The Implication to Employers, Employees, and the Labor Market - Essay Example

?Order 508570 Topic: Investigative Study Investigate the implication to employers, employees and the labour market of abolishing the default retirement age a) a discussion of the implications to employers e.g. assessment of fitness to work, HRP, L & D, compliance with equality legislation b) a discussion of the implications to employees c) a discussion of the effect on the labour market   The Government has confirmed that the Default Retirement Age (‘the DRA’) will be phased out from 6 April 2011 and completely abolished by 1 October 2011. On 29 July 2010, a consultation document was issued on scrapping the default retirement age. It had committed to this course of action in its coalition agreement, but the proposed speed of the change has surprised some businesses. At present, the DRA allows employers to retire employees at 65 years of age provided they issue notifications for compulsory retirement within certain specified timescales in line with the DRA procedure. But from 1 October 2011, employers will no longer be able to dismiss an employee just because they have reached 65 unless they can objectively justify doing so, which in many cases will be difficult to prove. For example, an employer recruiting within the emergency services will be justified in having a retirement age as such a service requires a significant level of physical fitness. ‘When the DRA was introduced in 2006, it was not intended to be subject to initial consultation and review until 2011. This review date was brought forward due to the economic climate and the changes this has brought with it. In addition to this, the Government consider that people are living longer and should therefore be given the right to work longer if this is something they wish to do’(McGowan 2011). Between 6 April 2011 and 1 October 2011, only employees notified before 6 April 2011 and whose retirement date is before 1 October 2011 can be compulsorily retired using the DRA procedures. This effectively means that after 6 April 2011, if procedures have not already been commenced, employers will not be able to compulsorily retire employees without objective justification for doing so. a. Discussion of the implications to employees e.g. assessment of fitness to work, HRP, L&D, compliance with equality legislation The implication of this for employers is it may cost the business more in terms of insured benefits like life insurance and private medical coverage beyond the normal retirement age. The Government responded by stating that an exception will be introduced to the age discrimination rules so that employers do not suffer a detriment in this respect. However, this has not been confirmed yet. Employers can no longer simply rely on an employee reaching 65 for retirement to occur. This has the potential of affecting succession planning in an employer’s business. Employers are therefore under more pressure than ever to introduce policies and procedures that deal with the workforce generally such as work force planning and formal performance management procedures. The default retirement age of 65 for employees is currently an important exception to the ban on age discrimination in the workplace. Currently, if the statutory retirement procedure is followed employees cannot bring legal claims against their employer for forcing them to retire. Employees can ask to continue working, but employers are under no obligation to say yes. ‘The statutory retirement procedure requires an employer to notify an employee of their intended retirement date no more one year and no less than six months before that date’ (http 2010). ‘Less than a quarter of employers are in favour of scrapping the default retirement age of 65, while even fewer have made plans for it, according to new research’ (GP Business 2011). Law firm DWF's study discovered that only 24% think the new regulations that come into effect on April 6 this year are a good idea and just16% have made provisions for the change. In the wake of the findings, DWF held an HR directors' forum in conjunction with the Employers Forum on Age. The forum included a cross-section of employers, gathered to discuss the results of the survey and the implications of the default retirement age. And contrary to the views in the initial research, the forum supported the government’s proposal to abolish the default retirement age. The view was that employers will deal with each employee on a case-by-case basis - a consensual retirement policy will be adopted, working with employees to help create realistic solutions for working beyond 65. After 1 October 2011 employers will have a choice: they can either abolish retirement ages in their organisation altogether or keep a retirement age that they can objectively justify. Any retirement age set by an employer that it cannot objectively justify will be unlawful age discrimination. Whilst employees may have a financial incentive to retire if they have become entitled to a pension (either state, occupational or personal) it will be difficult to predict in any given case whether their personal circumstances or preferences are likely to result in them wanting (or needing) to carry on working. Without the default retirement age both employers and employees will be subject to uncertainty. The radical shake up of the state pensions will involve an acceleration of the plans to raise the retirement age in order to help reduce the budget deficit and a plan to scrap the default retirement age of 65 from 1 October 2011. ‘These controversial announcements have received some mixed reactions. Unions and campaign groups have argued that these changes will penalise manual workers and the poorest in society, who live in areas where life expectancy is lower. And, whilst many business groups have welcomed the plans, some have expressed concerns about the practical implications and risks to employers if the default retirement age is abolished’ (Hrzone Survey 2010). It is the duty of the employer to protect the health of the employees and others associated with the employer’s activities. It is in the individual’s and the company’s interest to determine whether or not the employee is fit to undertake duties within certain given conditions. Health assessment means ‘applying appropriate procedures and test in examining an individual to enable a medical professional to decide whether a person is fit for the specific working and living conditions. A health assessment should be performed before employment and thereafter. A periodic assessment should be performed at least once every three years but will vary further depending upon employee’s age, work environment, past medical history, type of proposed employment and local government and industry standards’ (Health Assessment 2002). The default retirement age has never applied to those such as self-employed consultants who are not employees: the retirement age for such individuals must already be objectively justified. This therefore reflects the situation which will apply to employees after October 2011. There will be cost implications for employers who will be required to carry on providing contractual benefits to older employees who carry on working. Certain benefits such as medical and life insurance are likely to be more expensive for older employees. As part of the consultation process the Government is considering whether there should be some sort of exemption for insured benefits to clarify when it will be lawful for an employer to stop such benefits or pass on the additional cost to employees. ‘Employers will still be able to dismiss older employees for one of the potentially fair reasons set out in the Employment Rights Act 1996 such as conduct, redundancy, capability or for some other substantial reason’ (http 2010). However, if the dismissal is not to be unfair this must be the genuine reason for the dismissal, and the employer must follow a fair procedure. Clearly this will involve more management time (and possible expense on professional advice) than is currently the case when an employee retires. Where an older employee is dismissed they will be entitled to their notice in the normal way and, if they are made redundant will be entitled to a redundancy payment. Where an employee has no inclination to retire but an employer feels that their performance is failing, it will have to go through a normal performance management process in order to ensure a fair dismissal. Employers have repeatedly said that they feel this would be an undignified way to end someone's career. The legal obligations imposed in relation to disability discrimination may also become more relevant if employees start to decline physically and suffer from age-related illnesses whilst still employed. ‘The fact is that any retirement dismissal will still be exactly that – a dismissal. Employees will have the right not to be unfairly dismissed, so employers wishing to ‘retire’ an employee will need to rely on one of the usual potentially fair reasons (conduct, capability, redundancy, illegality, or ‘some other substantial reason justifying dismissal’)’(Corsi 2010). To ensure that all employees are still capable of carrying out their duties to the standards required by the company, employers need to use their appraisal and performance management systems effectively and consistently. Consequently, employers should see to it that their employees are continuously undergoing L&D irrespective of their ages. The removal of the DRA will not preclude employers from keeping a contractual retirement age in their contracts. The catch is that employees will have the right to require their employers to objectively justify that term. The reality is that, if put to the test, a finding of objective justification is going to be difficult to achieve before an employment tribunal unless employers think hard about why they wish to keep a contractual retirement age, and are able to explain to a tribunal (supported by documentary evidence of relevant research, for example) what that aim is, why it is legitimate, and how having a contractual retirement age is a proportionate means of achieving that aim. Businesses that wish to keep contractual retirement ages should start work on this now.  Otherwise, employers may be better off scrapping contractual retirement ages altogether. b. Discussion of the implications to employees On the part of the employees, the implications of the DRA would mean employees can still ask to continue working beyond the age of 65. An employer would have to consider such a request seriously and give it due consideration in accordance with a fair procedure, or else risk stubbing its toe on the cornerstone of the employment relationship that is the implied term of mutual trust and confidence between employer and employee. ‘Retirement may now not be distinguishable from a simple resignation, and the consequences could be that employees who genuinely are giving up their careers after a long period of service may no longer be eligible for ‘good leaver’ treatment’ (Corsi 2010). The removal of the DRA not only raises practical issues for employers in managing the older worker but also across the workforce more generally with a wide range of areas such as succession and workforce planning, performance management and ensuring consistency and fairness in their policies and practices. It is important to remember too that the removal of the DRA will have implications for all employees in terms of career expectations and advancement. The proposed changes will have far reaching implications for the way many businesses work and employers who fail to make the necessary changes to approaches to employee retirement may face claims of unfair dismissal and discrimination. Workers will retire when they are ready to, enforced retirement will only be possible if it is objectively justified. Discrimination against all workers on the grounds of age must be avoided. This legislation will be applicable to all employers and all company sizes and sectors. ‘These changes do not affect an employee's state pension age and entitlements, which may well be separate from the age at which they retire’ (http 2010). All employees must be treated the same by their employers irrespective of age. The HR procedures must meet the legal requirements, not just about age, but all the current employment legislation. All management and supervisors must apply the procedures uniformly across the operation. Older employees must be motivated to give the best out of them for the business, e.g. mentoring younger employees and passing on knowledge and expertise, and link this into the general staff development programs. Many employees in the UK benefit from their participation in HMRC 'approved' schemes that provide employees and employers with income tax and National Insurance advantages. Shares acquired under these schemes are generally free from income tax and National Insurance contributions. ‘On leaving their employment, employees are classed as either a "Good Leaver" or a "Bad Leaver". In general, Good Leavers - typically employees who leave employment because of ill health; death; redundancy; sale of the business; and retirement are allowed to retain some or all of the options they have been granted but which have not yet vested. However, employees who are dismissed or resign voluntarily (although not at "fault") are typically treated as Bad Leavers and lose their unvested options’ (Corsi 2010). The DRA gave employers a way to show workers near retirement the door if their performance fell below par. That will change. Broadbent says: "Once the DRA goes, that option will no longer be available and employers will have to manage underperformance or ill health for older members of the workforce in exactly the same way as they would for a younger employee. Consistency of treatment will be especially important. There should be clear evidence of why the employer is taking action, to avoid any suggestion that it is simply because of the employee's age." If underperforming or ill older employees are treated differently to younger colleagues, they will have a strong case to pursue an age discrimination claim. Jane Moorman, partner, Howard Kennedy, says: "The employer would notionally have the same obligation to make adjustments for an employee who was, say, 66 who faced a disability as they would for an employee who was 46 with the same disability. The only factor which might affect the extent of the adjustment would be the cost of the adjustment having regard to the period the employee might reasonably continue in employment. For example, if an employee of 35 were to lose their sight it may be reasonable to provide them with Braille or other training. c. Discussion of the effect on the labour market In addition, the DRA has also a corresponding effect to the labour market. The abolition of the default retirement age will have several knock-on effects for employers. John Charlton points out what is most at risk. With the ramifications of the default retirement age (DRA) approaching at a speed of knots, employers face many uncertainties except one - that they will have to deal with more and more employees. The "Class of 2011" survey - showed that among 1,500 people due to retire in 2011, 62% were considering postponing their retirement and continuing to work. Around 55% of the "Class of 2011" said that they would look to work for another two to five years, with one in 10 looking to work for another five to 10 years. Labour market statistics, published in February 2011, for the fourth quarter of 2010 show that the number of workers aged 65 and above in employment was 874,000 in the three months to December 2010, an increase of 23,000 compared with the previous quarter. The total in employment is up 104,000 (13.5%) on the previous year. Alan Beazley, policy and research adviser at the Employers Forum on Age, says: "Employers should not worry about hordes of workers hanging on until they drop. Those who do want to stay probably want to do so only for two to three years maximum, and there is evidence that most will make retirement decisions based on a wide range of factors, including, for example, whether their partner works, what wealth they have and their health." Employers facing a rise in workers aged over 64 must be aware of the risks that they face in meeting the rigours of the scrapping of the DRA on 1 October 2011. They should be adjusting policies and practices now - for example, 30 March 2011 is the final date on which they can issue the minimum six months' notice of retirement, which will be effective from 1 October. Up until 2008 firms around the world were confronted with a major threat to doing business: ‘a demand for talented employees that far surpassed the supply’ (Schuller). This was especially acute in the developing countries that were benefiting from a strong business cycle based upon tremendous exports to the developed nations, and increased foreign direct investment from firms in developed nations wishing to take advantage of substantially lower wages. Firms worked aggressively to retain their current employees, often providing training and development benefits to make the firm attractive, and also to develop the talents of these workers. Firms faced many global talent challenges including having the right number of competent employees at the right place and at the right time. They also faced the challenge of needing to reduce the cost of operations, thus moving operations abroad, paying lower wages and then having to find competent employees to staff the facilities. All of these challenges were dealt with through “global talent management” initiatives. These were composed of various HR actions depending upon the nature of the global talent challenge. ‘Global talent management includes all organizational activities for the purpose of attracting, selecting, developing and retaining the best employees in the most strategic roles on a global scale. Global talent management takes into account the differences in both organizations’ global strategic priorities as well as the differences across national contexts for how talent should be managed in the countries where they operate’ (Scullion 2010). Global talent management are explored in the different contexts of Central and Eastern Europe, the Middle East and Asia. The emerging markets of India and China are given particular attention due to their rapidly growing importance, also considered are the distinctive nature of the talent management faced and the lack of research in these areas. Worldwide demographics are another major driver of global talent management. In North America, Western Europe, Japan and Australia, the age of retirement is being ushered in by the baby boomer generation. Taking into consideration the 70 million baby boomers expected to retire over the next 15 years in the US and only 40 million workers expected to enter the workforce in the same period, a shortage of workers is imminent. ‘These pre-2008 projections are now being adjusted somewhat with more baby boomers extending their retirement dates due to significant depletion of their retirement savings as a consequence of the current economic and financial crises’ (Hansen 2009). There are many risks for employers to consider, including: Contractual retirement age - this involves retiring people as they approach 65 on the grounds that it is a proportionate means of achieving a legitimate aim. The Government calls this the employer-justified retirement age. Georgina Jones, associate, Sacker & Partners, says: "It's technically feasible, but relatively difficult as the Government would likely be opposed to it. It would have to be non-discriminatory and a proportionate means of achieving a legitimate aim, for example in succession planning." “Employees kept on after the age of 65 are able to claim age discrimination if their benefits are less favourable than those of other age groups. Insured medical benefits tend to be more expensive to provide for those who are older. To meet this concern the Government intends to bring in exceptions for certain insured benefits, such as medical benefits, which will apply to staff over the state pension age,” says Brown. Works Cited Bird, Ian. “The new retirement age – implications for employers and employees.” HRZone Survey, 2010. Web. 30 March 2011. Charlton, John. “Personnel today”. Employer’s Law Magazine. 2011. Hansen, James. 2009. “Health assessment of fitness to work in the E&P industry”. OGP Publications, 2002. http. “A new age? Ending of the default retirement age”. Web. 30 March 2011. McGowan, Paul. “Default retirement age to be abolished”. Collingwood Legal. Web. 30 March 2011. Schuller, Randall, Jackson, Susan, Tarique, Ibraiz. “Global talent management and global talent challenges: Strategic opportunities for HRM”. Journal of World Business. Scullion, Hugh, Collings, David & Gunnigle, P. “Global talent management”. Journal of World Business, 45(2). Read More