Commentary on Sections Summary and Background Section 22: Indexation of amounts: timing and rounding
127.This section amends section 34(3) of the ERe1A 1999 by introducing a time that orders made under that section are to come into force and amending the calculation which is to be used to increase or decrease the relevant limits.
128.The section means that future changes to the relevant limits would be made on 6 April each year. All limits remain linked to the Retail Prices Index. However, the section changes the rounding calculation so that all limits are rounded up or down to the nearest pound.
129.Section 34(2) of the ERelA 1999 provides that, if the Retail Prices Index for September of a year is higher or lower than the Retail Prices Index for the previous September, the Secretary of State is required to make an order to increase or decrease the limits which apply to certain awards of employment tribunals and other amounts payable under employment legislation.
130.The list of sums to be increased or decreased as a result of a change in the Retail Prices Index is set out in section 34(1) of the ERelA 1999. These include the amount of a week’s pay used for statutory redundancy payments and the basic award and compensatory award for unfair dismissal. The sums for the relevant payments and awards were revised by order under the ERelA 1999 for the first time in February 2000 (Employment Rights (Increase of Limits) Order 1999 (S.I. 1999/3375)) and a total of 12 orders have been made.
131.In applying the relevant percentage increase or decrease, the Secretary of State has been required to round up the new sums to the nearest 10 pence, £10 or £100 (as applicable) in accordance with section 34(3) of the ERelA 1999, with the result that variations in the percentage change can occur.
132.In recent years the calculation has led to increases in limits which were significantly above the Retail Prices Index rate of inflation. The most significant impact on business has been the rate at which the limit used for calculating statutory redundancy payments has increased, sometimes by 6-7% more than average earnings or the Retail Prices Index in the applicable period.