It’s Christmas! Bah, humbug
01 December 2019
This article was featured in the December 2019 - January 2020 issue of the magazine.
Samantha Mann CIPP MAAT MCIPPdip, CIPP senior policy and research officer, discusses various aspects, particularly early pay days
In Charles Dickens’ A Christmas carol, Ebenezer Scrooge says: “What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, but not an hour richer?”
Whether this resonates with you, let’s consider the impact that earlier payments can have on the benefits system, on the cash flow of employees, and on the scheduling to accommodate processing in December.
Payroll cut-off dates
Whether you deliver your payroll services in-house or to external clients as an outsource provider you will have a cut-off point beyond which you will not be able to accept further changes. Everyone has a different cut-off – there is no hard-and-fast rule.
In December it is common practice for employers to consider requests for an early pay day to help employees plan for Christmas. Factors for supporting such a request can include:
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the normal pay day date
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the impact of bank holidays on payment schedule e.g. BACS
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company or payroll department close-down dates
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company cash flow (this can be an issue particularly in times of austerity)
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custom and practice
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company ethos regarding employee financial management.
Conversely you may use the services of an outsourced provider and find yourself applying their chosen processing dates. Do those dates suit you and your employees, and would you prefer a later date?
Good communication is key to ensuring that any alteration to the usual process is made known to all affected parties, especially employees, who may experience a delay in receiving payment for overtime or extra shifts as a result of an earlier processing cut-off date.
...common practice for employers to consider requests for an early pay day...
On or before
The introduction of real time information (RTI) was hailed to be one of the biggest changes to the income tax pay as you earn (PAYE) process since its introduction in 1944. The mantra at the time was (and continues to be) that the FPS (full payment submission) must be made on or before the date that the employee is paid.
The October 2019 edition of the Employer Bulletin (http://bit.ly/2VTxNNP) once again highlighted the action that should be taken in the event that the contractual pay day falls on a non-working day. The date to be used in the FPS must be the normal (contractual) pay date and not the date when the payment is made, even where the payment is being made earlier (or later) because of the impact of a non-working day. By ‘non-working day’ I mean a weekend or bank holiday.
The piece reiterates the guidance that can be found at section 1.8 of the Employer further guide to PAYE and National Insurance contributions (http://bit.ly/2GrBbcq). It is critical that the employer uses the correct pay date.
Universal credit (UC)
The driver to the delivery of RTI, so we were told at the time, was to enable the successful delivery of a ‘flagship benefits system’ otherwise referred to as universal credit (UC).
Delay, and more delay, has dogged the roll out of UC which has resulted in much criticism of this system. However, by far the biggest area of concern is the impact that early payments can have on the eligibility and payment of UC.
The basis of a UC-claim is the monthly assessment period set by the Department for Work and Pensions (DWP). Four times a day DWP systems communicate with HM Revenue & Customs’ (HMRC’s) systems to gather earnings data of claimants. Where data is found that falls within the claimant’s assessment period it is used to assess whether a UC payment should be made in full, be adjusted, or cease if the amount exceeds the UC earnings threshold.
The risk of this happening increases where the employer uses the incorrect payment date in the FPS, but this ‘double bubble’ occurrence will happen routinely throughout the year where an employee’s pay period is two-weekly or four-weekly.
The impact this has on UC claimants is significant as it threatens the working tax credit element and the housing benefit element.
In the case R (on the application of Johnson and others) v Secretary of state for work and pensions (http://bit.ly/32s2XNY) the interpretation of the regulations by DWP was ruled to be wrong. Where a double payment appears in the same claim period but relates to two separate assessment months it is within the gift of DWP to make an adjustment.
Employee financial awareness
The Low Income Tax Reform Group (LITRG) has written extensively on this subject and provide excellent information (http://bit.ly/34CQfNR) and signposting that can provide help to claimants who find themselves affected.
Not all employees claim UC, but the excitement of Christmas can leave many counting the days until the January pay day arrives. Employers can help their employees in several ways that include:
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providing advice and support to educate employees on budgeting and financial management
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not paying any earlier than the non-banking days enforce – thus minimising the weeks between December and January pay days
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considering requests for advances to reduce the risk of employees giving in to temptation and obtaining ‘pay day loans’ that are advertised daily across our TVnetworks.
At the time of writing, another advert is being run with the motto ‘pay day = save day’ and I am sure this has resulted in many employers turning to their payroll teams to ask “what can we do to encourage our employees to save?”
We welcomed 2019 with shocking headlines (first reported in The Times) that the retailer Iceland planned to fight HMRC over their accusation of an alleged underpayment of national minimum wage (NMW) of £21,000,000 which came about largely due to Iceland’s operation of a voluntary employee saving scheme. Described as “just madness” by Iceland’s chief executive officer this headline highlighted the importance of obtaining accurate advice before entering into a similar scheme.
Debate and concern continue on this and many other areas of uncertainty surrounding HMRC NMW findings, but we’ll leave that increasingly uncertain subject for another day.
...providing advice and support to educate employees on budgeting and financial management...
Festive quick polls
Our quick polls are run throughout the year to gather indicators of views at the time. Our Christmas polls are a little more ‘tongue in cheek’ to recognise the festive air that permeates December.
In the run up to Christmas 2018, the CIPP policy team ran a series of polls in a bid to build a picture of employer Christmas traditions (and attitudes) together with employee expectations of their employer’s festive generosity. The 2018 results were interesting and provided an opportunity to compare how we may sit alongside our peers. (Thank you to everyone who responded.) Here are the results.
“God bless us, every one!”
The results of our 2018 poll provide me with a shameless opportunity to quote Tiny Tim, taken from my favourite Christmas story – A Christmas carol.
Whilst the image and views of a miserly Ebenezer Scrooge may spring to mind, I prefer to close with the image of the reformed employer who welcomed Christmas day with the words “I’ll raise your salary, and endeavour to assist your struggling family.”
We can’t all have employers who welcome Christmas day in the same way…but we can but hope.
Are the tax and NIC costs of your seasonal reward scheme a factor in your decision making?
Yes – 22%
No – 15%
No, but we recognise it should be – 5%
Not applicable, we don’t provide – 58%
Does your employer cover the full cost of the staff Christmas party?
Yes, in full – 49%
No, cover part – 18%
No, pay nothing – 33%
What do you use your Christmas gift to do within your workplace?
To say thank you – 41%
To inspire – 2%
To engage – 5%
Nothing, it is just expected – 7%
Not applicable, we don’t provide – 45%
How will your employer process the value of your seasonal gift?
PAYE settlement agreement – 18%
Will fall within trivial benefit rules – 29%
P11D reporting – 5%
Payrolling – 8%
Not applicable – 40%
What personality type is your employer at Christmas time?
Ebenezer Scrooge – 33%
Bob Cratchit – 5%
Father Christmas – 31%
Naughty Elf – 5%
The Snowman – 8%
The Grinch – 18%
What will you be expecting from your employer this Christmas?
Non-cash voucher – 4%
Turkey – 1%
Chocolates/biscuits – 4%
Hamper (food and/or drink) – 5%
Cash bonus/voucher – 4%
Annual party/other experience – 35%
Unlimited generosity (budget allowing) – 1%
Nothing (bah humbug) – 46%