Legal

The staff of life

Discounts in school fees for staff bring many benefits (as well as disadvantages). However, there are also pitfalls to avoid if a school wants to drop or amend its scheme, writes Karl Deakin

Many independent schools offer some form of discount on school fees to staff. Most often this will be offered to teachers and senior executives at the school, although a number now choose to offer it to all staff. There is no doubt that the discount can act as a highly cost-effective aid to recruitment and retention of employees.

Following major litigation in the early 1990s, HMRC issued guidance that confirmed that where teachers pay at least 15 per cent of usual fees, school fees are not a taxable benefit if the school is not at full capacity. This is based on the long-established practice of independent schools regarding the real cost of educating employees’ children as the marginal additional cost incurred by the school in taking on those extra pupils. The discount is therefore tax-efficient as well as being an extremely valuable benefit to staff.

However, the discount is not without controversy. It can be the cause of resentment from full fee-paying parents and employees who do not benefit from the discount. When boarding fees are running at £20,000 a year, a teacher receiving a 75 per cent discount for two children is effectively being paid £30,000 tax-free a year more than a teacher whose children attend another school, or a teacher who has no children.

This resentment raises the prospect of allegations of discrimination. First, employees may claim that the fees discount is discriminatory on grounds of age. Employees in their fifties or early sixties could contend that the discount, although applied equally to all staff, puts those within their age group at a particular disadvantage compared with younger employees, who typically have children of school age.

Second, a homosexual or lesbian employee may also claim that the provision of staff discounts for employees with children is indirectly discriminatory on grounds of sexual orientation. A gay employee is likely to succeed in persuading a tribunal that he or she is less likely than a heterosexual employee to have children and therefore will not benefit from staff fees discount.

Nonetheless, a school will have a complete defence to a claim for either age discrimination or indirect sexual orientation discrimination if it can show that the discount scheme is a proportionate means of recruiting and retaining good staff. Whether a discount scheme is proportionate will depend on the amount of the discount offered, total annual fees and how many children an employee has at the school. To satisfy the test of proportionality, the staff discount must be an appropriate and necessary means of achieving recruitment and retention and not merely the most convenient means.

Different measures
Alternatives to achieving recruitment and retention without discriminating might include across the board salary increases at a similar level to the cost to the school of the discount. However, the staff discount is likely to be justifiable where the marginal cost of the discount to the school remains significantly lower than any other alternative means of achieving the recruitment and retention advantages. Perhaps the most important consideration in seeking to justify the scheme is that the school goes through these thought processes and records its conclusions.

A clear policy on the precise extent of the remission can save schools a fortune. Unlucky schools could have a number of staff with two, three, or even more children, with employees receiving the maximum tax-free discount for each child. This can be avoided by wording that limits the extent of the benefit either to a certain number of children or a total amount of discount per employee. Similarly, the discount should be per child, not per employee, to avoid double claims where both parents work at the school.

Cases arise where the cost of providing the discount is disproportionate to the benefit to the school of the discount. The discount can have a nasty habit of creeping into becoming a large expense for schools; certainly, some larger schools have found that the cost of the remission can be 30-40 per cent of concessionary fees offered. Schools may find this position to be particularly unsatisfactory in light of the Charity Commission’s report on its emerging findings on public benefit, with its emphasis on direct means-tested fees assistance to the public. The commission stated that, as part of the remuneration package for staff, staff fees discount would not count towards a school’s public benefit profile. Those schools hoping that staff fee discount could be a useful element in the case for public benefit should revisit the level and extent of its offering to employees.

What’s the cost?
So are schools stuck with an expensive staff discount scheme? In short, no. But how easy it is to change or remove a scheme will depend on the terms of the documentation in place. However, even with the clearest terms that the remission is provided at the school’s discretion and may be withdrawn, change still has to be managed carefully. The school will be under a duty to act in a way so as not to undermine trust and confidence among staff.

Given the huge value to staff of the benefit, the risk of constructive dismissal claims if the benefit is withdrawn unilaterally cannot be ignored. There will need to be consultation with staff and consideration of ways in which the impact can be minimised. If there is no express discretion in providing the scheme, the school may have to terminate existing contracts on notice and re-engage staff. If the school wishes to bring the scheme to an end swiftly, the only option may be an expensive buy-out of an employee’s rights, which should be covered in a compromise agreement.

Phase down
Faced with these issues and a potential backlash from employees, most schools seeking to change the remission will seek a phased reduction. But this in itself can cause issues of discrimination. If there is a cut-off point after which new staff will receive less generous discounts, there could again be the risk of age discrimination. Newer staff are more likely to be an overall younger cohort than the staff with longer service.

Equally, the school could have a female teacher who joined after the cut-off date bringing an equal pay claim, using a male teacher who joined before the cut-off date at the school as a comparator. To have a strong defence to a claim, the school will first need to consult all staff on the proposed change and seek to reduce it for all. This is an employee relations nightmare, as such a proposal will inevitably receive strong resistance from existing staff. However, if the school seeks to treat all staff equally but this is rejected by existing staff, the school should be in a stronger position to defend any ensuing claims.

Changing the staff fee remission scheme where it proves too expensive to a school can and should be done. It does, however, require careful navigation of the various obstacles.

Karl Deakin is an associate at Veale Wasbrough Vizards Lawyers. Karl can be contacted on kdeakin@vwv.co.uk or on 0117 314 5443.

Return to Legal