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Employers need to be wary of a “minefield” following an EU Court ruling that sales commission should be included in holiday pay, warns KPMG.
A ruling handed down last week by the Court of Justice of the European Union CJEU in the long-running case of Lock v British Gas noted that a salesperson’s holiday pay could not be limited to their basic salary. Where an employee’s salary includes sales commission, that commission must be included in holiday pay.
The case will now be referred back to the Employment Tribunal to determine what annual leave payments Mr. Lock is entitled to under UK law.
KPMG director Angus Menzies said: “Holiday pay is a real minefield for employers. If employers do not now consider strategies for addressing this issue it could prove very costly. Many employment lawyers already expect holiday pay issues to be one of their most fertile sources of work over the next couple of years.”
The global consultancy firm says businesses are braced for mass claims which could potentially go back to 1998 when the Working Time Directive was implemented in Great Britain.
KPMG says the inclusion of overtime in holiday pay is already being litigated, Menzies wonders if annual bonuses could be the next battleground. He also questions how employers should work out what employment tax is due on any holiday pay owed.
“The Employment Tribunal must follow the CJEU decision so this case is likely to lead to a flood of similar claims from workers whose wage packets ordinarily include a regular and recurring element of commission but for whom this is not factored into their holiday pay,” said Menzies.
“And for employers, as well as the wage bill, there’s the taxman to consider. Where back pay claims are successful there is likely to be tax due. Negotiation with HMRC is likely to be necessary and interest and penalties may be due.”

The following rates will come into effect on 1 October 2013:

The 21 & over rate will increase by 12p to £6.31 an hour

The rate for 18-20 year olds will increase by 5p to £5.03 an hour

The rate for 16-17 year olds will increase by 4p to £3.72 an hour

The apprentice rate will increase by 3p to £2.68 an hour.

HMRC has made an eleventh hour decision to relax the introduction of RTI by revealing that businesses with fewer than 50 staff will now be allowed to report monthly, until October.

A spokesman for HM Revenue & Customs said: “We have listened closely to our stakeholders and we have adapted our plans. We recognise that a minority of employers who pay weekly or more frequently and run payroll monthly may need a little longer to adjust to the new way of reporting.”

HMRC will publish its Real Time Information penalty regime next week telling employers what fines to expect if they do not comply with PAYE reform.

There have been calls from across the payroll and tax industries for the Revenue to adopt a soft-landing approach to penalties.

In October the Health and Safety Executive’s new fines system – the Fee For Intervention (FFI) will come into force. This will allow the HSE to fine businesses who are found to be breaking health and safety law in a wide variety of ways. In practice, this means that if your business is found to be in material breach of health and safety law then you will be charged £124 per hour for every hour that the HSE spend identifying and resolving the material breach. This could end up being very costly for the business. While ultimately seeking to prevent breaches of health and safety law the FFI is also making the offending businesses pay the costs of HSE enforcement.

New pension obligations, commonly known as ‘auto-enrolment’, are also coming into effect on a phased basis from 1 October 2012, initially for the largest employers with 120,000 or more employees. Small and medium sized employers will follow over the next six years.

Under auto-enrolment, employers will have to auto-enroll eligible employees, and make mandatory employer contributions, into a qualifying workplace pension scheme. From their staging date, employers must auto-enroll eligible employees into a pension scheme when they reach the income tax threshold but contributions will kick in only from the employee threshold for national insurance contributions.

Employers will be able to operate a three-month postponement window for all employees (i.e. newly eligible existing employees and new employees), so that employees on short-term contracts do not need to be auto-enrolled in a pension scheme, although they will be able to opt in voluntarily during the postponement period.

• 21 and over: £6.19ph up by 11p
• 18-20 year olds: £4.98ph (no change)
• 16-17 year olds: £3.68ph (no change)
• apprentices: £2.65ph up by 5p

HMRC has defended its policy of sending out PAYE end-of-year reminder letters even when P35s have already been filed on time.
The letters have been introduced following a review by the Revenue into the unfair practice of letting P35 late penalties build up before issuing them.
However they are sent out to everyone, even where a P35 has already been filed online.
Tax professionals on the Accountingweb website said that in some cases the letters were delivered to clients who assumed the P35 had already been filed on their behalf.
They added that this created a need for advisers to go back and confirm their P35 submissions had been successfully received.
A spokesman for HMRC said: “I would point out that these were simply reminder letters, and that it does clearly state at the end ‘If you have already filed your return online or told us that a return is not due, thank you; no more action is needed. If you have not, please act now’”.
He also added that despite many people receiving letters dated two weeks back this was because they were all dated April 29 but sent out in batches.

A week’s pay is the amount an employee would ordinarily expect to earn in a week. For a salaried worker, that’s generally accepted to be their annual salary divided by 52 but for those whose pay varies from week-to-week it will be their average weekly earnings over the twelve-week period ending with the week immediately before the date on which their holiday begins.

Overtime hours don’t form part of a worker’s normal working hours for these purposes, so overtime payments won’t normally need to be taken into account when calculating the average pay, unless there is a contractual entitlement and these contractual hours are actually worked.

From 12th April the qualifying period for unfair dismissal claims will be increased from one to two years. However, this only applies to those individuals hired on or after 12th April 2012

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