Human resource issues

In the UK, employees’ legal rights and protections are defined by a combination of their contract of employment and statutory rules and regulations. The law imposes certain minimum requirements; for example, the national minimum wage, which an employer must observe, although it is free to improve it. It is unlawful for an employer to attempt to provide less than the prescribed minimum.

Where there is no legal minimum requirement, the parties are free to agree their own terms. Not everyone who works for you will necessarily be an employee. The law recognises further categories of individuals: workers who have some but not all of the legal protections applicable to employees; and the self-employed, who have very few employment rights.

The employee contract

All employees are entitled to receive a written statement of their terms and conditions of employment from their employer within the first two months of employment. Most employers comply with this obligation by including the necessary terms in the employee’s contract of employment. This statement must contain some key terms such as the name of the employer, the employee’s job title, the rate of the employee’s pay, and any details relating to sick pay, hours of work, details of disciplinary and grievance procedures, holiday entitlement, notice periods, place of employment and any pension provision.

Any other terms and provisions regulating the relationship with the employee should also be contained in the employee’s contract of employment. It is not a legal requirement to reduce the employment contract to writing, but this is obviously advisable to avoid disputes later on. It is also advisable to have non-contractual policies, procedures and rules governing the relationship between the employer and employees.

These are usually contained in a separate staff handbook and include procedures and policies on matters such as absence reporting, expenses, company car entitlements, equal opportunities, health and safety, and any other matters particularly relevant to the employer’s business.

There are some other restrictions on the terms which can be included in an employee’s contract of employment. For example, an employer may wish to limit the ability of an employee to work for a competitor in a specified place or for a specified period of time after termination of employment. Such a clause is known as a post-termination ‘restrictive covenant’.

There are public policy restrictions on such covenants in the UK and they will only be enforceable if the employer can show that they are reasonable and necessary to protect their legitimate business interests. In addition, should the employer breach the employee’s contract of employment, such covenants w ll fall away and not be enforceable.

Statutory rights

Employees have certain employment rights and protections, which are set out in legislation including:

• limits on the number of hours worked per week
• entitlement to a minimum amount of notice on termination
• entitlement to a minimum number of paid holidays per year
• entitlement to rest periods
• entitlement to a minimum rate of hourly pay
• entitlement to family leave and pay (including for maternity, paternity and adoption)
• entitlement to parental leave
• time off for family emergencies
• entitlement to request flexible working
• protection from discrimination, harassment and victimisation on the grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation 
• protection for part time employees and fixed term workers 
• protection from unfair dismissal 
• entitlement to a statutory redundancy payment 
• protection in the event of a transfer of a business or service provision charge

Some, but not all, of these legal rights are subject to qualifying periods of employment.

Termination of employment

On termination of employment by an employer, an employee may have a claim for wrongful dismissal if the employer has terminated the employee’s employment in breach of the contract of employment, ie. by not giving (or paying in lieu) of the amount of notice provided for under the contract. An employee may also be entitled to claim unfair dismissal if they have not been dismissed for a fair reason or a fair procedure has not been followed. If the employee is dismissed because of redundancy they may also be entitled to a statutory redundancy payment. Where 20 or more employees may be dismissed at one establishment within a 90 day period, the employer will also have obligations to inform and consult on a collective basis. 

Employee data

The Data Protection Act 2018, together with the General Data Protection Regulation (GDOR), govern the way employers collect, store and process personal information concerning their employees. Issues around the processing of employee data are increasingly in the media spotlight. The Information Commissioner can take action against organisations which fail to meet their data protection obligations, for example, if there is a breach of security regarding data and this can result in negative publicity as well as,
ultimately, criminal and financial penalties.

Employers must comply with the data protection ‘principles’ set out in the GDPR when processing personal data and, in most cases, must pay a data protection fee unless they are exempt. Employees have a right of access to information about them held by their employer which must be responded to within strict time limits. There are also obligations on employers to report data breaches to both the Information Commissioner and the employee whose data is breached, in certain circumstances, again within strict time limits. 

Discrimination & equal pay

Employees, workers and self-employed contractors are protected against discrimination, harassment and victimisation on the grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation. 
Note that both older and younger people are protected against age discrimination. Discrimination can take place at any stage of the employment process – in advertising and recruiting, in the terms of employment offered, promotion, training, and discipline and dismissal. Where an individual successfully brings a claim for discrimination the employer can be ordered to pay unlimited compensation. The individual who carried out the act of discrimination may also be personally liable. An employer may be vicariously liable for the discriminatory acts of its employees in the course of their employment as well as harassment against its own employees by third parties if it does not take all reasonably  practicable steps to prevent that discrimination. A well publicised and properly implemented equal opportunities policy can help mitigate such liability.
In respect of disabled employees, an employer has a special duty to make reasonable adjustments for them to help them overcome the disadvantage caused by their disability in the workplace. Women are entitled to be paid the same as men doing work of equal value (and vice versa). Employers should ensure that there is an equal, fair and transparent pay structure in place.

Organisations with 250 or more employees are required to publish prescribed information relating to their gender pay gap i.e. the difference in average pay between men and women in the organisation.

Business transfers

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (as amended) (TUPE) protect employees where the business in which they work is transferred from one owner to another and place obligations on an employer to inform and consult on a collective basis.
Employees employed in a business immediately before a transfer automatically transfer to a purchaser of the business on the same terms and conditions upon which they were previously employed (and these cannot be changed after the transfer except in very limited circumstances). It is not possible for parties to contract out of their obligations under these regulations. 

Purchasers of a business therefore need to be aware of TUPE, as they will have an effect on the financial attractiveness of a business acquisition.
TUPE also applies where there is a service provision change. Broadly, this occurs where services are outsourced to a contractor, bought back in-house or transferred from one contractor to another. TUPE does not apply where the shares of a business are being sold, as the employees’ employer remains the same. 

Migrant workers

The UK has strict requirements in relation to the employment of workers who are immigrants from outside the European Economic Area and Switzerland, and operates a points-based immigration system. Employers who wish to employ such workers need to become licensed sponsors. Penalties for employing workers who are in the UK illegally are substantial – up to £20,000 per worker – and it is a criminal offence to employ someone knowing that they do not have the legal right to work in the UK. 
An employer can provide itself with a defence against a civil penalty if it carries out checks on certain documents before employing the worker and keeps copies of these on file. It is advisable for employers to build such checks into a recruitment procedure which is applied to all applicants, not just foreign workers. Where a worker has only limited leave to remain in the UK the employer is responsible for ongoing checks on their immigration status. 

Self-employed contractors

UK law makes a distinction between employees who are employed under a contract of employment and subject to the control of an employer, and other individuals, such as consultants, who provide services to a company on a self-employed basis. 
 
Whether a particular individual is employed or self-employed can be a complex question and ultimately is a matter for the employment tribunal: the label applied by the parties to the relationship is often of little relevance.  It can be difficult to determine this distinction. However, it is an important distinction due to differences in the tax treatment of these groups of people and their rights under employment legislation.  

Insurance

You should seek insurance advice in relation to employers’ liability insurance, which is a legal requirement for employers in the UK.

Pensions

All employers in the UK must automatically enrol their eligible workers in a pension scheme. Eligible jobholders must be enrolled into a qualifying automatic enrolment scheme, unless they are already members of a qualifying scheme. Newly established employers must comply with their auto-enrolment duty from the date their jobholders become eligible. To be eligible for auto-enrolment, a worker must qualify as a jobholder. Jobholders include permanent and temporary employees and agency workers. The worker must also be between age 22 and state pension age and earn at least £10,000 a year (in the 2019/20 tax year). 

Eligible jobholders have the right to opt out, but if they do not then the employer will eventually be obliged to pay minimum contributions of 3% of a jobholder’s earnings that fall within the qualifying earnings band each year, with combined contributions due (from employers and jobholders) of 8% of band earnings. In most cases, therefore, jobholders will be expected to pay the balance of 5% contributions, though it is possible for the employer to pay the entire 8% if it chooses.
Every year, the Department for Work and Pensions (DWP) reviews the earnings thresholds for automatic enrolment. The earnings thresholds for the current tax year can be found on the Pensions Regulator’s website.