News Items – at 30th October 2007

Review of Statutory Sick Pay

Only minor improvements recommended

In January 2006, the Department for Work and Pensions (DWP) published a Green Paper entitled A new deal for welfare: Empowering people to work and sought comments from interested parties.  It included proposals for the simplification of Statutory Sick Pay (SSP), including the removal of the three waiting days, removal of the linking rules that apply when people change employment and the removal of the Percentage Threshold Scheme, which allows employers to recover some of their SSP payments in certain circumstances.

In June 2006, the DWP published a summary of consultation responses and, due in particular to the concerns of employer groups about the cost and effect on sickness absence of paying SSP for the first three days of sickness, concluded that it was not sensible to proceed with any reform at that time.  However, it was announced that discussions with employer and employee representatives would continue to explore alternative approaches to simplification.

In December 2006, the DWP published its Simplification Plan 2006-07, a series of measures aimed at reducing the regulatory burden on its own staff, employers and individuals.  (www.dwp.gov.uk/aboutus/better_regulation/simplification_plan.pdf)  Forty different proposals were explained, including reviews of Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP).  The requirement for employers to maintain records of sickness absence for four or more consecutive days, for each employee for three years, was shown as imposing the greatest burden of all of the obligations under consideration.

The DWP also announced that a further review of SSP had already begun, with the SSP Review Working Group holding their first meeting on 7 November 2006.  The restrictions placed on the simplification review by its terms of reference were that its recommendations should:

• give due regard to the DWP agenda,
• not impose unreasonable costs on employers or additional costs to Government, and
• demonstrate fairness for all employee groups.

The review was carried out between November 2006 and July 2007.  The finalreport was published on 25 October 2007, along with an announcement of the Government’s future intentions.

The conclusions and recommendations of the Report, in summary, are as follows:

• it was not possible to devise a significantly altered or replacement scheme that would meet the terms of reference
• the current scheme achieves a careful balance between benefits for employers and employees and the arguments for disturbing that balance are not strong enough to warrant changes
• the rules requiring employers to link together spells of sickness with different employers to calculate the maximum period of entitlement to SSP (including the use of form SSP1L) are little used and should be removed
• no straightforward changes to the main 3-day linking rule could be identified and any solution that involves re-serving waiting days is not acceptable to employees’ representatives
• any formal scheme to enable employers to opt-out of SSP by providing an occupational sick pay (OSP) scheme that is at least equivalent to SSP and that provides protection for all employees would be as complex as SSP itself
• the introduction of Employment Support Allowance (ESA) to replace Incapacity Benefit from Autumn 2008, with a rate that does not depend on the length of sickness absence, will remove (for new cases) the information that employees currently have to provide on form SSP1 when entitlement to SSP runs out
• the reduction in information provision resulting from the introduction of ESA will allow more employers with good OSP schemes to opt-out of SSP under current rules - parallel records would no longer be needed, only a record of absences of four days or more
• although the Percentage Threshold Scheme (PTS) is complex and expensive to administer and it is believed that as few as 10% of small employers actually use the scheme, it is the only direct subsidy available to small employers and no agreement could be reached on how to remove the scheme
• medical certificates should be reformed to provide information about an employee’s capacity for work rather than reasons to refrain from work
• the Government should provide access, particularly for small employers, to guidance on absence management procedures.

In a letter to the Working Group, Lord McKenzie, Parliamentary Under Secretary of State (Lords), accepted all but one of the recommendations.  The recommendations relating to the requirements for employers to provide information for benefits purposes will be introduced to coincide with the introduction of Employment Support Allowance in October 2008, subject to Parliamentary approval.  A review of the medical certificate has already begun and the Working Group’s views will be taken into consideration.

The Government is not persuaded, however, of the value and benefit of the Percentage Threshold Scheme, believing that it does nothing to help employers reduce and effectively manage sickness absence.  Consideration will be given on how to replace it with alternative methods of supporting employers.

Further information:
Statutory Sick Pay review working group – final report  http://www.dwp.gov.uk/publications/dwp/2007/SSP-review-final-report-181006.pdf
Lord McKenzie’s response to the report  http://www.dwp.gov.uk/publications/dwp/2007/SSP-Review-Govt-Response-231007.pdf

Car Benefit Charge

New reduction for bioethanol cars

The cash equivalent of a company car for tax purposes is a percentage of the car’s list price.  The appropriate percentage ranges from 15% to 35%, according to the car’s CO2 emission rating.  The appropriate percentage may be reduced if the car is capable of running on alternative, environmentally friendly fuels.  For example, the appropriate percentage for “hybrid” cars that run on both petrol and electricity is reduced by 3 percentage points.

From 6 April 2008, cars that run on bioethanol, or on a mixture of 85% bioethanol and unleaded petrol (commonly known as “E85”), will be entitled to a reduction in the appropriate percentage of 2 percentage points.  To give effect to this change, relevant amendments have now been made to the Income Tax (Car Benefits) (Reduction of Value of Appropriate Percentage) Regulations 2001.

Bioethanol is a liquid biofuel made from starch plants (e.g. corn and wheat), sugar plants and some cellulose plants (trees).  Production involves fermentation, distillation and dehydration.  As a fuel, bioethanol can be used as a 5% to 85% blend with petrol.  Petrol containing only 5% bioethonal can be used in all petrol engines.  Engine modifications are needed, however, if the E85 blends are used.

Further information:
The Income Tax (Car Benefits) (Reduction of Value of Appropriate Percentage) (Amendment) Regulations 2007  http://www.hmrc.gov.uk/si/2007-3068.pdf
Memorandum to the Income Tax (Car Benefits) (Reduction of Value of Appropriate Percentage) (Amendment) Regulations 2007  http://www.hmrc.gov.uk/si/2007-3068-em.pdf

Payroll Consultation Panel

Minutes of latest meeting published

The Payroll Consultation Panel is a sub-group of the Employer Consultation Forum, HMRC’s principal consultation forum for employers and their intermediaries.  It meets quarterly is its purpose is to provide a forum

• for HMRC to explain and explore implications of potential changes to products and processes impacting on small and medium sized employers, and
• for small and medium sized employers to raise and discuss issues or problems in administering their payroll obligations.

The minutes of the latest meeting, held on 17 September, have been published.  They include discussions and action points about:

• salary sacrifice schemes
• structured action requests, i.e. how employers and agents can change employer details online
• expenses and benefits, in particular the Irish system of taxing benefits through the payroll
• agent problems with form 64-8
• the possibility of a sub-group to look at homeworking.

Further information:

Payroll deadlines during the next month

November 2 – This is the date by which any changes to the provision of company cars in the three months to October 5 must be reported using form P46(Car).

November 5 – This is the final day of tax month 7.  Tax and NICs etc. for payments made in the tax month to November 5 are due for payment to the Accounts Office by November 19, or by November 22 if paid electronically.

November 19 – For employers required to pay tax and NICs etc to the Accounts Office monthly, this is the deadline for payment to be received by the Accounts Office, unless made electronically.

November 22 – For employers required to pay tax and NICs to the Accounts Office monthly, this is the deadline for electronic payments to be cleared into the HMRC bank account.  Payments through BACS must be initiated by November 20 at the latest.

Payroll FAQ's

Benefits Provided During Maternity and Adoption Leave

What are the cash and non-cash benefits entitlements during maternity/ adoption leave?

The first important point to make is that employees remain employees for the full period of their ordinary and additional maternity leave and, during that time, are bound by the terms of their employment contracts to the extent defined in legislation.
The following notes are written in the context of maternity leave, but they apply equally to adoption leave and, as appropriate, to paternity leave.

During ordinary maternity leave
During the first six months of ordinary leave, a woman’s full contract of employment continues in force, with the single specific exception of her entitlement to “remuneration” under the contract.  If she qualifies, she receives SMP instead of her remuneration.  Otherwise, she is entitled to all the benefits of her contract, including holiday accrual, use of a company car, private medical insurance, use of a mobile phone, participation in share schemes, reimbursement of professional subscriptions, health club membership, etc.

Whether cash payments may be paid during ordinary leave depends on whether or not the payments are “remuneration”, defined as “only sums payable to an employee by way of wages or salary”, i.e. payments made as reward for work performed.  As payment of wages and salaries are, under most employment contracts, payable by the employer even if no work is available, the obligation to pay the wage or salary due under the contract is not in force throughout ordinary and additional leave.  The obligation only resumes when the woman returns to work or, if she wishes to return early, after giving eight week’s notice of the early return, on an earlier date that the employer agrees to.

If a woman performs any work during the period of leave for which she is due wages or salary, it may be paid but, unless the work is performed on one or more of the ten available “Keeping in Touch” (KIT) days, she forfeits any SMP due for that week.
Occupational maternity pay may be paid instead of SMP; it offsets the employer’s liability to pay SMP.

Other cash payments may be made on top of SMP, such as

• commission relating to work performed before the start of leave
• bonuses that relate to other factors, such as profit, company/department performance or loyalty, which fall due during maternity leave
• cash alternatives to benefits, such as a cash allowance in lieu of a company car

During additional maternity leave
During the following six months of additional leave, the contractual terms and conditions that apply are limited to

• the employer’s implied obligation of trust and confidence, and to any employment terms relating to notice by the employer to terminate her employment contract, compensation in the event of redundancy, and disciplinary or grievance procedures
• the woman’s implied obligation of good faith, and to any employment terms relating to notice by the woman to terminate her employment contract, the disclosure of confidential information, the acceptance of gifts or other benefits, and her participation in any other business.

All other terms and conditions, including the accrual of contractual holiday pay, the provision of benefits-in-kind and payments in lieu of such benefits, do not apply during additional leave unless specifically provided for in the contract.  The same restrictions with regard to “remuneration” apply, although contractual maternity pay may be paid.

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