When to make an Irregular Worker a leaver

seanmoody

University of Kent has a high volume of irregular workers. I am looking for some help in determining when we can make them a leaver on our payroll system. The problem we have is if an irregular worker earns say �2000.00 in May whilst on a cumulative tax code and has never submitted a claim since, our system will generate a tax refund.

As the employee may have left but not informed us we are reluctant to pay any tax refund due, although I understand that the onus would be on the employee rather than us for any undercollection of tax.

Employee's Helpline told us to make them a leaver if they have not been paid for the last 3 months. I'm not sure that this is correct as this would surely constitute summary dismissal.

At present I report on those with a tax refund and check when they were last paid and if not paid in the previous 3 months supress the tax refund.

Any guidance would be most appreciated.

Thank you, Sean :D

Ian Congreave

Sean,

Just a few thoughts. You have what I believe is called a "negative" payroll, one that processes every employee every pay period. What I think you need is a "positive" payroll for your irregular workers, so that the payroll only runs for an individual if some positive action is taken, the entry of earnings for example. Does your payroll system have the option of setting up a payroll group to operate in that way?

The period of three months given to you by the Helpline has its basis in the guidance for employment agencies, who are required to look at all of their workers if they have not been paid for three months and issue a P45. (CWG2 page 63 and more detail at http://www.hmrc.gov.uk/manuals/pommanual/pommvt/pommvt06103.htm).

Finally, don't confuse employment for tax purposes with employment for employment rights. Not having an employee as a "current" employee on the payroll does not in itself mean that the employee has been dismissed, particularly if you have the option of changing a person's status from "current" to "leaver" and back again. But, again, I guess this all depends on whether you payroll and HR systems allow this.
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Ian Whyteside · Posted: Thu Nov 23, 2006 1:21 pm Post subject: Paying irregular workers

Sean/Ian,

Hope no one objects to me sticking my nose in at this stage but firstly I wanted to endorse Ian's comments that there is no obligation to process refunds to someone who is not being paid, in fact HMRC expects employers to manage tax calculations in such a way that this does not happen.

I know from experience that Inspectors only expect refunds to be calculated and paid either when a payment made generates a legitimate refund or if the Revenue specifically requests it by notifying a new allowance code for use by the employer so it is actually essential that a "positive" payroll record is used for such workers in order to prevent eroneous refunds.

I feel the situation with dismissal is actually much more serious though because the issuing of a P45 is treated as a termination of employment and the date on the P45 is clearly labelled "Leaving Date" so it is little wonder that tribunals and others regard it as a termination and I feel Sean is right to be concerned that complaints can result from issuing P45's in accordance with HMRC instructions. I have, in fact, met payroll managers who have faced just such situations.

My understanding is that to protect the employer you need to issue the P45 and quote a date on it but send an accompanying letter clearly specifying that this is being done in accordance with instructions laid down by HMRC and in no way implies a termination of any agreement. An alternative is to write into the contracts that if no work is available or done in a three month period then the contract will end.

The precise wording of such clauses is down to the HR division within the employer but I do feel that since there is no option but to comply with HMRC rulings th eemployer needs to be able to do so without generating complaints concerning the employment situation.

I agree with Ian that the closing off of the tax record in compliance with the 3 month rule should not be confused with termination of employment, they are different things but there is certainly a tendency in many circles to relate the two, to the detriment of the employer.

My advice would be to proceed with caution.

Ian Whyteside

seanmoody · Posted: Wed Dec 06, 2006 11:17 am Post subject: Paying Irregular Workers

Many thanks to both Ian's for your comments. I shall investigate this with both our software provider and our HR department.

Sean

Jennym254 · PayPerShop Regular Joined: 22 Nov 2004 Posts: 77

I was told today...by a VERY well known agency that they do not issue P45's unless requested by the employee and added to that, they do not issue a P60 either if the employee did not work in the 11 weeks prior to year end!

Despite telling them that they had to do one or the other, they insisted that they are following the HMRC rules to the nth degree.

So, my question is, to whom do you complain? Can you ask someone at HMRC compliance to deal with them or what?

Ian Whyteside · Posted: Wed Feb 14, 2007 12:23 pm Post subject: Paying Irregular Workers/P45's

Jenny,

Let me start by mentioning that the references to issuing P45's when someone has not been paid for 3 months is not specifically ordinary practice, however many HMRC offices use the special agency rules in order to be better informed of a workers tax status.

In the past I have always been happy to go along with the 3 month rule even though, strictly speaking, we do not have to.

As far as the agency is concerned things are different because if the HMRC rules are, as we believe, so clear cut why does the agency claim to be following them, yet do the opposite?

With the P60 it's a bit odd because, once again, the rules are clear and agency workers are entitled to a P60 if they are still, technically, on the agencies books on 5 April. Perhaps the agency is taking a pedantic line over the rule that you only issue a P60 to someone who was in your employment on 5 April because, again technically, agency workers do not have contracts of employment and therefore will never be in employment on any 5 April, or at any other time.

Moving on to the subject of complaints, there is an annonymous line to report dodgy employers, I don't know what it is but I suspect what they want is information on employers not complying with NMW or illegally employing migrant workers so it is unlikely the recipients will be interested.

There is, however, your own Inspector who is obliged to deal with situations where you feel you may owe, or be owed Income Tax from a closed tax year and where you have difficulty making your case because the agency refuses to issue a P60. I would suggest getting the answer in writing and submitting that (even if you know you have no case for a refund or whatever) to the Inspector as part of a request for a review of your tax position. The Inspector will be obliged to investigate and I dont think that person will be too happy at the extra work they will have to do in the absence of a P60, they may pass the matter to the compliance office.

Ian Whyteside

Jennym254 · PayPerShop Regular Joined: 22 Nov 2004 Posts: 77

Ian

Thanks for the reply.

I have to admit to having been rather forceful with them yesterday and they have now supplied me with a statement of earnings. The letter is undated though so I have no proof of the date it was received.

There is an email address on the letter though, so I shall contact them and ask for confirmation in writing that I am no longer on their books. I shall copy said email (and any reply that I receive) and post it to my local Inspector as you suggested.

The amounts involved are very small, but I believe that it is the principle that counts as I don't personally believe that a "Statement of Earnings" actually proves that contributions were paid over and it also gives the impression that I may have failed to look after my P60 correctly!

Ian Congreave · Posted: Thu Feb 15, 2007 8:10 am Post subject: Agency workers and P45s

I need to clarify some of the points in these postings from the legislation.
Regulation 10 of the Income Tax (Pay As You Earn) Regulations 2003 is headed "Application to agencies and agency workers" and states:

Hugo Fair · PayPerShop Regular Joined: 22 Jul 2004 Posts: 74

Thanks Ian - I was wondering whether to enter the fray, since it may sound as if I'm pushing our software ... but:

1. The first point is to decide whether you are operating as an Agency - which is unlikely in the case of the original post from University of Kent. [If they have an 'in-house' Agency, then this is almost certainly under a different PAYE reference - and hence should be on a separate payroll].

1a. If it is not an Agency payroll, then none of the above posts (relating to the "3 month rules") apply;
1b. If it is an Agency payroll then (on our software) you set the 'Agency' flag centrally, as a result of which:

* When you process a complete period, the system automatically produces a list of everyone still on the payroll who has received zero pay (excluding tax rebates) in the last 3 months (including the current period).

* Not enforced, but you should then process this list - which will 'end' each such person on the payroll.

* When you select Process P45s, it will generate P45 records for each person who has 'ended' on the payroll in the current period - and send these to HMRC (if you have set up that option), as well as allowing you to print off copies for the employees.

* Year-end processing requires no special treatment - i.e. a separate P14 is generated for each each 'employment' of an employee paid in the year, but P60s are only printed off for those still on the payroll during the final period of the year.

So, unless we are doing something wrong, from the point of view of the employee:
a) You either are or are not employed by an Agency
b) If it is an Agency, you will receive a P45 after any 3 month period without gross pay
c) If it is an Agency, you may receive P45s more than once during the year
d) If it is an Agency, you will only receive a P60 if you have gross pay during the final 3 months of the year

This approach is not popular with employees (who sometimes receive a P45 even though they are about to be paid in the next month), so the Agency may elect not to give such an employee the P45 - but, even in such circumstances, the employer MUST submit the P45s to HMRC.

Based on the Regulations that you quote, and the demands from local Tax offices of our clients, it is only my final point above that is discretionary.

Hope this all helps.