Length of Service Related Benefits – Naughty or Nice?

Length of Service Related Benefits

It’s surprising that many employers are unaware of the fact they are placing their business at risk of an indirect age discrimination claim when they offer length of service related benefits to their employees. Length of service related benefits include additional holiday entitlement and enhanced sick pay.

If faced with a redundancy situation and employer may enhance the redundancy payment, further consideration will be required to minimise any potential risk – see below.

Protected Characteristics– The Equality Act 2010

The Equality Act 2010 identifies age, disability, gender reassignment, marriage and civil partnership, race, religion or belief, sex and sexual orientation as the ‘protected characteristics’ and prohibits acts of discrimination, both direct and indirect against these.

Employers offering length of service benefits are more likely to indirectly discriminate against younger employees by placing them at a particular disadvantage compared to those of an older age group that do not share this characteristic.

There is a defence for employers unlike that in direct age discrimination cases, ‘business needs’ can amount to a ‘proportionate means to achieving a legitimate aim’. An example may be an employer offering a service-related benefit to retain valuable and skilled employees where there is less demand for their specific skills, possibly in a declining industry. It may be to reward experience or encourage loyalty.

An employee may present a claim to an employment tribunal for indirect age discrimination and no length of service is required to do so and no fees are payable.

What is Permitted?

How can employers prevent costly claims against the business?

Employers can be confident that offering length of service related benefits to employees with less than 5 years’ service is provided for in the Equality Act 2010. An employer will not have to justify why it has used length of service as a criterion for the benefit it offers in these circumstances.

What employers can do if they wish to offer length of service related benefits to those employees with over 5 years’ service, or those who have been doing work at a particular level:

  • Identify if the length of service criterion “reasonably appears” to “fulfil a business need”.
  • Identify and demonstrate that the length of service criterion is a ‘proportionate means to achieving a legitimate aim’. If an employer is unable to do this is likely to result in the act being unlawful and amounting to discrimination.
  • Be able to provide suitable evidence, such as an employee attitude survey.

Redundancy Length of Service Related Benefit

Again, there is an exception contained within the Equality Act 2010 allowing for enhanced redundancy payments to be made to employees. However, employers should be careful and make sure they apply the correct calculation. The Equality Act 2010 allows for enhanced redundancy payments where the calculation mirrors that of the statutory redundancy scheme.

If an employer chooses its own method not stated as above, it is very likely to amount to unlawful age discrimination unless it can be objectively justified as a ‘proportionate means of achieving a legitimate aim’.

What is a Legitimate Aim?

This can be any decision required by an employer that is within the restraints of the law in relation to their business. Succession planning and business efficiency may be a legitimate aim; it all depends on the situation at the time.

What is meant by Proportionate?

An employer will need to consider the disadvantage an employee suffers/is placed at because of the indirect discrimination applied in order for it to achieve its business needs. Plus, the employer needs to ensure there is no other less discriminatory way of achieving that legitimate aim. Ask yourself – is it appropriate and necessary?

Reporting to HMRC

Rewarding staff for longevity of service is more commonly through a monetary reward.

An employer will need to ensure that any benefits are reported accordingly to HMRC. There are some exemptions to this if all of the following apply:

  • The employee has worked for the employer for at least 20 years
  • The award is worth less than £50 per year of service
  • The employer hasn’t given the employee a long-service award in the last 10 years

Next Steps

Now is as good a time as any to review your contracts and your internal policies for legal compliance. Don’t be complacent and think that, because you’ve had no issues for the last few years, you’re unlikely to get any now – unfortunately, it doesn’t work like that.

If you require any advice on this topic or a review of your documents now is the time to act – call Jude Read-HR Consultancy on 01455 231982, and we’ll put the hard work in on your behalf.


Age Discrimination, Employment Tribunal Claim, Equality Act 2010, HR Policies, Indirect Discrimination

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