When TUPE applies, it is not just pay and basic terms that transfer — the full package of contractual benefits moves with the employee. The new employer must honour these benefits, and any attempt to reduce or remove them because of the transfer is void. However, there are some important exceptions and complexities.
Benefits That Transfer
All contractual benefits transfer automatically, including:
- Pay — salary, hourly rate, and any contractual pay scales
- Bonuses and commission — if contractual or if there is a reasonable expectation based on custom and practice
- Company car or car allowance — if part of the contractual package
- Private medical insurance — the obligation to provide it transfers, though the actual provider may change
- Holiday entitlement — including any contractual entitlement above the statutory minimum
- Sick pay provisions — both contractual and statutory
- Notice periods — contractual notice transfers
- Restrictive covenants — non-compete and confidentiality clauses
- Accrued but untaken holiday — the liability transfers to the new employer
Pensions — The Special Case
Occupational pension rights are the major exception to the general rule. Under TUPE, rights under an occupational pension scheme (relating to old age, invalidity, or survivors' benefits) do not automatically transfer. However:
- The new employer must provide a minimum level of pension provision for transferred employees
- For defined contribution schemes, the new employer must match employee contributions up to 6% of basic pay
- Auto-enrolment obligations still apply
- Any pension benefits that are not "old age, invalidity, or survivors' benefits" (such as enhanced redundancy pay linked to pension) do transfer
Practical Challenges
Replicating Benefits
The new employer must provide the same benefits, but not necessarily through the same provider. For example, private medical cover must be provided but can be through a different insurer. However, if the new policy offers materially less cover, the employee may have a claim.
Enhanced Redundancy Schemes
If the outgoing employer had an enhanced redundancy scheme that was contractual, this obligation transfers. The new employer will be bound by those enhanced terms.
Share Schemes and Long-Term Incentives
Rights under share option schemes or long-term incentive plans can be complex. They may not transfer directly if they are specific to the outgoing employer's shares, but the obligation to provide equivalent value may still apply.
Understanding which benefits transfer and how is essential for both parties. Our TUPE guidance service provides detailed analysis. Contact us.