DRAFT SOCIAL SECURITY (AMENDMENT NO. 20) (JERSEY) LAW 201-
REPORT
Introduction
The proposed Social Security (Amendment No. 20) (Jersey) Law 201- is intended to provide a basic minimum standard of protection for employees where employment has ended due to an employer’s insolvency. The intention is to promptly give employees some financial security by providing a benefit based upon a reasonable proportion of amounts owed.
This has been achieved in the form of a benefit that will sit within the existing framework of the Social Security (Jersey) Law, 1974. The rate of benefit is calculated based on components for unpaid wages, holiday pay, statutory notice pay and statutory redundancy pay.
Background
There has been considerable political and public support for a method of promptly providing some financial security in such circumstances;
- In 2000, the States of Jersey adopted the then Employment and Social Security Committee’s Proposition (P99/2000), which included as part of a programme to reform local employment legislation, the proposal that an insolvency fund would be necessary if a redundancy policy was introduced. A statutory right to redundancy pay was introduced on 1 January 2011.
- As part of a 2006 public consultation on the redundancy legislation, the Employment Forum asked respondents whether a fund should be set up to ensure that employees would receive redundancy payments due to them if their employer became insolvent. Of the 24 respondents, only two did not agree that there should be an insolvency fund for this purpose.
- Public and political interest in insolvency increased in December 2008 when Woolworths Plc. went into administration and Jersey employees were not entitled to statutory redundancy pay or compensation from an insolvency scheme. The States allocated funding to provide compensatory notice pay to these employees and further decided on 24 March 2009 that the Woolworths payments constituted a precedent and the Minister for Social Security was required to establish a system to deliver compensatory notice in similar cases of redundancy through insolvency in Jersey.
- The Minister for Social Security presented the details of a temporary insolvency scheme to the States as a Report (R.44/2009) on 29 April 2009. Since that time, the Social Security Department has administered the scheme to issue compensatory notice payments in accordance with the criteria set out in the Report, as amended. The scheme has been successful in processing claims and making payments in a timely manner.
- The Department of Social Security issued a White Paper[1] in December 2009 setting out a more extensive statutory insolvency payments scheme that would entitle employees to claim notice pay as well as other sums owed to them by an insolvent employer. Most of the respondents supported and endorsed the proposals in general, and none of the respondents were opposed to the broad proposals of the scheme. The draft legislation has been prepared on the basis of those proposals, which were broadly based on Jersey’s current Temporary Insolvency Scheme, as well as on insolvency schemes already operating in the UK and Isle of Man[2].
- The proposed legislation accords with the strategic aim of the States of Jersey to support the community through the economic downturn (2009-2014 Strategic Plan) and accords with the ongoing States strategy (3.1.1 of the 2006-2011 Strategic Plan) to promote a safe, just and equitable society by giving legal rights to employees and employers.
The Social Security (Jersey) Law 1974
The formation of a scheme to provide compensatory payments to employees in insolvency situations has resulted in this proposal for an amendment to the Social Security (Jersey) Law 1974 that will establish a new ‘insolvency benefit’.
The new benefit will sit within the existing framework of the Social Security Law and subordinate legislation that establishes the benefit administration process, the requirement to provide documents, time limits for claims, collection of contributions, giving claimants the right to a re-determination of their claim and the right of appeal to the Social Security Tribunal, as well as setting up enforcement mechanisms and penalties.
Provisions will be made by Regulations and Orders, as necessary, for any other administrative details that are specific to this benefit, including the required 0.032% increase to Class 1 employer Social Security contributions[3], the timescales and forms for claims to be submitted, and any particular details that are required to validate claims in conjunction with the Viscount’s’ Department or other insolvency office holder.
Insolvency benefit
The draft amendment sets out the provisions relating to the insolvency benefit that will provide the equivalent of an insolvency payments scheme;
- The conditions that must be met for entitlement to insolvency benefit
- The components used to calculate the insolvency benefit
- The method of calculating benefit
- A mechanism to recover amounts paid in benefit via insolvency proceedings.
1. The conditions that must be satisfied to establish whether a person is entitled to insolvency benefit are –
- The person was an “employee” within the meaning of the Employment (Jersey) Law, 2003.
- The person was employed wholly or mainly in Jersey.
- The employer is bankrupt and this is the main reason for the fact that the person is no longer employed
- The employer was liable to pay Class 1 contributions in respect of that person in any one or more months in the three months prior to bankruptcy.
- The employer has not paid the person in full the amounts owed in respect of one or more of the components of this benefit.
Bankruptcy is defined to include any form of insolvency that results in an inability on the part of the employer to continue trading or to continue performing the employer’s activities, being insolvency that has occurred in Jersey or elsewhere; and has resulted in the employer’s going into administration, liquidation or receivership (however expressed) in Jersey or elsewhere, or entering into an arrangement with the employer’s creditors in Jersey or elsewhere.
2. The basic components used to calculate the insolvency benefit are -
(a) Unpaid wages – relating to the person’s employment during the 12 months that ended with the cessation of that service and defined in accordance with the Employment Law; “remuneration or earnings, however designated or calculated, capable of being expressed in terms of money and fixed by a relevant agreement or by or under an enactment, which are payable by virtue of a contract of employment by an employer to an employee for work done or to be done or for services rendered or to be rendered but does not include pensions contributions paid by the employer or any other ancillary non-monetary benefits.”
(b) Holidays and leave – relating to the 12 months prior to redundancy; amounts owed in respect of leave taken but unpaid, and accrued holiday pay which would have become payable to the employee under their contract if employment had continued until they became entitled to a holiday. Leave includes public holidays (including Christmas) and bank holidays, if those days are not already included in the total contractual holiday entitlement.
(c) Pay in lieu of a period of notice of termination of employment - based on statutory entitlements according to Part 6 of the Employment Law, up to the maximum of 12 weeks’ pay. To be entitled to this component, a person must be available for, and actively seeking, remunerative work. This component is reduced, pound for pound, by any earnings that the employee receives from new employment, and any income from Short-Term Incapacity Allowance, Maternity Allowance, Invalid Care Allowance and any additional Income Support payments made as a result of the person’s unemployment.
(d) Redundancy pay – in accordance with Part 6A of the Employment Law, which entitles a qualifying employee with 2 years continuous service to one week’s pay (capped at average earnings) for every full year of service, irrespective of age[4].
3. The insolvency benefit is calculating by adding the components that the person was owed by their former employer and making appropriate deductions, including Social Security contributions (where contributions would have been due on those sums), and any amounts owed by the person to their former employer, including where leave was taken in excess of the employee’s entitlement and any overpayment of wages.
The maximum amount of insolvency benefit that may be paid to a person is capped at £10,000. The amendment sets out the order in which the components of the benefit are paid where a person is owed more than £10,000; unpaid wages owed being given priority, followed by unpaid and untaken holiday pay, notice pay, and then redundancy pay.
Where a person recovers from their former employer any amounts in respect of the benefit that they received, they must refund that amount to the Social Security Fund.
4. The Social Security Minister automatically takes on the person’s claims for the sums paid in benefit and will pursue those amounts as a creditor when the proceeds of any remaining assets of the company are distributed amongst the creditors (the insolvency proceedings). Any sums recovered will be refunded to the Social Security Fund.
Implementation
If the States approves this Proposition, the Social Security Minister intends that subordinate legislation will be prepared later in 2011 to establish the benefit administration process, time limits, right of appeal, and the collection of contributions.
Financial and Manpower implications:
A funding requirement of £350,000 per year is estimated to be required, to include approximately 5 percent administration costs.
The Minister had proposed to achieve this by increasing Class 1 employer Social Security contribution rates (not including self-employed people and sole traders) by 0.032 percent.
However, given the difficult economic climate, the Minister intends that employer contributions will not be increased to fund the insolvency benefit in the short term and funding will be drawn from existing Social Security funds.
A small increase in employer contributions will be required to fund this benefit in the future, which will be applied at the same time as contribution increases that will become necessary as a result of the ageing population. More defined estimates of the funding requirement for the insolvency benefit will then be available based on actual benefit spend.
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