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Case law continually produces changes to employees’ statutory holiday leave and pay entitlement, which are covered in this informative course, along with the various types of leave and the calculation of pay. Holiday pay and leave
A: The Working Time Regulations 1998 refer to sections 221–224 of the Employment Rights Act 1996 for the calculation of a week’s pay for the purpose of annual leave. Essentially, a week’s pay is the contractual remuneration due to an employee for working their normal working hours in a week. If a worker has no contracted normal working hours, then the holiday pay calculation is based on pay received during the pay reference period. (The number of hours worked is not relevant.) The reference period for calculating pay ends on or before the calculation date (the day the absence begins) and goes back 52 weeks. If the employee receives no pay in one of those weeks, that week is disregarded, and the reference period extends back an extra week, up to a maximum of 104 weeks from the end date. Unlike other calculations, a week is not excluded if pay is received but no work is done (such as a week of holiday pay). Q: An employee’s fixed term contract is due to end fifteen weeks into her ordinary maternity leave period. Does the contract end or should we put it on hold whilst she is on leave? Also, would we pay her the full 39 weeks of statutory maternity pay (SMP), even though her contract will finish at fifteen weeks into her leave? A: If the employee satisfies all the criteria to be entitled to SMP than the employer must pay 39 weeks of SMP. The SMP due can either be paid as a lump sum when her contract ends (although this is less beneficial to the employee due to NICs implications) or keep her on the payroll, purely as a means to pay the balance of SMP. The employee would no longer accrue holiday pay or have any further employment rights as the contract has ended. Once the 39 weeks of SMP have been paid form P45 can be issued to her. Q: An employee who commenced employment in October 2019 has been provided with relocation expenses as a benefit. It is now April 2021, and the employee wishes to submit a final claim for removal expenses incurred in the last tax year. Is this allowed?
A: Whether the employer reimburses these expenses is one issue, which is a contractual matter for the employee and employer. The second issue is the treatment (e.g. tax exemption) of the amount reimbursed. To qualify for the tax and NICs exemption, a removal expense must be both incurred and reimbursed by the end of the tax year following the one in which the employee starts the new employment. So, the expense would need to have been reimbursed before 6 April 2021 to be allowable for the exemption. HMRC’s Employment Income Manual (see EIM03104, https://bit.ly/2T9VfsV) states that “To qualify for exemption, the removal expenses must be incurred, or the removal benefits provided before the last day of the year of assessment following the one in which the employee starts the new job. This day is known as the limitation day (section 247, ITEPA)”. However, in specific circumstances the time limit can be extended, as set out in EIM03105. If the expense fails the statutory conditions, it becomes a non-qualifying cost. Where the employer reimburses a non-qualifying cost, the amount is counted as earnings and, therefore, added to the employee’s other earnings through the payroll with PAYE income tax and class 1 NICs deducted/paid (https://bit. ly/3486sN0). n
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| Professional in Payroll, Pensions and Reward |
Issue 72 | July / August 2021
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