Stratis Employment Policy Update - December 2023
Introduction
In this client update as part of the Stratis Insights Series, we bring you up to date on some key employment policy and regulatory developments which we think are significant as 2024 beckons.
1. Pensions Auto-Enrolment will throw up complications
Arrangements to give effect to the proposed system of automatic enrolment in a retirement savings system are being progressed and are expected to be finalised for commencement in 2024. The ‘Heads’ of the Automatic Enrolment Retirement Savings System Bill were approved in July 2022 and PLS was completed in May 2023 and the legislation is at an advanced stage of preparation and is for priority publication shortly by the Government.
Where employers with existing pension schemes, are exempt from auto-enrolment (AE) they are likely to have employees, in those schemes across a range of different tax bands. The proposed AE state incentive is more valuable than tax relief at 20%, but less valuable than tax relief at 40%, so those on the lower rate of tax may eventually find it more valuable to be in the new scheme. Hence, employers will have to consider the potential pension outcomes for these different groups.
A further complication is that in assessing the existing schemes compared to AE the existing pensions tend to be based on gross salary, while AE will be based on the higher figure of total earnings.
To avoid the risks of running two parallel schemes, an employer could decide to make their existing scheme compulsory if it has been voluntary up to now. This may well be a change to the employee’s terms and conditions and may require written consent, or deductions for the pension scheme may be a breach of the Payment of Wages Act.
Alternatively, the employer could create a part of the company pension scheme, which is an exact mirror of the AE scheme, including the same contribution rates, opt-outs etc. but make membership compulsory for those not in the existing scheme.
Under the proposal for AE, anyone not in an existing scheme will be automatically enrolled in the new scheme. This has implications for employers who have waiting periods before joining an existing scheme (often aligned with probationary periods) or who give employees a voluntary choice as to whether they join the existing schemes. Those employers, who don’t want some employees in AE and some in an existing scheme, will need to consider these issues.
Initially, all members of existing schemes will be exempt, when contributions to AE will be low, regardless of the contribution rates of the scheme. However, this will change later, when existing schemes will need to be able to show that they meet certain standards to be exempt.
The legislation being the Automatic Enrolment Retirement Savings Systems Bill is due before the Oireachtas and is likely to be finalised before the end of 2024 and implementation will require an administration system to be in place for over 800,000 people.
The AE scheme has the following design elements:
Private sector employees aged 23 to 60 years old earning over €20,000 pa (not already in a qualifying occupational pension scheme) will be automatically enrolled.
Contribution rates will be levied as a percentage of an employee’s gross earnings calculated on employee earnings up to €80,000.
Employees will be required to make fixed minimum contributions starting at 1.5% of gross earnings (increasing to 3% in year 4, 4.5% in year 7 and 6% in year 10).
Employers will be obliged to match employee contributions.
The State will top up employee and employer contributions (State contributions to range from 0.5% to 2% on a phased basis). This is to be dealt with as part of the establishment of the of the Central Processing Authority structure once the legislation is enacted.
Employees must remain in the scheme for 6 months and will be free to opt out at a later date.
There will be a facility to suspend or pause contributions and to leave the scheme under certain conditions.
Eligible employees who opt out or suspend contributions will be automatically re-enrolled at a later stage.
There will be limited scope to access retirement funds before retirement.
Employees who are contributing members of a qualifying scheme (i.e. one that meets prescribed minimum standards and contribution levels) will not be automatically enrolled.
An independent body, the Central Processing Authority (CPA), will be established to administer the scheme and to set standards for the scheme.
2. Sick Leave Act 2022 – Proposed Increase in Statutory Sick Days to 5 Days
The Sick Leave Act was signed into law in July 2022 and was commenced on 1 January 2023. For 2023, employees are entitled to three days paid sick leave in 2023, but this is to rise gradually to a minimum of ten days over the next four years. The entitlement is based on the calendar year.
The Minister for Enterprise, Trade and Employment has recently decided to increase the minimum statutory sick days provided for by the Act from 3 days to 5 days from 1 January 2024.
3. Work Life Balance and Miscellaneous Provisions Act 2023
The Work Life Balance and Miscellaneous Provisions Act 2023 implements the EU Directive 2019/1158 aimed at improving female workforce participation and promoting gender equality in the workforce. Whilst the legislation has been passed into law most of its provisions are being commenced through a series of commencement orders.
It gives parents and carers the right to request flexible work and introduces legal protections for workers in the exercise of these rights.
It also introduces unpaid leave for medical care reasons, paid leave for victims of domestic violence and give employees a right to request remote working.
Right to request remote working for caring purposes - The Act provides for the right to request remote working for caring purposes subject to the following:
Remote working cannot start until the employee has 26 weeks continuous service.
An employer will have at least 8 weeks’ notice of the proposed start of the flexibility arrangement being sought.
The employer must consider the request and have regard to the employee’s needs. The employer can postpone, curtail or vary the proposed arrangement and can refuse the request for reasons formally provided to the employee.
If granted, the employer retains the ability to terminate it if the arrangement is having or would have a substantial adverse effect on the employer’s business.
The anti-abuse provisions allow an employer to terminate the flexibility granted if there are reasonable grounds for believing the arrangement is being used for purposes other than those for which it was approved.
The right of parents and carers to request flexible working is confined to employees who are parents of children up to 12 years old (extended to 16 if the child has a disability or long-term illness) and to carers.
The Government is to review these arrangements after two years.
Right to request remote working - Under the Act:
An employee with at least 26 weeks’ continuous employment may, request remote working from their employer, at least 8 weeks before the start of the proposed remote working arrangement.
The employer must consider both the business needs and those of the employee and the requirements of the code of practice (to be prepared by the WRC).
The employer must then either approve, reject or extend the reply time (by up to 8 weeks) for responding to the request, within 4 weeks of the request.
Provides for the termination or possibility to change or postpone an agreed remote working arrangement.
Contains anti-abuse provisions and protection against penalisation of employees who seek to or who exercise the right to request remote working.
Medical Care Leave
The Act creates an entitlement of up to 5 days’ annual unpaid medical care leave for parents which is in addition to the existing entitlement to unpaid parental leave of 26 weeks for parents of children up to the age of 12 has been in place in Ireland since 2020. The new entitlement also extends to workers caring for spouses or civil partners, co-habitees and direct family members including parents, siblings and grandparents where the relative in question is in need of significant care or support for a serious medical reason.
All employees will have an entitlement to five days of unpaid leave per year where, for serious medical reasons, the employee needs to provide personal care or support to a family member, or person they live with and who needs significant care or support for a serious medical reason. The leave may not be taken in periods of less than one day and employees must, as soon as is reasonably practicable, confirm to their employer in writing that they have taken or intend to take this leave, the date of commencement, duration and a statement of the facts entitling the employee to the leave. There is no minimum service requirement for this new leave.
These changes came into effect since July 3rd, 2023.
Domestic Violence Leave
The Act provides for paid domestic violence leave of up to 5 days' paid leave in any consecutive 12-month period. The leave will be paid by the employer at the full rate of pay of the employee (known as Domestic Violence Leave Pay). The Minister for Children, Equality, Disability, Integration and Youth commenced the domestic violence leave provisions from 27th November 2023. The leave applies to any person of any age who works under a contract of employment, including part-time and fixed-term employees. There is no service requirement and so the entitlement can be taken from their first day of employment should the need arise. There is no requirement for employees to provide evidence to support their need to take domestic violence leave.
Extension of breastfeeding facilitation period
The Act amends the Maternity Protection Act 1994 to extend the period during which an employee must be facilitated in breastfeeding from 26 weeks to 104 weeks following the birth of the child. During this period, an employee may reduce her working hours or receive paid time off for breastfeeding purposes.
The Act extends the existing maternity leave entitlements to transgender men and breastfeeding break entitlements will be extended to two years post birth. These changes came into effect on July 3rd, 2023.
Note – A Code of Practice is being prepared by the WRC to give guidance on the Right to Request Remote Working and/or Flexible Working and is expected to be available in early 2024.
4. National Minimum Wage and Progress towards a Living Wage
The Government as part of Budget 2024 confirmed the increase in the NMW from €11.30 by 12.4% or €1.40 per hour to €12.70 from 01.01.24 alongside changes to PRSI and USC. The Low Pay Commission is also considering sub minimum wage rates which could mean that the NMW will apply from age 18 instead of age 21 currently.
Businesses are also facing the introduction of a national living wage by 2026 (likely to be set at 60% of the median wage would equate to €13.70 in 2026). The indicative increased living wage rate for 2023/24 has recently been published by the ‘Living Wage Technical Group’ as €14.80 per hour. This is at a time when businesses had to absorb the introduction of statutory sick pay this year, changes to parental leave and parents’ benefits legislation, and a proposal to introduce a pensions auto enrolment scheme amongst others. The cost impact of the Pensions AE system for employers, particularly those in the Wholesale and Retail Trade sector, will also be among the most impacted by moves toward the living wage is likely to be significant. Whilst these are intended to improve working conditions and bring Ireland into line with other OECD and EU countries, these could increase average labour costs by up to 10% over the next 10-year period and are already placing additional burdens on employers.
Growth in Hourly Labour Costs, 2022 (NCPC September 2023 Report, Page 32)
Timeline for roll-out across all new working condition measures
The most recent assessment of Ireland’s Competitiveness in 2023 by the NCPC shows that overall, “between 2021 and 2022, Ireland’s total hourly labour costs increased by almost twice the euro area average (by 9.3% versus 4.7%).”
5. Changes to PRSI & Job Seekers Benefit but State Retirement Age is to stay at 66
The Government is planning to make changes to pay-related Jobseekers’ Benefits, to soften the impact for those who are made redundant.
Under the changes, there will be three rates of payment as follows:
A top rate of a maximum of €450, or 60% of prior income, for people who have made at least five years PRSI contributions. The €450 rate will be paid for the first three months.
A second rate of a maximum of €375, or 55% of prior income. This will be paid for the following three months.
A third rate of a maximum of €300, or 50% of prior income for the final three months.
If a person is still unemployed after nine months, they can apply for the basic Jobseeker’s Allowance.
The Government has also committed to keeping the State Retirement Age at 66 which has to be paid for. In Budget 2024, the Government committed to further PRSI changes, and we now know based on the PRSI Roadmap agreed by Government that from October 2024, workers and their employers will have to pay incremental increases on their PRSI contributions.
The incremental increases in all classes of PRSI (employer, employee and self-employed) to support the retention of the State Pension Age at 66 are as follows:
2024: 0.1 %
2025: 0.1 %
2026: 0.15 %
2027: 0.15 %
2028: 0.2 %
This amounts to a cumulative 0.7% PRSI increase for the average worker and will impact take home pay for workers as well as employer costs. PwC has calculated that the cost for the average worker is 90 cent a week from next October, which works out as €46.80 per year. However, after five years, this could amount to circa. €315 extra per year for an employee on €45,000 a year.
Business is increasingly concerned at the combined effect of increasing employment costs, which in addition to these proposed PRSI, also include the increase in the minimum wage, the introduction of statutory sick pay, other additional statutory leave changes and the proposed introduction of pensions auto-enrolment.
Brendan McGinty | Managing Partner
Stratis Consulting
‘Strategic Employment Relations’
M: +353 (0) 87 2433038 T: +353 (0)1 5331104
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Disclaimer: The information in this article is for general guidance only and does not constitute legal or specific case advice. The answers to specific situations will vary depending on the circumstances of each case. This is not a substitute for specific professional advice relevant to individual circumstances facing your business.
