The CIPP's Advisory Service team provides answers to popular questions
Q: A client runs a restaurant and has two employees who will be leaving the business soon. For the majority of last year, both employees were furloughed. As annual leave was not formally requested or granted, is it correct to assume that the annual leave outstanding needs to be paid in full and not at a reduced rate to account for furlough pay? A: Holiday entitlement continues to accrue for employees during periods of furlough, and any untaken holiday entitlement must be paid at the point of termination. The holiday pay must be calculated in accordance with current legislation, as stated in sections 221 to 224 of the Employment Rights Act 1996; see: https:// bit.ly/3xC2w4f. As both employees were employed for the full annual leave year, they would be entitled to 5.6 weeks holiday pay which must be based on their contractual rate of pay. If the worker is a variable hours’ worker, the holiday pay rate must be based upon the average pay received for hours worked in the previous 52-week period. If for any of those 52 weeks the employee received no pay at all, then an earlier week needs to be used for the calculation. The period that can be looked back to is the preceding 104 weeks. However, if the worker had been flexibly furloughed, the employer could include the figures relating to flexible furloughed hours in the weeks where paid hours were worked. This would ensure that the employee was not disadvantaged by reducing the worker’s average holiday pay for any week where they received pay for both furloughed and working hours.
worth £50 as gratitude for all their efforts during the pandemic. What are the tax and National Insurance contributions (NIC) implications? Is it possible that the cash payment or voucher can be made tax free as there are approximately 10,000 employees? A: The provision of any cash payment or ‘non-cash vouchers’ (NCV) will always incur a tax liability and will ordinarily be subject to class 1 NICs. There is, however, an exemption from NICs where certain vouchers are provided as part of a scheme available to all employees, or to all employees at a specific location (see: https://bit.ly/36vpoGx for details). For the majority of NCVs, an employer is required to report its value via the P11D return for income tax and collect the class 1 NICs though the payroll at the time the voucher was provided. If an employer is registered to payroll benefits before 6 April 2021, notionally add the cost of the voucher to the employee’s pay for both class 1 NICs and tax. An employer may also apply for a PAYE (pay as you earn) settlement agreement (PSA) and if the agreement is in place by 5 July following the end of the tax year, the employer can then gross up the payments and pay tax on behalf of the employee, but class 1 NICs must still be processed through the payroll. However, any cash payment awarded by the employer must be treated as earnings and processed through payroll for tax and class 1 NICs. Q: If an employee is on a phased return to work after a period of sickness and is working every day but at reduced hours, can we pay statutory sick pay (SSP) to top up their pay? A: To qualify for SSP, an employee must
be off work sick for four calendar days in a row, including weekends. Currently SSP is not payable on any day an employee works, even if they are only in work for a short period of time. Q: An employee has sadly passed away and we are being asked to pay the final payment directly to the ‘next of kin’. Please could you confirm if this can be done and what is the best practice to follow? A: An employer needs to exercise caution and take steps to ensure that any final payments made after an employee has died are only paid to a lawful recipient. We would not advise amending bank details to transfer any final payments without some legal notification to do so. Once informed of a death, banks may freeze accounts, including joint accounts. The final payment is therefore usually made to the employee’s representative or beneficiary. The company would ordinarily request a copy of the death certificate and a copy of the will. If there is no actual will, the administrator or executor of an individual’s estate will normally need to apply to the probate registry for them to grant of letters of administration. However, the employer remains responsible for ensuring any monies outstanding to the deceased employee’s estate is paid over to the most appropriate recipient. (https:// www.gov.uk/applying-for-probate) Q: The completion of the P11D returns was outsourced to a payroll bureau that has now advised the cost of the delivery of the fleet’s vehicles to our site needs to be included when calculating the benefit in kind value of the car. Although this information was quite vague, we are now concerned
Q: An employer wishes to give their employees a cash payment or voucher
| Professional in Payroll, Pensions and Reward | September 2021 | Issue 73 10
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