Benefits that employers award on the basis of length of service are widely supported. However, they can sometimes result in indirect discrimination, because older workers may be more likely to have completed the necessary length of service than younger staff.
The government appreciates the positive role benefits play in recognising experience, rewarding loyalty, providing incentives, and helping motivation. Where they are used genuinely and reasonably, we do not wish to discourage employers from offering them.
As such, we have made sure the new laws do not jeopardise the provision of length of service benefits, and employers will not be required to justify every benefit on an individual basis.
However, a worker who feels that their employer’s benefits structure is discriminatory will be able to make a complaint to an employment tribunal.
The service-related benefits regulation applies to employees, partners, office holders, police, civil servants and parliamentary staff.
Any benefit based on five years’ service or less will be exempt. Employers can use pay scales that reflect growing experience, or limit the provision of non-pay benefits to those who have served a qualifying period, subject to the five-year limit. There is a separate exemption for service of more than five years.
The exemptions can’t be used to justify payments when an employee leaves their job, but there is a specific exemption for more generous redundancy payments that mirror the statutory scheme.
A worker who wants to be paid the same as an employee in a more highly skilled job, or a worker who gets a higher ‘merit award’ because of their performance, cannot bring about a claim. This is because the difference in pay is caused by each worker’s different situation, not by age.
Where length of service scales exceed five years, the employer will still be able to retain them under the laws. However, they must reasonably appear to the employer to fulfil a business need, such as encouraging the loyalty or motivation of workers, or rewarding experience.
The employer’s conclusion about business needs can be supported by information about recruitment and retention, assessment of relative efficiency of staff with different levels of service, discussions with the union, or evidence from staff surveys.
For specific benefits, the employer can choose whether to calculate the length of service, or the length in time a worker has been doing work at, or above, a particular level.
Length of service will be the same for full-time or part-time workers, and the employer can take into account periods of absence, if it is reasonable to do so.
In my next article, I will discuss the key issue of redundancy.
Length of service-based pay increases
Where an employer’s pay scale includes annual increases, the exemption prevents staff with less than five years’ service claiming discrimination on the grounds they should be paid higher up the scale because they are too young to have clocked up the necessary length of service.
By contrast, if a worker with six years’ service claims they are being discriminated against because they are not paid the same as someone with eight years’ service, the employer will need to show that paying the latter more money seems reasonably to meet a business need.
If an employer uses a pay scale where workers progress from bottom to top in no more than five years, it will not be at risk of challenge under the regulations.