Bigger isn't always better for business! Employment costs rise with new pay laws

July 31, 2015

Fashion employers have had a tough time in the press recently. Businesses, including big names such as Alexander McQueen and H&M, have come under fire for practices such as the use of zero-hours contracts and unpaid internships and not paying their employees the National Minimum Wage.

Whilst the Government has recently banned the use of exclusivity clauses in zero-hours contracts so that employers can no longer restrict workers engaged under a zero-hours contract from working for other employers, issues around pay look set to continue being a hot topic for the industry. This year the focus for fashion businesses is likely to be equal pay for women and the introduction of the national living wage, as well as the ongoing saga on the correct calculation of holiday pay.

Employers need to start planning how they will deal with these important issues now to avoid making the headlines for all the wrong reasons in the next 12 months.

National living wage (and other statutory rates of pay)

In the recent budget, the Government announced the introduction of the National Living Wage, which will “top-up” the existing National Minimum Wage for workers aged 25 and over. The National Living Wage will be payable from April 2016 and will start at £7.20 per hour rising to £9 per hour by 2020.

There is no change for workers aged 24 and under, who will continue to be entitled to the National Minimum Wage. This is currently £6.50 (for workers aged 21 and over), but will increase to £6.70 from 1 October 2015.

It is also worth noting some other changes to statutory rates of pay that will be introduced over the next 12 months. From 6 April 2016, rates of statutory maternity, paternity and adoption pay will increase, as will the rate of statutory sick pay. The current rates are available here and the new rates will be published on the Government’s website in due course.

Also from 6 April 2016, employers of apprentices under the age of 25 will no longer be required to pay employer National Insurance contributions on earnings up to the upper earnings limit (currently £815 per week) in respect of those employees. This measure is intended to support employers who provide apprenticeships to young people and could be a useful change for fashion businesses.

Holiday pay

In the last edition of Fashion Focus we reported on the Employment Tribunal’s decision in Lock v British Gas that sales commission must be included in the calculation of holiday pay. We are still waiting for clarity on exactly how this should be calculated and the case is expected to be heard towards the end of this year. However, employers with commission arrangements should already be thinking about their potential exposure to claims from employees for back-dated holiday pay. Similar issues arise in relation to the inclusion of overtime in the calculation of holiday pay, so this is likely to be an important issue for employers in the fashion industry. We are advising a number of employers on the strategy for dealing with claims from employees and explaining employers’ options for dealing with this issue going forward.


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