Summary of Responses: White Paper – Insolvency Payments Scheme.

Respondent's comment

Minister's response

Principles

The  Jersey  Rights  Association  was concerned that employees on short-term contracts will not qualify for protection in  terms  of  statutory  redundancy payments.

Redundancy legislation has already been drafted requiring a 2 year qualifying period for entitlement to a redundancy payment. This consultation does not revisit that qualifying period. The Employment Law already gives employees some protection of continuity  of  employment  where  there  are successive  fixed-term  contracts  with  the  same employer.

Jon   Scott  noted  that  Social  Security contributions are capped at an income threshold, over which contributions are not  collected,  which  means  that employer  contributions  to  the insolvency fund will not be relative to the potential claims of their employees.

The  total  sum  that  may  be  claimed  by  an individual is capped at £10,000, which is unlikely to cover the full claims of a high-earner. However, the  matter  of  Social  Security  contributions  at higher  levels  of  earnings  (currently  above  the contributions ceiling) will be considered as part of the Fiscal Strategy Review.

Two respondents noted that the scheme protects  employees  only  if  their employment  is  terminated  when  their employer  becomes  insolvent  and suggested that the scheme could have scope  for  discretion.  Jon   Scott  noted that  employees  may  have  difficulty obtaining  compensation  from  a subsequently insolvent employer if they have  been  made  redundant  prior  to formal  insolvency.  The  Employment Lawyers  Association  (Jersey  Branch) (ELA)  shared  this  concern  and suggested that former employees could be covered by the scheme where their employment  ended  within  6 months prior to insolvency.

The  Minister  had  considered  whether  discretion should  be  available  in  such  circumstances; however  decided  that  a  line  must  be  drawn somewhere.  As  recognised  by  the  ELA,  the proposed  scheme  needs  to  be  workable  and economically viable. Any widening of the scheme would have cost implications at a difficult time for businesses.  If  the  employee's  period  of  notice takes  them  beyond  the  date  of  the  employers' insolvency, they will qualify under the proposed scheme.  If  employment  is  terminated  whilst  an employer  is  solvent,  they  may  claim  amounts owed to them via the Employment Tribunal. If the employer  subsequently  becomes  insolvent,  the employee  can  claim  amounts  owed  via  the insolvency proceedings, along with other creditors.

Payments/Administration

The  Citizens'  Advice  Bureau  (CAB) noted  that,  as  proposed,  payments  to employees  would  be  made  gross, leaving  employees  to  pay  amounts owed  to  Social  Security  and  Income Tax. CAB was concerned that this could leave employees with debt and possible loss  of  benefit  entitlement.  CAB suggested  that  deductions  should  be made prior to payment.

This is acknowledged. The paper intentionally did not address the matter in detail as it is complex and impacts on other legislation; however the Minister agrees that it may be necessary to amend other legislation  and  practices  in  order  to  achieve  an appropriate outcome in regard to the deduction of Social  Security  contributions.  The  Income  Tax Department has advised that insolvency payments should  be  made  to  employees  without  the deduction of income tax. Any tax due would be collected by the Income Tax Department from the individuals themselves.

An  anonymous  employee  respondent within the Finance Industry commented that the new insolvency fund should aim to  achieve  less  than  the  proposed £350,000  given  that  the  existing temporary insolvency scheme had paid out  less  than  half  of  its  budget  (to December  2009)  during  a  period  of economic downturn.

The  existing  temporary  scheme  only  pays  out statutory  notice  pay.  The  proposed  scheme  will cover additional amounts owed, up to £10,000 per person. The estimated cost of the scheme is based on a normal' year rather than an exceptional year such as 2009.

The  Health,  Social  Security  and Housing  Scrutiny  Panel  proposed  that the  0.032%  increase  in  employer contributions could be raised to 0.05% to allow the Department to accumulate a financial buffer as a precaution.

The  Department  has  carefully  calculated  the requirements  of  the  proposed  scheme  and  the Minister  does  not  wish  to  increase  employer's contributions more than is likely to be necessary; particularly given that there will be other pressures on the Social Security fund in the future arising from  the  ageing  population.  The  level  of contribution  to  the  insolvency  fund  may  be reviewed as necessary in the future.

Three  respondents  (John   Scott ,  the Jersey  Rights  Association  and  an anonymous employee respondent within the  Finance  Industry)  noted  that employer  contributions  to  the insolvency fund should be reviewed if funding  is  inadequate,  or  capped  if funding is excessive in future.

It is not the Minister's intention to build up the fund  significantly  whilst  continuing  to  levy  the same  percentage  increase  on  employer contributions,  unless  continued  economic downturn is predicted in the future.

Provisions  will  be  made  to  so  that  if  the  fund builds up beyond predicted requirements, funding will be reviewed. An arbitrary cap would not be useful.

The  ELA  (Jersey  Branch)  noted  that further  appointments,  additional resources and member training may be necessary  for  the  Social  Security Tribunal  to  cope  with  the  additional activity of appeals against decisions of the  Department  regarding  insolvency payments.

The  Department  has  considered  the  requirement for  the  Social  Security  Tribunal  to  be  suitably prepared and intends to conduct further research into the potential caseload of appeals.