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We have an employee who, following surgery, is unable to return to his normal duties for about 6 months. In the meantime we have been able to find him another role in another part of the business, which could be deemed as 'light duties'. The other role would not normally pay as well as the employee's original job. Can we pay him at a lesser rate or do we have to maintain his original rate of pay?

Considering that you are trying to encourage the employee to return to work it would not be entirely supportive to change his pay to a lower grade. This employee has had surgery and has agreed that, in order to get back to work he will take a job of lighter duties. If you pay him a lesser rate of pay, this could be deemed to be discrimination – ie you are discriminating against him directly, and affecting his salary, as a direct result of his illness/surgery/condition. This employee could quite easily remain signed off unfit for work until his GP finds that he is fully fit to resume to his normal job – this many not be as  beneficial to either him or to your company.


I am about to take on a salesman for the first time. As he will be my first employee to receive expenses, what tax issues should I bear in mind?

Expenses and benefits provided to employees should be disclosed to HM Revenue and Customs (HMRC) on forms P11D and P9D each tax year for each employee. This applies whether or not expenses are ultimately taxable.  If the expenses you pay are not taxable on the employee you can cut out this form filling headache by getting a dispensation.  Payments covered by the dispensation do not need to be disclosed on the forms.  Before issuing a dispensation, HMRC will need to be satisfied that the employee would be entitled to a tax dispensation and that the payments will be properly authorised and controlled. 

This may not sound easy, but the Government is keen to encourage the use of dispensation to reduce the administrative burden for businesses.  This process was made much simpler with the introduction of form P11DX. This is easy to complete and it tells HMRC in advance about the expenses that will be paid, and should avoid the need for P11Ds. 

A P11DX can be found on the HMRC website: hmrc.gov.uk/forms/p11dx.pdf


I am planning to ask my employees for suggestions on ways to improve the business. I will offer a bottle of wine or something of equivalent value for the best idea. Will the winning employee, or the company, have to pay tax on the prize?

In general an award made by an employer to an employee for a staff suggestion scheme is taxable, however there is an exemption. The conditions to qualify for exemption are: ·        The scheme must be open on the same terms to all employees of a defined group of them·        The suggestions must relate to the activities of the employer·        The suggestion must be made by an employee who could not have been expected to make it in the normal course of their work·        The suggestion was not made at a meeting held for the purpose of proposing suggestionsIf all the conditions are satisfied, the award will be tax free up to the permitted maximum for the award. If an award satisfies the conditions but exceeds the maximum, only the excess will be taxed.  The permitted maximum depends on whether it is a ‘financial benefit award’. A financial benefit award is an award for suggesting an improvement in efficiency that the employer has decided to adopt and which will result in a financial benefit. For this, the maximum for a financial benefit award is the greater of: half the financial benefit that the employer expects will result from the suggestion in the first year after its adoption, or one tenth of the financial benefit expected to financial benefit expected to result in the first five years. In either case there is an over-riding maximum of £5,000. Up to £25 can be paid for an encouragement award (an award other than a financial benefit award) made for a suggestion that has merit or shows special effort.


Can receptionists who do the same job be paid different hourly rates, so that those with a longer length of service receive a higher rate of pay?

Generally speaking for this type of role it is best to have a rate for the job and if long serving receptionists have taken on more responsibility, this is recognised by a more senior grade or if they have the same responsibilities as the other staff, but some specific duties (such as being a keyholder) they are given an extra responsibility allowance. There are risks of discrimination and equal pay claims in linking pay to length of service. At the outset of the employment, pay can be adjusted according to length of service to allow for the learning curve involved in starting a new job. A probationary period is often at a lower rate of pay and depending on the complexity of the post, a further training period of a year or more could be considered appropriate. However in some roles, linking pay to length of service can be a sex discrimination issue as women are more likely to take career breaks then men. Another key issue is age discrimination if pay is linked to length of service. The Employment Equality (Age) Regulations 2006 allow for pay to be increased on length of service for employees with up to five years’ service. For longer service, pay increases linked to length of service have to be objectively justified, which may be difficult to do, but would depend on the organisation and its particular set of circumstances. 


My sales manager has just received a large tax bill arising on a company car benefit he had in a previous job. We do not provide a company car. He is valuable to the business so I would like to be able. to help him pay it. Can the company pay his tax without incurring further tax liabilities.

Your employee's liability should have been deducted from his previous employers payroll, had Revenue and Customs been notified at the time the car was made available to him. Where the Revenue was not notified at the right time, a large tax bill can build up and will generally crystallise when the January 31 personal tax deadline arrives. You could choose to pay the liability, with or without the manager's reimbursement, but the tax treatment will be different. Where the amount is treated as an interest-free loan, a benefit in kind will arise on a notional interest charge, where the total of loans made to him exceeds £5000. This is reported to the Revenue on his P11D which is prepared by employers each year. You can avoid the reporting requirements if he is charged interest at the “official rate” which is 4.75% since the amounts will need to be grossed up and put through payroll which will greatly increase the costs to you. Check that his tax code does not still assume he has a company car. If so, he may have overpaid tax in the current year and is probably still due a refund once it has been corrected.


We are currently looking to change our bonus scheme,which is not contractual,in relation to those staff who are absent from work. Would an employee be entitled to bonus if they are on maternity leave? Also, we are conscious of our responsibility as an employer under the Disability Discrimination Act, how do you suggest we handle this?

Firstly in relation to entitlement of bonus whilst on maternity leave, the employee would be entitled to a pro rata bonus payment based on the following:

1. Any time spent at work prior to going on maternity leave, that was within the bonus calculation period

2. 2 weeks of maternity leave as this is deemed as compulsory maternity leave.

If your incentive scheme was contractual, then they would have accrued right to entitlement during their ordinary maternity leave but as it is not, then they are only eligible for the "compulsory" part of their maternity leave.  There is an element of risk to your business you were to include absence leave as a reason for not being entitled to a bonus unless you were to explicitly discount any disability-related absence. There is actually no case law at present to cover this specifically but best practice would dictate. HCS recommend that sample clause relating to bonus and absence below.

Absence

Bonuses will only be paid to employees with reference to periods actually worked by them during any bonus period. Consequently, any absence that is not defined as disability-related under the Disability Discrimination Act (DDA) 1995 (in excess of 1 month in any bonus period), or  compulsory maternity absence, shall result in a pro rata reduction in the level of any bonus payment"


We had to close our business premises down for three days last week because one of the internal ceilings collapsed. Employees were sent home for this period until the necessary repairs and checks on the other ceilings had been completed. Are we obliged to pay the employees for these days?

If you have to temporarily close your business premises because of unforeseen circumstances such as fire, flooding, collapsed ceilings or a power supply failure, and there is no work available for the employees as a result, this is a lay-off.  Unless you have a contractual right to lay-off your staff without pay (other than statutory guarantee payments), or your employees expressly consent to being laid off without pay, then they are entitled to receive their normal pay for the duration of the lay-off.  If you fail to pay them and they resign as a result, and if they have been employed for one year or more, then they can claim constructive dismissal on the ground there has been a fundamental breach of their contract of employment.  Your employees are also eligible to claim unauthorised deductions from wages without the requirement of resignation and regardless of the length of their employment.

Where the employees' contract of employment contains an express contractural right for you to impose a lay-off without pay they consent, they are, subject to certain exeptions, still entitled to receive a guarantee payment for any complete day of lay-off.  Guarantee payments are limited to a maximum of five days' payment in any three-month period.  If the employee is, however, normally required to work less than five days a week, the entitlement cannot exceed the number of days they are required to work per week under their contract.  The amount of guarantee payment per day is based on the employee's normal daily rate of pay, up to a current statutory maximum of £21.50 per day.

Some employees are not entitled to a guarantee payment.  these are : those who have worked for you less than a month ending with the day before the workless day;  those who unreasonably refuse an offer of suitable alternative employement for the workless day (whether or not it is work that they are employed to perform under their contract of employment); those who fail to comply with your reasonable requirements imposed with a view to ensuring they are available for work; and those who are not provided with work because of a strike or industrial action.


Following all the talk in the financial sector about bonus payments, we have decided to revisit our bonus terms, at present we have nothing written down in black and white explaining about our scheme but it has always been custom and practice that employees are paid some form of bonus. How can we mitigate risk to our business?

There are a number of ways to structure a bonus scheme, and the way in which this is done will fundamentally affect the freedom an employer has to reduce, defer or withhold a bonus. The key question is whether the bonus is contractual or discretionary.

A bonus scheme may reserve full discretion to the employer, so the employer retains complete freedom as to when and how much to pay, or whether to pay at all. Alternatively, the scheme may be fully contractual, so that an employee has a contractual entitlement to a bonus at a particular level if he or she hits applicable targets. More commonly, the bonus scheme may be a mix of the two, with a discretionary element built into a contractual right to participate in a bonus scheme.

If you have nothing set down in black and white you are not necessarily off the hook. Even where the scheme itself looks non-contractual, in some circumstances, a contractual entitlement to a bonus may have become implied through custom and practice. This is a particular problem where, having regularly paid annual bonuses, an employer then seeks to withdraw a bonus altogether and pay nothing. It is usually easier in those circumstances to pay a reduced rather than a nil bonus.

In cases where the bonus in question is a contractual obligation, seeking to withdraw or defer that bonus would, in most circumstances, require the employee’s consent to vary that element of his or her contract. The contract itself may reserve a right to the employer to make amendments to the scheme, but that will generally only permit the employer a degree of wriggle room rather than the ability to make wholesale changes.

Where the scheme has a discretionary element, the employer should be able to rely on the exercise of that discretion to limit payments under the scheme or, in some circumstances, to defer or even withdraw them altogether. This does not mean, however, that an employer has a completely free hand. There are still some limits to the changes an employer can make, and the way in which you manage such changes to your bonus scheme can mean the difference between success and litigation.


We have a number of staff on probation and one member of staff has reported in sick recently. Our policy states that company sick pay is discretionary and there is no mention of the entitlement during the probation period. Can we justifiably withhold sick pay?

Provided you have exercised this discretion with other employees during their probation periods then you can withhold company sick pay on this occasion. If you have never addressed the issue then you need to decide on a policy for such circumstances. Once you have made a decision you should communicate it, and update your handbook to reflect the position and ensure you apply the rule consistently. Your employee would still be entitled to Statutory Sick Pay providing they meet the required criteria.


We are a small seasonal business, employing a number of students over the summer holidays. Some of the students do come back for a short time over Christmas and Easter. What holiday pay must we provide to staff in these situations?

The short answer is the staff are entitled to paid holidays for the duration of time worked at different intervals e.g. 12 weeks during summer then 2 weeks during Christmas. If holidays are not taken during the working contract then you are required to pay staff for any accrued and untaken holiday in their final salary. Entitlement would be pro-rata of the full time entitlement of 28 days. E.g. if full time working, holiday calculated at 0.538 per week. Obviously pro rata if less than full time e.g. worked 20 hours per week then 20/40 (if 40 is full time hours) * 0.538 = 0.269 per week.