Last reviewed 14 August 2017
Employers can no longer reclaim from the state any Statutory Sick Pay (SSP) paid in respect of an employee’s sick leave. Other statutory payments for family related leave can be recovered in full or in part, the amount being dependent on the size of the employer in terms of gross National Insurance contributions (NIC) payments to HM Revenue & Customs (HMRC). Paul Tew, small business consultant and freelance advisor, examines what amounts employers can reclaim and how to receive financial help from HMRC with making statutory payments.
SSP as an employer expense
The Fit for Work scheme, which replaced the Percentage Threshold Scheme under which SSP could be reclaimed, offers health assessments by an occupational health professional once an employee reaches four weeks of sickness absence. The aim of the assessment is to draw up a plan to enable the employee to return to work more quickly. The employer can also benefit by the tax and corresponding employer only Class 1A NIC exemption of £500 a year per employee for any payments made on behalf of an employee for treatments recommended by the Fit for Work Service or any employer-provided occupational healthcare service.
An employee may be eligible for SSP, currently payable at a statutory rate of £89.35 per week for up to 28 weeks. This is the minimum amount payable by law. Employers can pay more through a company sick pay scheme and apply their own payment rules, but can never pay less than the statutory rate (reviewed on each successive 6 April). This type of sick scheme can be costly, but it can help with employee recruitment and retention.
Employers can set their own time limit for notification of sickness by an employee (if no time is specified, there is a default time limit of seven days). Employers do not have to pay SSP for days that an employee was late in notifying sickness but cannot withhold SSP if the employee is late sending in medical evidence, eg doctor’s fit note.
If the sickness continues but the employment is ended, it is necessary to give the employee a form SSP1, so a claim for Employment Support Allowance can be made instead. However, it is a statutory offence to dismiss an employee solely or mainly for the purpose of avoiding paying SSP.
Understand the Small Employers Relief scheme
Of the remaining statutory payments, Statutory Maternity, Paternity, Adoption and Shared Parental Pay an employer can recover all or part of the amounts paid from the state. Recovery is achieved by reducing the monthly or quarterly pay-as-you-earn (PAYE) remittance to HMRC Banking Operations (Accounts Office). To reclaim the payments, employers must include the amount in an Employer Payment Summary (EPS) report sent to HMRC.
Small employers whose liability for gross Class 1 NIC (earnings paid through the payroll) is at or below an annual threshold, which is currently set at £45,000 in the employee’s qualifying tax year can recover 100% of the SMP paid and an additional 3% of that total figure (referred to as Small Employers Relief and NIC compensation respectively) making a total of 103% recoverable. Otherwise, the rate of recovery is 92%.
The qualifying tax year is the last complete tax year before each employee’s qualifying week (the 15th week before the week of the due date), or the “matching week” (the week the employee was matched with a child by the approved adoption agency).
If an employer starts a new business during the qualifying tax year and there are fewer than twelve monthly payments made to the HMRC Accounts Office, the payments must be pro-rated in order to establish whether the annual £45,000 threshold has been exceeded or not.
Once an employer qualifies as a small employer, recovery can be made for the whole period for which the statutory pay is payable to the relevant employee. Employers must take care to look at each employee and each tax year in isolation. If an employer qualifies for one employee or in one tax year, this does not result in automatic qualification for all employees or all future tax years.
Example: An employer paid Class 1 NIC for tax year 2016/17 of £39,456.78. This is the qualifying tax year for statutory payments made to all relevant employees in tax month 6 (6 September to 5 October 2017). The employer qualifies under the Small Employer Relief scheme and the amount that can be recovered is calculated as follows.
Gross Class 1 NIC £3900.00.
Statutory payments paid £1780.00.
Amount to be recovered = (2) x 103% £1833.40.
Net NIC Payable to HMRC £2066.60.
What happens if an employer cannot make payments?
In the event that the amount of statutory payments exceeds both the net NIC and net PAYE tax due for a particular tax month or quarter, the employer may need to apply to HMRC for advance funding in order to make payment. Employers can make an online application (by logging into their HMRC online account) in respect of Statutory Maternity, Paternity, Adoption and Shared Parental Pay.
The application can be submitted up to four weeks before the first payment of the relevant statutory payment is due. Applications made earlier than this are returned to the employer and another application must be made at the relevant time to HMRC. The employer receives an acknowledgement that the request has been received and that the claim should be processed. Employers can now receive statutory payment advance funding by bank transfer. Payment for an advance for statutory payments funding, will appear as an “advance charge” on the Accounts Office employer record.
With claims that span two tax years, funding will be issued in two separate parts. HMRC will send a payment relating to the current tax year and the balance will then follow on in the first month of the new tax year. Any new rates will be taken into account with any payment which spans two tax years.
Even if an advance payment has been received from HMRC to cover statutory payments to be made to employees, it is still necessary for an employer to submit an EPS report for each pay period to reclaim statutory payments. If the statutory payments reported on an EPS are greater than the total PAYE deductions reported on an FPS for the tax month HMRC will automatically use the differential to reduce what is owed on the advance payment.
Example: An employer has £2500 in PAYE deductions to pay after sending in the FPS report and £3000 to reclaim in statutory payments in the EPS report. The advance payment will be reduced by £500 (£3000 minus £2500).
If there is any advance charge still remaining at the end of the period that the advance covers, this represents a PAYE amount owed to HMRC.
If an employer receives an incorrect funding or includes statutory payment information on a FPS report sent to HMRC, either fraudulently or negligently, then a penalty up to a maximum of £3000 per offence can be imposed. HMRC will charge a penalty for each employee to which an offence relates. If the claim spans more than one tax year a penalty is chargeable for each year. A repeat offence will increase the amount of the penalty.