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Basic pay and benefits

Updating author: Vince Ashall

Summary

  • Hourly paid workers are more likely to be entitled to overtime payment. Specific provision should always be made in the contract of employment about whether overtime is payable, and at what rate. (See Basic pay and overtime)
  • Employers may decide the intervals at which they pay employees, but they must ensure that employees are informed of pay intervals. (See Pay intervals)
  • The contract of employment should always explain the benefits to which the employee is entitled, the basis on which the benefits are payable and the manner of payment. Discretionary and contractual benefits should be distinguished. The contract terms should always be fair, reasonable and non-discriminatory. (See Benefits and the contract of employment)
  • Employers are prohibited from offering inducements such as higher salaries, one-off bonuses or certain benefits where their sole or main purpose is to induce eligible workers to opt out of a workplace pension scheme. (See Pensions auto-enrolment and inducements)
  • Tax and national insurance exemptions apply to "trivial" benefits-in-kind. (See Trivial benefits)
  • Bonus schemes may be contractual or discretionary. Care should be taken when drafting the contract of employment to state clearly which type of scheme is offered. Bonuses may be payable only on the achievement of certain targets, or on the basis of other criteria. (See Bonus schemes)
  • Share incentive plans enable employees to receive a certain value of free shares in the employer's business per tax year. (See Employee share schemes and employee share ownership plans)
  • Employees who are engaged under an employee-shareholder contract can benefit from tax advantages on shares issued by their employer, in exchange for surrendering certain employment rights. (See Employee-shareholder contracts)
  • It is important to specify in the contract of employment whether a company car is intended for business or private use. If the car is available only for business use, and is, as a matter of fact, not used for private purposes, it is not taxable on the employee. (See Company cars and vans)
  • Health treatment or insurance paid for by an employer is a taxable benefit for employees and directors. (See Medical insurance)
  • Equipment and clothing that is required by law for safety reasons must be provided to employees free of charge. (See Equipment and clothing)
  • The first £55 a week for employer-provided childcare vouchers or employer-contracted childcare is exempt from tax and national insurance for basic rate taxpayers, subject to qualifying conditions. From 6 April 2013, the amount eligible for relief for both tax and national insurance is limited to £28 per week for 40% taxpayers and £25 per week for 45% taxpayers. There is a full tax exemption for employer-provided childcare. However, school fees reimbursed to the employee are liable to income tax and Class 1 national insurance. (See School fees and childcare provision)
  • Meals provided on a free or subsidised basis to all staff are generally not taxable nor liable to national insurance provided that certain conditions are satisfied. (See Food)
  • Expenses that are reasonably incurred as a result of an employee starting a new job or having to move because of a change of duties or a change of place of work are usually free of any charge to tax and national insurance up to £8,000 per relocation move. However, the rules are complex and reference should always be made to official guidance. (See Relocation expenses)
  • Living accommodation is taxable unless specific exemptions apply. Employees who are required to live on the premises for the performance of their duties, such as housekeepers and caretakers, can be required to leave the premises on the termination of employment. Those who are offered accommodation for a rent as a benefit unrelated to the performance of their duties cannot be asked to leave the premises until the end of the period of their tenancy. (See Accommodation)
  • Gifts given to very long-serving employees are usually free of tax and national insurance provided that certain conditions are satisfied. (See Long-service awards)
  • Employers should be absolutely clear about the basis on which expenses are payable to employees. If employees are reimbursed for expenses incurred, a policy document should set out the circumstances in which expenditure will be considered to have been reasonably incurred and the evidence required of employees who incur expenses. (See Expenses)

Note: Sick pay, holiday pay and payments for workless days are dealt with in the context of the appropriate statutory schemes. (See Pay and benefits > Sick pay, Working time > Holiday and holiday pay and Pay and benefits > Guarantee payments.)

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