Log in

No account? Create an account
The Titfield Thunderbolt Hue and Cry Whisky Galore The Man in The White Suit Previous Previous Next Next
Ambulance-chasing - The Titfield Thunderbolt
Heisenberg might have stayed here
Would anyone care to comment - knowledgeably or otherwise - on the following?

  • Should Severance Pay (aka PILON) have Statutory Redundancy Pay deducted from it?

  • How do you really find out whether Severance Pay is taxable?

  • Should Severance Pay include other benefits to which one would be entitled if actually employed during that period (e.g. employers pension contribution, value of BUPA cover, etc.)

  • Anyone care to recommend an employment lawyer in the Reading area - or equally, one to avoid?


18 comments or Leave a comment
uitlander From: uitlander Date: January 23rd, 2009 03:43 pm (UTC) (Link)
I believe that pay in lieu of notice is taxable. essentially it's your regular pay cheque, only they are not actually expecting you to turn up and do anything for the period it applies, so it gets handled as if it was just your normal pay.

I do not think Statutory Redundancy pay should be deducted from it. That is an additional payment made on top of pay in lieu of notice if you are eligible for it.

I think whilst you are within your notice period you should continue to have all employment benefits (pension, accrue holiday, insurances etc.). The employer is within their rights to offer you a payment instead of providing these.

My attempts to find an employment lawyer in Reading failed. The GMB did back me when I fought Misys for accrued holiday pay that they tried to pocket. A few knowledgable people on LJ with legal training offered an opinion. The opinion was essentially don't litigate unless you have money to burn.
qatsi From: qatsi Date: January 23rd, 2009 03:53 pm (UTC) (Link)
I believe that if the employer wants you to sign a Compromise Agreement, then they have to pay for you to have independent legal advice.
uitlander From: uitlander Date: January 23rd, 2009 04:29 pm (UTC) (Link)
I think the way it goes is that for a compromise agreement to be legally binding, you must have received independent legal advice. Ergo it is usually in the employer's interest to ensure you have received this to make the thing binding, but they are under no obligation to pay for it.

My only experience of such things involved a company offering to either provide the services of a pre-appointed lawyer who would act at their instruction on my behalf, or a capped figure which they would provide in terms of legal fees - probably enought for ~1 hour of a lawyer's time.
mraltariel From: mraltariel Date: January 23rd, 2009 06:14 pm (UTC) (Link)
That's all exactly right - although the bit about a lawyer they instruct to act on your behalf is easily construed as "not independent"; it is much more usual to offer about £200 for that. Which is tax free.

Although payment in lieu of notice is taxable, up to £30,000 of "other payments" in a compromise agreement is tax free. However, if your contract has pilon terms, then you can't "back out" of that clause. The IR check a percentage of such agreements, and your employer will usually add a clause to your CA to ensure that you are liable for any subsequent tax claims on the amounts paid out under its terms.
mraltariel From: mraltariel Date: January 23rd, 2009 06:15 pm (UTC) (Link)
Oh, and severance pay does not include anything for benefits etc: just your salary; however, if there are deductions for e.g. healthcare, pension etc, they should be added back in (i.e. it is based on the gross)
qatsi From: qatsi Date: January 23rd, 2009 06:35 pm (UTC) (Link)
Thanks for the information. I've found my contract, and the company "reserves the right" to make PILON. Interestingly it says in my contract that it will be subject to tax and Class 1 NI, yet the draft redundancy statement says that it isn't taxable. (All this confirms that someone legally qualified needs to look at it).

On the benefits front this seems to be a bit ambiguous: "The amount you will get will normally cover everything that you would have earned during your notice period. This will normally cover your basic pay and may include other things like commission, and compensation for the loss of benefits such as personal use of a company car or phone, or medical insurance."

Though it then goes on to say that the employer may continue to provide the benefits for the notice period instead. (Not sure how that would apply to an employer's pension contribution).
mraltariel From: mraltariel Date: January 23rd, 2009 06:40 pm (UTC) (Link)
Yes - all those "mays" just mean that your employer can do so if they want.

Reserving the right to PILON means that it is at your employer's discretion whether they make you come in and work out your notice, or just pay you the money and let you go. What it does mean, though, is that they can't roll that PILON into the compromise agreement as part of the untaxed compromise payment.
brixtonbrood From: brixtonbrood Date: January 23rd, 2009 09:00 pm (UTC) (Link)

I used to be a lawyer, but a long time ago...

I'm not 100% sure that's true actually. In my experience companies can usually find a way to make your redundancy payment tax free if they want to (and why wouldn't they want to? they've got nothing to lose. They don't give a toss whether the money qualifies as PILON or redundancy settlement), and that contract sounds woolly enough to allow a lot of leeway. However, my last redundancy was 5 years ago and HMRC may have tightened up since then.
My advice would be to speak softly and sweet-talk HR, and get some professional advice on the tax side because there's serious money at stake if you can finesse the tax situation.
qatsi From: qatsi Date: January 23rd, 2009 10:00 pm (UTC) (Link)

Re: I used to be a lawyer, but a long time ago...

Thanks for the input. From what I've been reading HMRC have been tightening up on things; if it ends up as taxable, I may be able to pour at least some of it into my SIPP as a way of getting the money back (I certainly don't want any money going into the pension plan provided on behalf of my employer, there'll be a transfer out of that just as soon as it's marked as paid-up).
uitlander From: uitlander Date: January 24th, 2009 06:48 am (UTC) (Link)

Re: I used to be a lawyer, but a long time ago...

More bits are coming back to me from the last time I looked (~2006 when I had two redundancies in a row). At that point if redundancy payments were mentioned anywhere in your contract that made them taxable. However if a contract was silent on the matter then they were tax free.

One of my many redundancies certainly involved a company that led us all to believe that our redundancy package was tax free, and subsequently deducted tax at 40% off the lot saying that subsequent advice from the revenue had required them to do that. This was an unpleasant and most unwelcome additional kick in the teeth at the time. I did attempt to get some of the money back from the revenue in my tax return that year, but they wouldn't budge on the grounds the company had declared it a taxable payment.
qatsi From: qatsi Date: January 23rd, 2009 10:01 pm (UTC) (Link)
I suppose what you're saying is that PILON isn't a part of a compromise, as it's something I am contractually entitled to if they don't want me to work notice.

Which does leave me to wonder exactly what compromise there needs to be ...
uitlander From: uitlander Date: January 24th, 2009 06:54 am (UTC) (Link)

Compromise agreement

I suspect it may includes clauses along the lines of 'I promise not to discuss this with my chums or say rude things about the company or any of its staff'.

As I think I've said to you on the phone, another point made to me after the whole nasty business was over was that for a compromise agreement to be valid there must actually be an element of compromise. So if they ask you to do anything beyond normal employment T&Cs they must make an appropriate payment for it to actually count as a compromise and stand up in court. Its down to you and them to haggle about what an appropriate payment is, but I do not think they can actually withhold statutory redundancy or other contractual payments if you refuse to sign. If they want an agreement in place then that is your only bargaining chip and you can use it to screw additional things out of them within reason.
shui_long From: shui_long Date: January 24th, 2009 04:33 pm (UTC) (Link)
You are contractually entitled to a paid notice period, or pay in lieu if they want you to go earlier. You are legally entitled to statutory redundancy pay, which is a separate matter; depending on your employment contract you may be entitled to more than the statutory minimum, and/or the company may decide to give you additional severance benefits.

The point of a compromise agreement is that the company wants you to go quietly, and not take them to the Employment Tribunal for alleged discrimination or failure to operate the redundancy procedures properly - and a claim in the Employment Tribunal would cost the company considerable time and effort, even if they win the case. By signing a compromise agreement you waive your right to subsequently make a claim to the Employment Tribunal or Court. The company may also want you to accept confidentiality obligations (i.e. not discuss the settlement with your colleagues) or undertake not to make derogatory comments about the company. All of this is potentially worth money - they should make you an offer, over and above your contractual and legal entitlement, on condition you sign a compromise agreement, and you may well be able to negotiate more than they have offered. You are not obliged to sign such an agreement, and certainly must obtain legal advice (for which the company will often pay part or all of the cost) before doing so.

Generally it is a mistake to go to court unless you have plenty of money to throw at it; however, Employment Tribunals are slightly different in that they will not normally award costs against employees, so you have rather less to lose. Even so, you should regard this as the last resort (but should not admit that in negotiating with the HR Department!). Make sure you keep copies of all documents, and full notes of any meetings or telephone calls; you will need them if you make a claim to a Tribunal, and having them gives you a stronger position in negotiating with the company.
qatsi From: qatsi Date: January 23rd, 2009 06:37 pm (UTC) (Link)
I do not think Statutory Redundancy pay should be deducted from it.

I think you are right. That makes quite a difference, especially if the rest is going to be taxed.

Edited at 2009-01-23 06:37 pm (UTC)
shui_long From: shui_long Date: January 23rd, 2009 09:55 pm (UTC) (Link)
HMRC is surprisingly helpful in providing information, and it's worth checking their website (though you may have to plough through quite a few pages). Pay in lieu of notice is taxable as employment income, and is also subject to NI, but redundancy payments (up to £30,000) are not. PILON should include benefits normally provided under the employment contract, and is payable in addition to the statutory redundancy payment.
A compromise agreement is only valid if the employee has received duly qualified advice (legal/trade union), and the adviser is required to countersign the agreement.
qatsi From: qatsi Date: January 24th, 2009 10:43 am (UTC) (Link)
What you say is correct; it's just that the draft calculation prepared by my employer doesn't clearly match any of the stated regulations. Which may just mean they've been a bit dim about it, or it may mean they're trying to short-change me. (All of which confims the need for proper advice).
From: (Anonymous) Date: January 26th, 2009 05:40 pm (UTC) (Link)
I don't have any personal experience, but a colleague suggested Richard Devall, a partner at Pitmans in Reading, as a specialist employment lawyer.
The Pitmans website includes a "Toolkit" of useful information including calculation of redundancy payments - which might be useful in itself:
qatsi From: qatsi Date: January 26th, 2009 07:52 pm (UTC) (Link)
Thanks. It turns out I had misunderstood a couple of things in the letter, and there isn't the urgency I had thought either.
18 comments or Leave a comment