The age wage
How do the new age laws affect reward practice? Alastair Hatchett, head of pay and HR services at Incomes Data Services, offers a simple guide to what may have to change
Date:
05 April 2007
Source:
Guide to reward
Page:
12
Employment systems will undoubtedly have to change to take account of the age discrimination laws that came into force last October. Although established case law may be required before clarity emerges on best practice, HR managers will still need to be familiar with the legislation and the issues it raises. Employers will in many cases have had to review terms and conditions that have service-related elements, and thus age discrimination implications. Should long service-related incremental grade structures be changed? Are age-related pay structures acceptable? Can higher levels of holiday entitlement be service-related? Will policies on redundancy and retirement ages have to be rewritten?
The impact of the laws may be muted at present, as the government has allowed employers to continue to practice direct and indirect discrimination so long as it can be “objectively justified”. But some changes have begun to take place. The clearest example of continuing age discrimination is with the national minimum wage age bands. The government’s view is that these bands are objectively justified because they make it easier for younger workers to find employment.
So what changes in reward practice are needed? What elements can remain? We look at good practice, as well as changes that can make an employer more competitive in the recruitment market.
1 Age-related pay
Age-related pay was a feature of payment systems in the 1960s, with different rates of pay set by industry agreements and wages councils for those aged between 15 and 22.
The Equal Pay Act 1970 sounded the death knell for these different rates as employers sought to equalise rates of pay for young men and women and redefine the age of adulthood as 18. One of the ironies of the Labour government’s minimum wage legislation is that after age-related pay withered away in the ’70s and ’80s, Labour
re-introduced it in 1999 and then defended it in the context of age discrimination.
In reality, many employers in low-paying sectors have ignored the age bands offered by the minimum wage legislation and pay adult rates from age 18. Indeed, a number of retailers have moved to paying adult rates from age 16. Monsoon Accessorize, for example, used to pay 16- and 17-year-olds a lower rate than the rate payable at 18, but then equalised its junior and adult rates from June 2006. In anticipation of the age discrimination laws, Asda ended its use of junior rates from 1 October 2006, paying all sales colleagues, irrespective of age, the same hourly rate of £5.71 an hour.
On the other hand, some firms have re-introduced age-related pay for the first time, taking advantage of the minimum wage structure, including some of the high-street fast food firms.
2 Service-related progression
Pay scales with increments extending for more than five years now need to be objectively justified. Those under five years don’t have to change.
A key area where pay scales are being shortened is in the civil service, where long, broadbanded grade structures are being narrowed. In many parts of the civil service, long pay bands were seen by many to be discriminatory in terms of both gender and age. Acas moved to shorter scales in 2001 after it lost an equal pay case involving a member of staff. This female employee had compared her pay with that of a male colleague who earned £3,000 more, predominantly because of longer service in a long-service related pay structure.
Moves in recent years have typically involved civil service bargaining groups changing to simpler, more structured progression arrangements, with no more than four, five or six years between minimums and maximums, assuming satisfactory performance. In the Department for Work and Pensions, for example, pay progression for all administrative staff is now automatic and the length of time to progress from the minimum to the maximum is four years.
3 Service-related holiday entitlement
As with progression, benefits linked to length of service should be subject to a limit of five years’ service. Benefits linked to length of service exceeding five years are acceptable if there is a business case. For example, an employer might say a benefit is a reward for loyalty. Many arrangements for holiday entitlement across both the private and public sectors typically involve a basic allowance of 25 days and then further days up to around 30, dependent on length of service, with increases after five, 10, 15 and 20 years’ service. However, a small number of organisations have begun to change their holiday arrangements either to reduce the qualifying period for 30 days, or even move to 30 days within one year of service.
For example, all staff at Co-operative Financial Services moved to 25 days’ leave in their first year, and 30 days thereafter, from 1 July 2006. At the DTI, staff have moved to a basic holiday entitlement of 30 days from appointment. Changing the service criteria for longer holidays may well become a key bargaining issue in 2007-08.
4 Redundancy pay
There is no longer an upper age limit for redundancy or unfair dismissal. Older workers have the same rights as younger workers to claim unfair dismissal or receive a redundancy payment, unless in the case of a genuine retirement.
It had been thought that the regulations would remove the three age bands for calculating redundancy payments. However, ministers performed a U-turn on this and are now of the view that the practice of applying different “multipliers” to different age bands, so as to give greater financial assistance to older workers in redundancy, is justified.
Statutory terms give half a week’s pay for every year of employment under the age of 22, a week’s pay for every year between the ages of 22 and 40, and one and a half week’s pay for every year over the age of 40, subject to an overall maximum of 20 years. Where an employer offers enhanced redundancy terms, these are permitted so long as they mirror the statutory redundancy pay scheme.
5 Retirement age
There is now a national default retirement age of 65, which means that employers can no longer force someone to retire before then, unless objectively justified where there is a genuine occupational requirement. All employees have the right to request to work beyond the age of 65 or any other retirement age set by the company. An employer has a duty to consider such requests.
6 Sick pay and other benefits
Research suggests that most organisations offer sick pay over and above statutory requirements and are generally compliant with the age regulations. In most cases sick pay is an entitlement offered to all staff, irrespective of age. Where entitlement to sick pay is linked to length of service, the qualification period is generally short and would not exceed five years.