Time spent sleeping and payment of the NMW

Whether an employee required to sleep on their employer's premises is still 'on the clock' was the issue in a National Minimum Wage (NMW) case decided by the EAT (Wray v J W Lees & Co (Brewers) Ltd [2001] UKEAT 0102-11).

In this case, Ms Wray was employed as a temporary pub manager on a series of her employer's premises. She was provided with free accommodation at each pub and it was a term of her employment that she “reside and sleep on the premises except on those occasions when the consent of the Area Manager has been obtained to her absence.” The question on appeal was whether the time spent by Ms Wray in the premises overnight was time work for which the NMW should have been paid?

Unfortunately, the original Tribunal had used the legislation and case law related to the Working Time Regulations, not the Minimum Wage, in reaching its conclusion. The EAT correctly drew on the National Minimum Wage Regulations 1999. The NMW Regulations do not specifically define “work”; an employee's working time is categorised as either time work, salaried hours work, output work, or unmeasured work. As Ms Wray was paid monthly the EAT used the legislation referring to 'salaried hours work'.

Regulation 16 allows that where a “worker is available or near a place of work for the purposes of doing salaried hours work and is required to be available for such work” this should be treated as being “working hours” for which the NMW should be paid. However, subsection 1A of that Regulation states that where “a worker by arrangement sleeps at or near a place of work and is provided with suitable facilities for sleeping, time during the hours he/she is permitted to use those facilities for the purpose of sleeping shall only be treated as being salaried hours work when the worker is awake for the purpose of working.”

The EAT found there was nothing in Ms Wray's terms and conditions that obliged her to work once she had completed her duties at night. The accommodation provided was effectively her home, albeit a temporary one. Her being provided with somewhere to sleep could not be compared with accommodation provided for sleeping over or on call purposes. She was not required to undertake any duties for her employer whatsoever until the pub re-opened the following day.

Therefore, despite that Ms Wray was required to sleep on the premises as a “minimum security measure” this did not mean she was engaged in 'salaried hours work' during those hours. The only matter Ms Wray would have to attend to was if someone broke in to the premises, or a fire broke out. Except all she would have been expected to do was to call the emergency services; something she would still have done were she in her own home. Ms Wray was not in the same position as that of a night-watchman, or a night-sleeper in a residential care home who has a responsibility throughout the night for those present in the home.

I cannot help but think that if the employee's terms relating to their sleeping on the premises had been expressly stated in line with the NMW Regulations, there would have been no claim against the employer. As it was, the EAT had to base its judgement on what was the actual practice between the parties.

UNISON (the public service union) has published a useful information sheet concerning “sleeping in” arrangements (a common practice in the care sector, security, and hotel industries). Many such workers are required to sleep in at or near their place of work and are often paid an allowance for doing so. But does this “allowance” comply with the NMW Regulations? The UNISON information sheet contains a useful review of the case law together with the results of a survey they carried out into the pay and conditions for workers who sleep in at work.

 

The NICs liability of paying a car user's allowance

Many employers have employees who use their own vehicles on the employer's business and are paid an essential car user's allowance each pay period. They are then reimbursed a reduced mileage rate to cover just the business fuel costs of using their own vehicle on work-related journeys. Under what circumstances could the periodic allowance be liable to Class 1 NICs (and to income tax)? This was the issue in the First Tier Tax Tribunal case of Total People Ltd v HMRC.

In this case, employees who were expected to travel so many business miles in the year were paid an annual lump sum in monthly instalments and then around 12/13p per mile to cover their actual business mileage. Employees were paid the flat rate allowance regardless of the car driven by them on work-related journeys and, therefore, regardless of the actual fixed annual costs in relation to their specific car. In some cases, the lump sum was also paid regardless that the employee had not driven the requisite number of business miles in the tax year on which the allowance was based.

HMRC claimed the lump sum was liable to Class 1 NICs because there was no link between the payment and the actual business use of the car by the individual employee. Therefore, the lump sum was effectively a round sum payment liable in full to Class 1 NICs.

The conclusion of the First Tier Tribunal Judge was: “Clearly there are indications, if taken separately, that could lead to a conclusion either that the lump sum payments were additions to salary or that they were paid as motoring expenditure but we have decided that taking all the evidence into account, they were the latter.”

HMRC decided to appeal and the Upper Tier Tribunal found in favour of HMRC (HMRC v Total People Limited [2011] UKUT 329) on 16 August 2011.

The new Tribunal Judge did not consider it essential that payments for the business use of an employee's vehicle must be made on a mile-by-mile basis; payment by round sum allowance may be permissible. In this case, the Judge had no great difficultly in characterising the lump sums as payments in respect of motoring expenses. However, the Judge said that it is not enough that the payments represented, or were intended as, reimbursement of motoring expenditure. For exemption from Class 1 NICs, the payments also had to be the payment of “relevant motoring expenditure” as per the Social Security (Contributions) Regulations 2001, reg.22A(3). In which case, the payment of relevant motoring expenditure requires that the payment is a “mileage allowance payment” as defined by the Income Tax (Earnings and Pensions) Act 2003, s.229(2), i.e. the payments were “amounts… paid to an employee for expenses related to the employee's use of… a vehicle for business travel.

In other words, there must be a clear link between the annual lump sum allowance and the use of the vehicle; there must be, said the Judge, “some link between the payment and the miles driven”.

In the Judge's opinion this link was not clearly apparent from the employer's records. The amounts paid were made, not to defray the cost of business use, but to defray the cost of acquisition or ownership. Said the Judge, “the sums paid bore no relation, save by chance, to the scale of business use made by the employee of their car.” The Judge's conclusion was that it was “difficult to see how a payment which is made irrespective of the number of miles covered can properly be said to be related to use… I am satisfied the payments were not of relevant motoring expenditure because they were not paid by reference to, or with regard to, the use by the employees of their cars on [the employer's] business. The payments were not relevant motoring expenditure and were accordingly emoluments of employment liable for NICs.”

This judgement does not express any change in the stance of HMRC; but what it does do is remind employers to re-examine their policy of paying essential car user allowances and, if they do not subject such payments to Class 1 NICs, that they can show there is a clear correlation between the amount paid by way of the periodic allowance and the actual business use of the employee's vehicle.

As, in the Total People case, the employer's lump sum payments were not “relevant motoring expenditure” (RME), then by implication neither were they an approved “mileage allowance payment” (AMAP). In this case the lump sums were also liable in full to PAYE income tax.

In its internal guidance, HMRC allows that an exempt AMAP payments can include the following:

+ A mileage rate for business travel only, paid in arrears on an actual basis.

+ A payment based on estimated mileage (as long as the estimate is reasonable; if it is not, it is likely that none of the payment is AMAP).

+ A lump sum payment aimed at covering the business proportion only of the standing costs of the car – for example, HMRC accept that the lump sum instalment payments for regular business drivers made at nationally agreed rates by many local authority and NHS employers are for this purpose.

+ A combination of the above (for example, a monthly lump sum, and a separate rate per mile for business fuel costs). 

But says HMRC, any lump sum payment must not be, for example, a payment made merely because the person no longer has a company car but must provide their own car for business travel. Also, whilst the lump sum will inevitably be based on estimates (such as the number of business miles an employee travels each year), those estimates must be reasonable when made and reviewed during the year to ensure that they remain reasonable.

Pension contributions during paid/unpaid maternity leave

On 23 August, IFA Online (the online news magazine for Independent Financial Advisers), quoted Mike Carpenter a director at CBG Financial Services, who considers 'there is uncertainty among employers, advisers, and legal firms about which periods of maternity leave count as pensionable service', and for which the employer should continue paying pension contributions. He also thought that clarity was needed from the authorities.

IFA Online confirms that the Department for Business, Innovation and Skills (BIS) and the Department for Work and Pensions (DWP) have now made clear that “no contributions are required during a period of unpaid AML [additional maternity leave].” IFA Online also quotes a representative from HMRC as saying that “a woman on AML is only entitled to those employer contributions if she is paid.”

This is in accord with the advice given on the DirectGov website (information for employees) which makes clear that if a woman's employer contributes to an occupational pension scheme, they must carry on making their usual contributions [emphasis added]:

+ for the whole time the woman is on ordinary maternity leave (the first 26 weeks of her leave)

+ for any time the woman is receiving any Statutory Maternity Pay

+ for any time the woman is receiving contractual maternity pay.

If the woman normally makes contributions to their pension they should carry on doing so, but only based on the amount of maternity pay they receive.

Similar advice is given employers on the BusinessLink website which states that during Ordinary Maternity Leave (OML), whether or not the employee is receiving statutory and/or enhanced maternity pay, and any period of paid AML, an employer should calculate the employer's contributions to an occupational pension scheme (OPS) as if the employee is working normally and receiving the normal remuneration for doing so.

During any period that an employee is on AML but not receiving any maternity pay – e.g. during the last 13 weeks of AML – an employer does not have to make any employer contributions to an OPS unless the woman's contract of employment provides otherwise.

Also, if the OPS scheme rules require employee contributions to continue during maternity leave, the woman's contributions should be based on the amount of statutory and/or enhanced maternity pay she is receiving. Employee contributions will therefore stop during any period of unpaid maternity leave unless the OPS rules allow the woman to make voluntary contributions.

The Pensions Advisory Service also states the same. Whatever is the norm as far as employer contributions under the OPS scheme rules, any paid maternity leave must be treated as pensionable service. Benefits are based on the salary before going on maternity leave. Employee contributions are based on actual pay, whilst the employer must pay contributions based on the salary the employee would have received had they not gone on maternity leave. This includes the right to any pay increase that would have occurred.

Any unpaid maternity leave which follows a period of paid maternity leave does not count as pensionable service. However, employment before and after the unpaid leave must be treated as continuous.

Are you taking advantage of the NIC Holiday?

Treasury Minister, David Gauke, visited Leicester on 23 August and reminded new businesses across the East Midlands not to miss out on the money they could be entitled to through the Regional Employer National Insurance contributions (NICs) Holiday. There are currently 552 businesses in the region who are benefiting and that saved an average of just over £2,000 each during the tax year 2010/11.

The important thing is that there are many more employers not only in the East Midlands but in other regions of the UK who may be eligible for the Holiday scheme.

The Holiday scheme (announced in the June 2010 Budget) is designed to encourage the creation of private sector jobs in regions reliant on public sector employment by reducing the cost to new businesses of taking on employees. The Holiday is available to new businesses set up since 22 June 2010 and is worth up to £5,000 for up to the first ten employees hired during the first year in business. Eligible new businesses can apply for a refund of NICs that they have already paid, e.g. for 2010/11 and so far during 2011/12. The Holiday scheme will end on 5 September 2013. 

More information on the Holiday scheme can be found on the Business Link website and HMRC website. New businesses started in Wales, Scotland and Northern Ireland automatically can be entitled. For eligible businesses in England, there is an online checker to see if the location of a new business is within one of the regions entitled to claim the NICs Holiday.

Some employers may have been put off applying for the Holiday scheme, because initially the scheme was not set in legislative stone. However, that is not the case now since the National Insurance Contributions Act was enacted on 22 March 2011. Part 2 of the Act contains the legislation applicable to the Holiday scheme. 

Paying for business use of an employee's own vehicle

I was reminded by a discussion this week with Ian Congreave, a real payroll guru, about how an employer needs to examine all the tax and National Insurance facets before committing themselves to a policy that may backfire at some future point. And don't always expect much help from HMRC either!

Ian has been responding to a query from an employer on the Payroll-Help Forum about the tax/NICs implications of an employee using an employer provided credit card to purchase fuel for their own vehicle. In this case, the employee used the card to buy all their fuel including that for business and private use. The advice given to the employer by HMRC was to report all the fuel costs on the employee's P11D and leave the employee to claim for Mileage Allowance Relief after the tax year has ended, as long as the employee can support the claim with business mileage records. Nothing was said about any Class 1 NICs liability.

This was queried with HMRC who reiterated that the full amount of spend on fuel using the card should be reported on the P11D, under Box M with a Class 1A NICs field, and that the employee should then make a Mileage Allowance Relief claim. But HMRC said there was no need to include any of the fuel costs as part of earnings for Class 1 NICs purposes. But is this true?

Ian's (correct) advice about what the employer should do was as follows. The use of the credit card to purchase fuel for use in an employee's own vehicle falls under the credit-token legislation and cannot be excepted. Therefore, there are special Class 1 NICs considerations.

Where an employee uses their employer's card to make a business purchase, it will only not be liable to Class 1 NICs if the employer gave the employee prior authority to use the card on the employer's behalf to purchase goods/services; the employee explained to the seller in advance of the purchase that they would be using their employer's card to pay for the goods/services on the employer's behalf; and the supplier accepted that the card was going to be used on the employer's behalf. Historically, this has been called the 'litany'. Importantly, there has to be a business purchase and the 'litany' must be followed. If there isn't a business purchase, and/or the litany isn't followed, there's a Class 1 NICs liability applicable to the earnings period in which the card was used.

In this case, where some of the fuel purchased using the employer's card was for business purposes, and the litany was followed, then as long as there are sufficiently detailed enough business mileage records available at the time the employer comes to pay the credit card statement, then a Class 1 NICs liability would arise on just the private fuel costs. If the records are not good enough to specifically and distinctly identify the business fuel costs then the gross fuel costs are liable to Class 1 NICs. This is because, even though the litany might have been followed, the card has not been used for an identifiable business purchase. So HMRC are wrong to say there's no Class 1 NICs liability.

But what about the income tax implications? Firstly, the gross fuel costs met using the employer's card should be returned on form P11D, under section C. Firstly, as the payment of Class 1A NICS cannot supersede any Class 1 liability, and as the fuel costs are or are not liable to Class 1 NICs, there is no liability for the employer to pay Class 1A despite what HMRC says to the contrary. There isn't a Class 1A box alongside item C on a P11D.

Secondly, what about the employer making a Mileage Allowance Relief (MAR) claim as HMRC suggest? MAR can only be claimed if the claim is associated with the payment by the employer of Approved Mileage Allowance Payments (AMAP). For example, if an employer reimburses an employee at less than 45p per business mile (for the first 10,000 business miles) when they use their own car/van for work-related journeys, then the employee can claim MAR on the difference between 45p per business mile and the rate per mile reimbursed by their employer.

The problem is that AMAP payments cannot cover amounts that aren't related to the the expenses of business travel in the employee's own vehicle, or benefits provided in connection with the employee's business use of their private vehicle, such as fuel, insurance and vehicle maintenance. In other words, if the employer reimburses or pays an employee's fuel bills, insurance, or maintenance costs, in connection with their own vehicle, even if that vehicle is used for business purposes, such payments are not covered by AMAP and, therefore, MAR cannot be claimed. Once again the HMRC advice is incorrect.

Therefore, where the employer has returned the gross fuel costs on a form P11D, it will be up to the employee after the end of the tax year to try and claim a deduction from earnings against the business proportion of the fuel costs met by the employer through the use of the credit card. This will be dependent on the employee having sufficiently detailed enough mileage records to clearly differentiate the business use proportion of the car during the tax year in question. 

Interestingly, Ian's Forum posts led to another employer posting what they do in their business. Employees are provided with fuel cards that they use to purchase all fuel for their own vehicles including both business and private fuel. At the end of the tax year the employee gives the employer a breakdown of their mileage for the whole tax year into its business/private components. This is then used against the total fuel card spend for the tax year so that only the private fuel proportion is declared on forms P11D and on which this employer pays Class 1A NICs. Hopefully, as a result of Ian's advice above, you'll be able to see why Class 1 NICs are due on all costs met by the fuel card, and why the gross annual costs must be returned on forms P11D in a section that doesn't have a Class 1A NICs box alongside.

Problems correctly allocating PAYE remittances

The Minutes of the Employment Consultation Forum held on 21 July last, reveal a continuing problem experienced by HMRC in correctly allocating PAYE remittances. The problem arises because electronic payments, e.g. made through Bacs/CHAPS, telephone/Internet banking, are not accompanied by an HMRC payslip. Therefore, HMRC has to depend on the reference information provided with the payment to identify (1) who's making the payment, and (2) what the payment relates to. If any of this information is wrong it delays the correct allocation of a payment and causes HMRC quite a bit of additional work.

Firstly, as to correctly identifying the payer. This is only possible if the payment reference shows the employer's unique 13-digit Accounts Office reference found on manual payslips or on the letter sent to the employers each year who pay electronically and no longer request a payslip booklet. This reference will be in the format '123PA00012345'. HMRC figures show that 40 per cent of employers don't know how to use the Accounts Office reference.

Secondly, there can be problems correctly identifying what the remittance is paying. For example, if HMRC receives a payment during the period 6 August and 22 August they will automatically allocate that payment to tax month four (6 July to 5 August). But what about the situation where an employer pays 'early' or 'late', or makes a payment relating to a previous tax year such as the payment of Class 1A NICs?

If HMRC receives a payment earlier or later than they expect (e.g. before 6 August for tax month four, or after 22 August for tax month four) an employer will need to tell HMRC the tax year and tax month their payment relates to so it can be correctly allocated to the period being paid. The employer will still use their unique 13-digit Accounts Office reference but with extra information added to create a new 17-digit payment reference. The HMRC website provides a table showing the different tax months and quarters for the tax year 2011/12 (period 6 April 2011 to 5 April 2012) and what information ('tax year ending and PAYE month') should be added to the 13-digit Accounts Office reference.

For example, to make an electronic remittance for tax month four before 6 August 2011 the employer would need to do the following – add '1204' to the Accounts Office reference to give '123PA000123451204' (note: this reference is only an example and should not be used to make a payment for tax month four). The '12' refers to the tax year 2011/12; the '04' relates to tax month four (always add a zero to single digit tax months). If the employer does not add '1204' to their 13-digit Accounts Office reference, any payment received before 6 August 2011 will be automatically allocated to tax month three and not four. There is an online checking facility to enable an employer to check they're using the correct reference number when making a remittance for the current tax year.

If making a payment for the previous tax year, e.g. the payment of Class 1A NICs for the tax year 2010/11 (and due payable by 22 July 2011), the following should be added to our example 13-digit Accounts Office reference – '123PA000123451113'. The '11' refers to the tax year 2010/11, and the '13' refers to an additional payment made after the tax year in question has ended. 

A similar situation applies where an employer is making an additional PAYE remittance payment for a previous tax year. For example, in reconciling what they should have paid HMRC for the tax year 2010/11, an employer calculates they owe an additional amount, but 22 April 2011 has been and gone (the latest date by which a remittance for 2010/11 can be paid and be 'on time'). Therefore, when paying HMRC, the employer would need to add '1113' to their Accounts Office reference, as above.

Again, there is an online checking facility to enable an employer to check that they're using the correct reference number when paying Class 1A NICs after the tax year has ended, or paying additional PAYE income tax, Class 1 NICs for a tax year that has ended.

HMRC figures reveal that 90 per cent of employers are not aware that they need to add the appropriate numbers when making early/late payments, or after the tax year has ended. HMRC have also found that sometimes the banks miss off this crucial reference information. Once a payment is submitted by an employer to Bacs there isn't much HMRC can do.

Interestingly, HMRC reports that 82 per cent of employers though the guidance given by HMRC on making electronic payments was clear. Therefore, it is difficult to understand why so many employers appear confused when quoting references on electronic payments.

Further on the implementation of RTI

As you can imagine the subject of Real Time Information (RTI) is of major interest at all consultative meetings held between HMRC and representative bodies, especially those involved in developing software packages capable of submitting RTI data to HMRC. Two recent meetings have provided a little more detail on the timetable for implementing RTI.

The HMRC RTI web pages state, as at 16 August, “Employers and pension providers will begin to use [emphasis added] the RTI service in the period April 2013 to October 2013. All employers will be using the RTI service by October 2013.”

This is in agreement with the Minutes of the Payroll Consultation Meeting of 21 June which acknowledge that the time line for implementing RTI has been “adjusted to allow software developers to prepare one, well-used product for the pilot.” The pilot starts in April 2012 and “if successful, other employers using piloted products [will be] encouraged to start submitting RTI before mandation begins [emphasis added] in April 2013.”

Two things arise from the above – (1) if you want to start submitting RTI data ahead of mandation, particularly if you're a large employer and want to sort out the “wrinkles” before you have to start submitting RTI data for real, then you need to be in close contact with your software provider, especially if they're developing a suitable product for the RTI pilot.

(2) Clearly between April and October 2013, logic would dictate that the mandation requiring employers to submit RTI data will have to be phased in as HMRC surely could not cope with all employers starting to submit RTI data at the same time. As soon as it is known what group of employers you will fall into for mandation, again you'll need to stay in close touch with your software developer to ensure they have a suitable product available when you need it.

Originally, the RTI data channels were to be just Bacs with an alternative Internet channel for those employers who do not use the Bacs system to pay its employees. Electronic Data Interchange (EDI) was not going to be an acceptable channel. However, the Bacs channel just cannot be fully ready to accept RTI data from the commencement of the pilot in April 2012.

Therefore, the Minutes of the above meeting confirm that “whilst the Bacs channel remains HMRC's strategic option for collecting RTI (as it will be easier for employers and will reduce error and fraud) in May [2011] HMRC announced that more time would be given to the development work on the Bacs channel to allay concerns. In the interim, RTI will be accepted via both the Government Gateway and EDI, until at least April 2014 [emphasis added].”

However, the DWP (who will be administering Universal Credit on the back of RTI data from October 2013) and HMRC are concerned that there is at least some link between an employer's RTI data and the actual payments it makes its employees. Therefore, where employers do use Bacs to pay employees there will need to be an encrypted cross reference (“hash”) in the RTI submission for each employee submission where that employee is paid via BacsTel-IP.

The Minutes of the Collaborative Assembly of Software Developers and HMRC (CASH) Meeting, held 29 June, provide some further information on this matter. The Minutes state, that in addition to the hash field, “a unique identifier will be included in field 7 of the Standard 18 [electronic funds transfer (EFT) message] file. The hash and unique identifier will enable HMRC to corroborate the tax data returned against the payment made to the individual. The data to be included in the hash field is under consideration. The original proposed solution included a date, but feedback from [software] developers and BASS [Bacs Approved Software Services] providers indicated this could be prone to error and misinterpretation. As a result of this, the date element has been removed and HMRC is considering inclusion of an additional item to ensure uniqueness of the submission.” HMRC have also published online information concerning the hash field.

Clearly there are still many issues to be resolved and the clock is ticking!!

 

Right to annual leave for long-term sick post Stringer

The Court of Justice of the European Union (CJEU) judgement in the HMRC v Stringer case established that annual paid leave continues during a period of sick leave. But does this mean that if a worker on sick leave does not submit a request for that annual leave before the leave year ends, they forfeit that entitlement? This was the issue in the EAT judgement in NHS Leeds v Larner [2011] UKEAT 0088-11.

In this case, an employee's terms and conditions stated that they would still accrue annual leave during paid sick leave, and that any carry forward of that entitlement into a subsequent leave year could only be allowed in exceptional circumstances and had to be agreed at senior level. And that any carry forward should be discussed before returning to work from sick leave.

The employer's leave year ran from 1 April one year to 31 March following. On 5 January 2009, Ms Larner began a period of absence due to sickness. She received sick pay at the rate of full pay for six months and half pay for six months. When Ms Larner began her sickness absence, she did not have any pre-arranged holiday. During 2009 and 2010, she did not make any request to take holiday. During her sickness absence, Ms Larner was in regular contact with her employer. On 6 April 2010, the employer decided to fairly dismiss Ms Larner with immediate effect on grounds of incapability due to ill health. No payment of outstanding leave for 2009/10 was made at termination on the grounds that no request for leave had been made and therefore Ms Larner's entitlement to leave had been lost. But had she lost the right to paid annual leave for 2009/10?

The EAT referred to the CJEU judgement in Pereda v Madrid Movilidad SA [2009] which stated that 'the right to paid annual leave is not extinguished at the end of the leave year where the worker was on sick leave for the whole or part of the leave year and has not actually had the opportunity to exercise that entitlement to paid annual leave to enable the worker to rest and to enjoy a period of relaxation and leisure.'

As far as the EAT was concerned, Ms Larner had “not been well enough to exercise her 'right to enjoy a period of relaxation and leisure', so as a matter of law, contrary to what a layman might have thought, she did not have the opportunity at any time during 2009/10 to take her annual leave. Instead, she had the right to have her leave carried forward to the following year; and she had that right without having to make a formal request for the leave to be carried over. The right to be paid [in lieu] for that [untaken 2009/10] annual leave crystallised on the termination of her employment.”

In other words, at the point of Ms Larner's termination on 6 April 2010, she was entitled to be paid for any untaken leave due for the leave year 2008/09, and 2009/10, and for the first few days of the new 2010/11 leave year. She should also be paid for this accrued leave at her normal wage rate.

Of course, the EAT did remind everyone that “the position might be different in the case of a fit employee who fails to make any request for leave during the whole of a [leave] year. He or she might then lose the right to take annual leave, certainly if the contract so provides, because that worker, unlike Ms Larner, has in the words of the Court in Pereda 'had the opportunity' to exercise the right to leave.”

In relation to this case, it is interesting to note that the Advocate General of the ECEU has opined that the right to carry forward untaken paid annual leave as a result of sickness absence should not be a right unfettered by some kind of reasonable time limit.

Right of a dismissed employee to be paid a bonus

The EAT judgement in Hellewell & Anor v AXA Services Ltd & Anor [2011] UKEAT 0084-11 once again shows the importance of ensuring that contractual terms are clear and unambiguous.

In this case, the company had instituted a bonus scheme for 2009. At the end of February 2010, all employees entitled to a bonus under the 2009 scheme were paid that bonus. Two employees were not paid. At the date of payment they were both under suspension pending an investigation into alleged gross misconduct on their part. Both employees were dismissed by reason of gross misconduct by the end of April 2010.

The relevant provisions of the company's 2009 bonus scheme were that (1) the employee must be employed on 28 January 2010 to be entitled to any bonus payment, and (2) where an employee leaves the company as a result of gross misconduct, no bonus shall be payable.

The two employees argued that as they were employed at 28 January 2010 and had not yet been dismissed at the time the bonus was paid on 26 February 2010, they were legally entitled to be paid the bonus, and to deprive them of payment was an unlawful deduction from wages.

The Employment Rights Act 1993, s.13(3) states that “where the total amount of wages paid on any occasion by an employer to a worker employed by him is less that the total amount of the wages properly payable [emphasis added] by him to the worker… shall be treated… as a deduction made by the employer from the worker's wages on that occasion.” In other words, was the bonus “properly payable” to the two employees on suspension? If so, there would have been an unlawful deduction if they too had not also been paid the bonus.

The EAT stated that the bonus was only “properly payable” if (referring to the Court of Appeal judgement in New Century Cleaning Co Ltd v Church [2000]) it was a sum to which the employees had some legal, but not necessarily contractual, entitlement. For wages to be 'properly payable' by an employer, the employer must be rendered liable to pay, either under the contract of employment or in some other way. In other words, there has to be a legal obligation to make a payment before the requirement imposed by ERA s.13 has to be considered. If there was not a legal entitlement to the wages (which would include the payment of a bonus), then there could be no unlawful deduction. So, was there a legal obligation on the part of the company to pay the bonus?

The provision that an employee must be employed by the company at 28 January 2010 to be entitled to a bonus payment under the 2009 scheme, was said by the EAT to “merely set out a qualification which has to be satisfied, but significantly it does not impose or constitute an obligation on the part of [the company] to make a payment of the bonus to everybody who falls within that category.”

Although the employees contended that the payment of the bonus should have taken place on 26 February 2010 (at which time they were still employed by the company), the EAT found that the company was not “obliged to pay the 2009 bonus on 26 February 2010 or on any particular day… The mere fact that other employees received their bonus on that date does not show that either [of the two employees in question] had a legal entitlement to receive it on that date.” In fact the EAT's view was that there was an implied contractual term “that the bonus would not be payable until the gross misconduct allegations were dismissed or abandoned.” Therefore, as the two employees were eventually dismissed for gross misconduct, the employer was entitled to withhold the payment of the 2009 bonus to each of them.

In this case, the wording of the employer's terms and conditions was just enough for the EAT to find in the company's favour. However, if they had perhaps been more clear about the clause referring to termination the two employees might never have brought a case saving the company time and money in defending themselves. For example, if the clause in question had stated that the bonus 'would not be payable to an employee who, at the time of payment, has been dismissed, or is under notice of dismissal, on grounds of gross misconduct, and that if there is a pending case against the employee alleging gross misconduct, no decision on payment will be made until the outcome is known', that might have been preferable.

Are 'air miles' benefits taxable?

HMRC have clarified their position as to whether benefits such as air miles, petrol tokens, credit card points (e.g. Nectar points), etc., acquired by an employee when purchasing goods and services for business purposes but paid for by the employer, are taxable or not.

HMRC will not seek to tax such provisions as long as they are acquired like any other member of the public. They are not considered as being provided by reason of an employee's employment even if the goods or services giving rise to them happen to to be purchased as part of the employee's business expenses (later reimbursed) or by using an employer's charge/credit/debit card to pay for them.

However, HMRC will tax such provisions where they are provided by reason of the employment. This would apply, for example, where an employee used their employer's credit card to obtain goods and services for private use that they were not required to reimburse the employer for. It would also apply if the provider of the air miles, etc., provided only the employer's employees with those air miles and not other members of the general public. It would also apply where the employer buys, for example, a block of air miles and distributes these to its employees, perhaps as part of an incentive scheme.

If any of the above chargeable situations apply, the amount to be returned on the employee's form P11D is the cost to the employer in providing the air miles, etc.