Payroll Newsletter 18.05.09

News items at - 18th May 2009

Introduction

Anyone involved in any way with the employment of temporary agency workers should look carefully at the Government’s proposals to implement the European Directive.  The Directive requires equal treatment with the permanent employees of the hirer after not less than 12 weeks.  The initial proposals have been published but we are probably less than year away from the introduction of the new rules.

The National Minimum Wage features strongly this week, with the Low Pay Commission’s proposals for modest increases in October being accepted by the Government.  The Government has given way to the LPC’s annual demand for the adult NMW rate to apply to 21-year-old workers, but this change is delayed until October 2010.  The issue of the NMW and tips is also in the news, with the Government confirming that tips will no longer count towards the NMW from October, and confirmation from the Court of Appeal that HMRC’s interpretation of the troncmaster rules is correct.

Our FAQ section this week reproduces the answers to a new series of questions that HMRC has compiled on PAYE procedures for pension payers.

Agency Workers

Consultation on implementing the Agency Workers Directive

The European Directive on Agency Workers was approved by the EU member states and the European Parliament in December 2008.  In principle, the Directive requires that agency workers have the same basic working and employment conditions as they would have done if they had been recruited to do the same job by the business for which they are actually working.

The Directive allows for a qualifying period before this equal treatment is applicable on the basis of an agreement between social partners at national level.  In May 2008, the CBI and the TUC agreed that equality of treatment would apply to agency workers after 12 weeks in a given job.  A number of other issues may be decided at a national level and proposals for these are included in the consultation.

EU member states are required to implement the Directive by 5 December 2011.  The UK Government wishes to implement the Directive in the current parliamentary session, which means that the necessary Regulations would come into force in April 2010.  The initial consultation document, setting out the policy proposals, has now been published and the consultation will run for 12 weeks, until 31 July 2009.  Draft Regulations and guidance will be published later in the year.

The consultation document seeks the views of agency workers, temporary work agencies, companies who use agency workers, companies that manage agency worker contracts, trade associations, representative bodies and other representatives of agency workers (including trade union and workplace representatives).

The current consultation applies only to Great Britain.  A separate consultation exercise will be carried out in Northern Ireland, leading to separate legislation.

Government proposals

The following are the key proposals on which the Government is consulting.  They are all subject to change.

1. The rules will apply to “workers”, using the definition from the Working Time Regulations 1998, suitably adjusted to reflect the triangular relationship between an agency worker, the “employment business” and the hirer.  The definition would cover agency workers contracted to “umbrella” companies (e.g. where the hirer pays the agency, the agency pays the “umbrella company”, and the umbrella company pays the worker), but not those who are genuinely self-employed, or who work through their own limited company (i.e. there is no direct contract between the worker and the employment business), or are employed on “managed service contracts” (i.e. where the workers are employees of and supervised by the agency).
   
   The Directive uses the term “temporary work agency” for the agency supplying the worker and this equates with the terms “employment business”, as used in UK legislation, and “temp agency”, as they are commonly known.  The worker’s contractual relationship is with the employment business and the employment business is responsible for paying the worker and providing statutory leave and other entitlements.  The new rules will not apply to “employment agencies”, the term used in UK legislation for agencies that introduce the worker, who then becomes an employee of the hirer.
   
   The Regulations will apply to “agency workers” who are employed by or have a contract for services with the employment business and who work on assignment with a third-party hirer.  The agency worker would need to do the work personally, and not send a substitute.
   
   
2. Equal treatment relates to “basic working and employment conditions”, i.e.
   
   
   • duration of working time, overtime, breaks, rest periods, night work, holidays and public holidays, (effectively the “working time” provisions), and
     
   • pay.
     
   
   Where a hirer provides “working time” terms and conditions, including rest time and holiday leave, that are more generous than the statutory minimum, agency workers will be entitled to the same entitlements as permanent employees after 12 weeks.  Some hirers and agencies already provide some or all of these entitlements from the start of an assignment.
   
   With reference to annual holiday leave, at least the statutory minimum pay would still have to be paid when a worker takes holiday.  However, any contractual entitlement in excess of the statutory minimum could be paid by means of a one-off payment at the end of the assignment or as part of the hourly or daily rate of pay.  It would be too complex to make provision for excess holiday entitlement in one assignment to be carried forward to the next assignment.
   
   
3. Pay will be defined as basic pay, plus other contractual entitlements directly linked to the work performed, including holiday pay, payment for overtime, shift allowances, unsocial hours premiums and bonuses, and bonuses that relate directly to personal and individual performance, such as piece-work bonuses.  However, pay will exclude remuneration paid in recognition of the long-term relationship between employer and employee, such as share participation, profit sharing schemes, company car allowances and pension schemes (but not the coming pension personal accounts).
   
   
4. The 12-week qualifying period will be 12 calendar weeks, regardless of working pattern, such as part-time and full-time.  A new qualifying period will only start if a new job with the same hirer is substantially different.  Views are sought on how long a break there should be between assignments in the same job before the 12-week clock starts again.
   
   Where workers continue to be paid at a lower rate between assignments, a practice more common in other EU member states than in the UK, the requirement for equal treatment with respect to pay would not apply if the continuing rate of pay is at least a half of the previous pay rate.
   
   
5. Equal treatment will be established by comparison with a comparable worker doing broadly similar work in the same organisation.  Where there is no comparable worker, other factors, which may be included in guidance rather than in legislation, may apply.
   
   Where an assignment lasts for less than 12 weeks, there will no right to equal treatment, but existing entitlements to the National Minimum Wage and to Working Time entitlements will remain.
   
   
6. The primary liability for compliance will lie with the agency but agencies will have a reliable defence if the hirer has provided information that is incorrect or incomplete, despite the agency’s “best endeavours”.  The precise nature of the information to be passed from hirer to agency will not be defined.  Agency workers will have the right to ask the agency for written information relating to their entitlement to equal treatment.
   
   
7. In the event of a dispute, the issue will be raised by the worker with the agency and, if necessary, agency workers will be able to make a claim through an employment tribunal.
   
   Other issues on which views are sought include:
   
   
   • whether an exemption should apply where alternative arrangements are agreed by workers’ and employers’ representatives, bearing in mind the potential difficulties caused by the involvement of three parties to any agreement.
     
   • extending existing protections for pregnant women and new mothers to include
     
   • the right to a temporary adjustment to working conditions and hours where there is a risk to her health and safety,
     
   • the right to suspension on full pay where the risk cannot be removed, and
     
   • the right to reasonable time off to attend ante-natal appointments.
     
   • providing agency workers with the same access to employment vacancies as permanent employees, from the start of an assignment
     
   • providing agency workers with the same access to onsite facilities, such as canteen, childcare facilities and transport services, from the start of an assignment, unless there is an objective reason for any difference in treatment
     
   • the suitability of existing statutory provisions governing the payment of transfer fees when an agency worker is taken on as a permanent worker
     
   • the Government’s current and planned proposals for making it easier for temporary workers to gain access to vocational training
     
   • the inclusion of agency workers when deciding whether an employer or agency reaches the statutory thresholds for establishing bodies to represent workers, e.g. for negotiation or consultation purposes
     
   • provision of information about agency workers by hirers to workers’ representatives.

Further information:
Employment Agencies – Implementation of the agency workers directive: A consultation paper 
http://www.berr.gov.uk/files/file51197.pdf

National Minimum Wage

Low Pay Commission’s proposals accepted by Government

The Low Pay Commission (LPC) published its tenth National Minimum Wage Report on 12 May 2009, which included the following recommendations to take effect from October 2009:

1. the National Minimum Wage (NMW) should increase
   • from £5.73 to £5.80 – age 21+
     
   • from £4.77 to £4.83 – age 18 to 21
     
   • from £3.53 to £3.57 – age 16 and 17
2. the adult rate should apply from age 21
3. the accommodation offset should increase from £4.46 to £4.51 per day
4. a minimum wage for apprentices should be introduced under the NMW framework, with recommendations from the LPC to be included in the 2010 Report
5. additional compliance and enforcement measures should be introduced, including
   • a “name and shame” policy to expose those employers who show wilful disregard for the minimum wage
   • extra funds for HMRC to allow more criminal prosecutions
   • measures to tackle underpaying in the informal economy.

The Department for Business (BERR) confirmed that the Government had accepted the proposed new rates and that the adult rate will be extended to 21-year-olds from October 2010.  Proposals will be developed on making available information about employers who have shown wilful disregard for the minimum wage laws and to address the non-payment of the NMW in the informal economy.

Almost one million workers are expected to benefit from the October 2009 increase in the minimum wage.

Further information:
Low pay Commission's 2009 Report and Recommendations to Government
http://nds.coi.gov.uk/Content/Detail.asp?ReleaseID=401133&NewsAreaID=2

National Minimum Wage

Tips distributed by troncmasters

In June 2008, in the case HM Revenue and Customs v Annabels (Berkeley Square) Ltd & Ors, the London Employment Appeal Tribunal allowed an appeal by HMRC that, in the particular facts of the case, the tips distributed by the troncmasters were not payments by the employers and did not, therefore, count towards the employers’ liability to pay employees at least the NMW.

Annabels and two other private members’ clubs and restaurants (“the restaurants”) operate troncs for the distribution of voluntary service charges, credit card tips and cash tips (described collectively as “tips” in this article) to waiting staff and bar staff.  All of the monies taken by the restaurants, including the tips, were collected initially by the employer and banked.  The full amount of the tips was then paid into each troncmaster’s personal bank account for onward distribution to the staff.

The troncmasters were senior managers of their respective restaurant and operating the tronc was part of their employment duties.  The way in which the tips were distributed was decided by the troncmaster and the members of the tronc.
Each troncmaster operated a payroll in order to distribute the tronc monies, deducted PAYE tax, issued a wage slip and kept proper records.  The restaurants, in addition, operated a separate payroll to pay the staff their contractual wages, from which were deducted PAYE tax and NICs, issued separate wage slips and kept proper records.  All of the procedures involved followed statutory requirements correctly.

However, in March 2006, HMRC served enforcement notices on each of the restaurants, requiring them to pay NMW arrears to members of staff whose pay, in the view of HMRC, was below the statutory minimum rate.  The amount of the tips received on top of wages was not taken into consideration as, according to HMRC’s understanding of the legislation, they were not paid to the employees by the employer.  The NMW Regulations provide that only payments of service charges and tips paid by the employer serve to meet the employer’s liability to pay at least the NMW.

The restaurants appealed against the enforcement notices and the Employment Tribunal ruled that each troncmaster distributed the tips on behalf of the employer and, as a result, the tips counted towards the employer’s NMW compliance.
The Employment Appeal Tribunal, however, overturned the Employment Tribunal, deciding that

• the tips, once passed to the troncmaster, were no longer owned by the employer,
  
• the troncmaster could not be required to pay them back,
  
• the employer had no control over the distribution of the tips, as long as they were distributed to those entitled to them, and
  
• the tips were not therefore paid to the employees by the employer.

The employers subsequently appealed against the EAT decision to the Court of Appeal and that court’s decision was published on 5 May 2009.  The key arguments propounded by the employers was that,

• although the payments were actually paid to the employees by the respective troncmasters, they were also paid by the employer because the monies were paid by the employer to each troncmaster to pay to the employees, and
• the monies remained the employer’s property until paid to the employees because the troncmaster was an employee of the employer and was holding and distributing the tips on behalf of the employer.

The Court of Appeal disagreed with both arguments.  The responsibility for distributing the tips was given to the troncmasters without any involvement from the employers.  When passed to the troncmasters, the employers no longer had any interest or involvement in their distribution.  In fact, if the employers were to be involved in any way in the distribution, the provision for the tips to be paid without deduction of Class 1 NICs, the principal reason for the using the troncmaster procedure, would be lost.  The appeal was dismissed.

As has been pointed out in the past in this newsletter, and as referred to in the Court of Appeal decision, employers may take advantage of the facility to pay tips without deducting NICs, or the facility to have tips count towards their NMW liabilities, but they cannot have both.

If the tips are to be paid to workers without any liability for NICs, they must be paid by a troncmaster who acts completely independently of the employer.  The tips, however, cannot count towards the National Minimum Wage.

If the employer wants the tips to count towards the National Minimum Wage, they must be paid through the employer’s payroll.  As a result, they become liable for Class 1 NICs.

Quite separately to these court decisions, the Government intends to change the NMW legislation from October 2009 so that tips may not, under any circumstances, be used by employers to meet their NMW liabilities.

Further information:
Annabels (Berkeley Square) Ltd & Ors v HM Revenue and Customs
http://www.bailii.org/ew/cases/EWCA/Civ/2009/361.html
HMRC wins minimum wage court battle 
https://nds.coi.gov.uk/environment/fullDetail.asp?ReleaseID=400804&NewsAreaID=2

Employment Status for Employment Rights

Whether workers required to perform services personally

On 8 May 2009, in the case MPG Contracts Ltd v A England (Junior) & Anor, the London Employment Appeal Tribunal (EAT) allowed the employer’s appeal against an Employment Tribunal decision that Mr. England and his son were “workers” for employment rights purposes and therefore entitled to statutory holiday pay.

Mr. England and his son were subcontractors in the Construction Industry working for MPG Contracts.  They were engaged on contracts for service that, among other provisions, allowed them to provide, at their own cost, other persons to carry out their work, subject only to the requirement that they be suitably skilled and experienced.

To be entitled to holiday pay under the provisions of the Working Time Regulations, a person must be either an employee or, alternatively, a “worker” required to provide services personally.  The Employment Tribunal decided that the contract was a “sham” on the basis that MPG Contracts had refused to allow another of Mr. England’s sons to work on-site because there was insufficient work for him to do.  In practice, the Tribunal decided, MPG Contracts required personal service, despite the contract clause to the contrary.

The EAT disagreed on the basis that the refusal to allow the other brother to work was not to substitute for Mr. England or his son but because there was no requirement for additional labour.  There was no evidence therefore that the employer did not intend to allow substitutes.  The engagement was not a contract for personal service, Mr. England and his son were not “workers” and there was therefore no entitlement to holiday pay.  The appeal was allowed and the claims dismissed.

Further information:
MPG Contracts Ltd v A England (Junior) & Anor  http://www.bailii.org/uk/cases/UKEAT/2009/0488_08_0805.html

Car and Van Benefit

New factsheets for employers and employees

HMRC has issued

• a single factsheet for both employers and employees explaining company van benefits,
  an updated factsheet for employees explaining company car benefits and including reference to the recent
• changes to the rules for disabled drivers, and
  
• a summary of the changes announced in Budget 2009 on the changes to company car taxation rules for 2009/10 and the two following tax years.

Further information:
Tax on company vans - Information for employers and employees  http://www.hmrc.gov.uk/vans/vans-info.pdf
Tax on company cars - Information for employees  http://www.hmrc.gov.uk/cars/company-cars-factsheet.pdf
Changes to the car benefit rules in 2009-10 and later years  http://www.hmrc.gov.uk/cars/rule-change-0910.htm

Tax Guidance

New training modules for schools

HMRC has released three Tax Matters modules, to assist education professionals who teach Personal, Social, Health and Economic education (PSHE) and citizenship to pupils aged between 11 and 19.  The consist of a variety of online interactive resource includes videos, quizzes and games, as well as key facts and figures, to help young people learn about tax and its role in society.

Tax Matters is part of a three-year, Department for Children, Schools and Families (DCSF) programme called My Money - being put in place by the DCSF to help teachers deliver financial education.  Personal, Social, Health and Economic education will become a statutory part of the curriculum from 2011.

Further information:
Teaching pupils that tax matters  https://nds.coi.gov.uk/environment/fullDetail.asp?ReleaseID=400650&NewsAreaID=2
Education zone  http://www.hmrc.gov.uk/education-zone/index.htm

Employer CD-ROM

Online updates available

HMRC’s web page that provides downloadable updates to the Employer CD-ROM now includes updates for the 2009/10 version of the CD-ROM running on the Windows, MAC and Linux operating systems.

Further information:
In-year Employer CD-ROM 2009 updates - Internet downloads  http://www.hmrc.gov.uk/employers/cdrom/download-update.htm

PAYE Procedures

Tax code changes

From the start of the 2010/11 tax year, the way in which tax codes D0 and NT must be applied when issued on coding notices P6 or P9 is changing.  If the coding notice states that the employee’s tax code should be

• D0, it is applied on a cumulative basis
  
• D0 Week 1/Month 1, it is applied on a non-cumulative basis
  
• NT, it is applied on a cumulative basis
  
• NT Week 1/Month 1, it is applied on a non-cumulative basis.

The change does not apply during 2009/10.  Tax code D0 should continue to be applied on a non-cumulative basis in every case during this current tax year.

Further information:
Notes for Payroll Software Developers – May 2009  http://www.hmrc.gov.uk/comp/notes11-8.pdf

Income Tax

Guidance on changes from April 2010

As announced in Budget 2009, from 6 April 2010,

• the personal allowance will be reduced by £1 for each £2 that the taxpayer’s “adjusted net income” exceeds £100,000, and
  
• a new 50% tax rate will be applied to taxable income exceeding £150,000.

HMRC has published a series of worked examples to illustrate how these changes will work.  The five examples, elaborated somewhat in the Table below, use the 2009/10 personal allowance (£6,475) and the 2009/10 basic rate limit “£37,400” as the correct values for 2010/11 will not be known until the end of 2009.

Further information:

Additional Rate of Income Tax and Income Related Reduction of the Personal Allowance from 2010-11 
http://www.hmrc.gov.uk/budget2009/additional-rate-examples.pdf

REPUBLIC OF IRELAND

The Labour Court

Proposals for remuneration of catering staff

The two Catering Joint Labour Committees, one representing workers in Dublin and Dun Laoghaire, the other representing workers elsewhere, have given statutory notice that they have formulated proposals for fixing the statutory minimum rates of remuneration and conditions of employment of chefs, cooks, waiting staff, clerks and general assistants.  The last pay increases came into force on 1 November 2008.

Further information:
Catering (Dublin and Ex Dublin) Joint Labour Committees Proposals 
http://www.labourcourt.ie/Labour/Information.nsf/ae03513d3008bb5b8025697d00504774/45cbede23862d5a0802575
a90032e0e3?OpenDocument
List of JLCs (Rates of Pay)
http://www.labourcourt.ie/Labour/Information.nsf/447a09a9deaa452280256a1b0052dc2e/618df5afbe9cee3f80256a1b
00550370?OpenDocument
http://www.labourcourt.ie/Labour/Information.nsf/447a09a9deaa452280256a1b0052dc2e/0f91a5896d3f4e1e802569e
0003de6b1?OpenDocument

ISLE OF MAN

Double Taxation Agreement

Agreement signed with Estonia

On 8 May 2009, the Isle of Man signed a comprehensive double taxation agreement (DTA) with Estonia.

Further information:
Isle of Man signs comprehensive Double Taxation Agreement with Estonia 
http://www.gov.im/lib/docs/treasury/incometax/pdfs/fullnewsrelease.pdf

Text of Double Taxation Agreement  http://www.gov.im/lib/docs/treasury/incometax/pdfs/iomestoniadta.pdf

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Payroll deadlines during the next month

May 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.

May 19 – This is the deadline date for filing, in paper form or electronically,

• form P14 End of Year Summary
  
• form P35 Employer Annual Return
  
• form P38A Supplementary Return

May 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 May 20 at the latest.

May 26 – The date after which non-receipt by the HMRC of year-end returns P14s, P35 and P38A will automatically result in late-filing penalties.

June 5 – This is the final day of tax month 2.  Tax and NICs etc for payments made in the tax month to June 5 are due for payment to the Accounts Office by June 19, or by June 22 if paid electronically.

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Payroll FAQ's

HMRC Questions and Answers

The following questions and answers are reproduced from the latest issue (May 2009) of Notes for Payroll Software Developers.  They are also included in the latest Guide for pension and annuity payer, which provides guidance, in addition to that contained in booklet CWG2 Employer Further Guide to PAYE and NICs, to assist pension and annuity payers, following the introduction of the new form P46(Pen) in April 2009.

Do I need to tell HMRC if there is an error on a P6 for a pensioner?

There is no existing obligation to report P6 errors for pension recipients – or any other employee.  However, it would be helpful if you tell us if you identify an incorrect name, works number etc.

If HMRC issues a cumulative code which disadvantages the pension recipient should I still apply it?

There is no requirement to contact HMRC.  However, it would be helpful if you contacted us should you identify an incorrect code number leading to a large repayment or large deduction of tax.

Can I submit a P45 Part 1 with a date of cessation in a previous tax year?

A P45 Part 1 should be submitted on the date the last payment is made or as soon as possible after that date.  There is no validation to stop them being issued for the previous tax year (or up to 6 years ago).

I have included incorrect pay or tax figures on a P45 Part 1 I have sent in, what should I do?

You should not send a revised P45 Part 1 if the original is wrong. You should include the correct pay and tax figures on both the P11 and P14.  However, it is helpful if you do tell us, as this may help to avoid refunding tax incorrectly to the pension recipient.

When a pension is paid for the first time, and includes several months’ payments, what code should I use?

If the back payments are made in the same tax year in which the pension starts, the code should be operated on a Week1/Month 1 basis. You should only allow tax-free pay due for the month in which the payment is made.

If the back payments are made in the following tax year, the code should be operated on a cumulative basis.

For example; pension starts on 6 December at £500 per month

1st payment made 6 March (£500 x 3 months) = £1,500. Use code on a Week 1/Month 1 basis using tax-free pay for March, or

1st payment made 6 May (£500 x 5 months) = £2,500. Use code on a cumulative basis using tax-free pay for May.

Can I put a future date of commencement on forms P45 Part 3 and P46(Pen) or a future date of cessation on form P45 Part 1?

You can include dates on forms P46(Pen), P45 Parts 1 and 3 that are today’s date or up to 30 days ahead.

What should I do if the pension recipient hands in form P45 Parts 2 and 3 after I have sent you a P46(Pen) but before HMRC has issued a code?

Check the pay and tax is correct and if it is, include it on the P11. Use the code shown on the form P45 Part 3 on a Week1/Month 1 basis.

If the first pension payment is to be made after 5 April carry forward the code shown on P45 Part 3 to the new tax year. Use the code number on a cumulative basis and apply any uplifts, if appropriate, as instructed on the P9X. You do not need to check the pay and details on the P45 Part 3 or enter them on the P11 in these cases. In general, if, as a pension payer, you are given a P45 Part 3, we would prefer you to send the details to us using P46(Pen). This will help HMRC to identify pension recipients when payments first start.

What should I do if the pension recipient hands in form P45 Parts 2 and 3 after HMRC has issued a code?

If form P45 Parts 2 and 3 are received after HMRC has issued a code, continue to use the code as notified and destroy the forms P45 Parts 2 and 3.

If the pension recipient dies and I send P45 Part 1 online, what should I do with P45 Parts 1A, 2 and 3?

There is no need to prepare or issue P45 Parts 1A, 2 or 3 if P45 Part 1 is sent online.

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