When discussing the option for working with a school that already has lettings running, existing staff is often a topic that comes up. We sat down with our HR and Compliance Director Mike Jenkinson-Deakin who helped us answer some of the most common questions with regards to already having community lettings staff, TUPE, and Local Government Pension Schemes.
When considering outsourcing your lettings make sure the company you choose can address these issues in a compliant manner.
What is TUPE?
The Transfer of Undertakings (Protection of Employment) regulations exist to protect employees when a function or service is transferred to a new business or contractor, such as when a private-sector provider takes over managing your lettings.
If you have employees who are in an “organised grouping” dealing with lettings, they will transfer to the new employer, by law, from the moment the contract starts.
Typically, this means if you employ people specifically to work with lettings, they will be covered by TUPE. If your lettings are managed by people whose prime responsibilities lie elsewhere, such as caretakers working overtime, and your SBM dealing with the financial and booking side, then TUPE is much less likely to apply. You should check with your HR function to decide who might be covered by the regulations.
Why does it matter?
Employee’s rights transfer with them. And this happens whether you tell the new provider or not. If you don’t identify someone who should qualify for TUPE, they can take both you and the new provider to a tribunal, and claim unfair dismissal from both of you.
What’s the problem?
When employees transfer to a new provider from employment in a school, they take with them rights which might cost the new provider significantly more than their usual model of employment. This includes:
- Higher rates of pay – especially where employees are pegged to your pay scales
- Generous public sector entitlements to sick pay, annual leave, etc.
- Entitlement to membership of the Local Government Pension Scheme (LGPS)
LGPS membership is the most significant factor as this carries significant administrative responsibilities, as well as the potential for very high costs, which can overwhelm the financial viability of a contract.
What administrative duties?
When a private sector company takes on employees under TUPE, they are obliged to allow them to continue with their membership of the LGPS, or to provide a Broadly Comparable Scheme as an alternative (but see below). This includes employees who have signed up to LGPS as well as those who haven’t. If a role would offer eligibility with you, then it will continue to do so after transfer and the employee will be able in the future to exercise their right to join.
This means the new provider has to become an Admitted Body to the LGPS which covers your area. There are 78 LGPS funds in England and admitted body status in one does not confer any rights to join another. There are costs involved in becoming an admitted body, as well as an admission process which can take a significant amount of time. This has to happen before the contract starts.
What are the costs?
The costs involved in becoming an Admitted Body go well beyond the straightforward pension costs percentage. There can be costs to join, including actuarial assessments. Other factors include the risk that pension costs may be varied in the future beyond those given in the initial assessment. If the fund is reviewed and found to be underfunded, the rate may be increased significantly.
When the last employee leaves the provider, either because they move on to other jobs, or because the contract is transferred back to the school, the provider will cease to be an admitted body. At that point, many LGPS schemes will carry out another assessment and may impose a strain cost if the value of the fund isn’t enough to provide the benefits accrued. These payments can run into tens of thousands of pounds.
It should be noted that some funds have rules which are designed to facilitate admitting bodies, such as by having a policy of standardised rates and not imposing exit strain costs. Admission with these funds can be a relatively simple process.
Why do I need to bother about this? Isn’t it the contractor’s problem?
Simply put – No! Under the Fair Deal arrangements, updated in 2013, all government bodies, including schools and academies, must ensure that transferring employees are entitled to remain in the local LGPS scheme (or a Broadly Comparable Scheme) after a TUPE transfer takes place. A review undertaken in 2019 has proposed removing the broadly comparable route entirely.
The new provider says this is not a problem and they already have a suitable pension scheme
You may be told by some contractors that they have an alternative scheme available and they don’t need to become an admitted body with your LGPS fund. You should question this carefully, so as not to leave yourself exposed to action in the future.
The only routes to establishing a Broadly Comparable Scheme are through individual assessment of a scheme for the specific employees and transfer (which would be highly cumbersome and expensive), or via Passport certification, which qualifies schemes to be offered as an alternative across all funds.
As of October 2020, there are no valid passport certificates in place (https://www.gov.uk/guidance/staff-transfers-public-service-pension-schemes).
The vast majority of private sector schemes, including NEST and The People’s Pension, are what is known as “defined contribution”, rather than “defined benefit”, schemes. These schemes do not qualify as broadly comparable and will leave you open to action taken by transferred employees.
Does this mean I won’t be able to subcontract my lettings?
No. As stated earlier, some funds are very well set up for allowing Admitted Bodies, without prohibitive costs or administrative duties.
Even where this is not the case, there are ways to manage the costs. These can include mechanisms, known as “pass-through” or “cap and collar” arrangements, which control the level of exposure for the contractor. These mechanisms would be included in the supply contract between the school and the provider, rather than with the LGPS fund.
What do I need to do?
When planning to contract out your lettings, you should initially assess your workforce to see if there any employees who would qualify for TUPE. If there are, you should:
- Draw up the list of employees, to provide to all potential lettings companies at the beginning of the tender process
- Engage with your local LGPS to establish their process for admitting bodies and to identify a contact for potential providers to speak to.
- Understand that, where you have eligible employees, the contract cannot start until the admitted body process is completed. With some LGPS funds, this can take several weeks or even months.
We hope this has answered all of your questions regarding lettings staff, TUPE, and LGPS but if you do have any further questions or you are interested in how Schools Plus tackles this issue please feel free to email us.