Lion HR Blog

Link: http://www.ceridian.co.uk/

Some further guidance on the procedure for issuing payments to your workers after employment has ended, the forms that must be completed and also the common areas that many employees tend to slip up - dont let this be you!

Please note that when processing payments of leaving, you must follow Ceridian or HMRC -approved guidelines.

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There is no need to issue a second P45 to employees
Earlier in the year, we covered the requirements that need to be made for PAYE purposes. However it has been noted that some employers are still making the mistake of issuing a second P45 to make additional payments - there is no need to do so or to even notify the tax office. Any pay, tax or NICs deducted are added to all other payments in the same tax year and must be reported using on the end of year form (P14).

Working out NICs – Standard & Irregular Payments
The period that is used for the calculation of National Insurance Contributions is dependant on the payment type – Standard or Irregular payment.

Standard payments mean such items as the final payment of salary or wages, holiday pay, week in hand payments, bonuses, arrears of pay and so on. It does not mean additional one-off payments such as retirements, lump sums and so on. (Please see HMRC CWG2 guide, page 89)

There has also been some confusion where all payments made before 6 weeks are treated as standard and all payment after 6 weeks are treated as irregular - this is incorrect! See the general 6 week rule.

If it were a standard payment of salary (sometimes referred to as a final payment) then it would be considered a regular payment and therefore attract NICs using the employee’s normal payment frequency. If the employee was normally paid monthly and is now due a part-month payment of wages after leaving, then the payment period for NICs is monthly.

Calculating Standard & Irregular Payments
You can work out Standard payments by using:

You can work out Irregular payments by using:

A weekly earnings period
The contributions rates and limits current at the time of employment
The usual contribution Table letter (E001I)
In either situation, if the employee was in contracted-out employment and payment was made more than six weeks after they left, then you can work out NICs using the equivalent not contracted-out rate. (see HMRC guide CWG2 page 15)

The 6 week rule
If the payment is made within six weeks of leaving then the employee's usual contribution table letter is to be used. However, if the payment is made six weeks after leaving and the employee was paying NICs using a contracted-out table letter, then you must now work out NICs using the equivalent, not the contracted-out rate.

Make things easier for yourself!
Some reputable payroll systems exceed the basic requirements of the HMRC payroll standard and offer fully automated processing for payments after leaving. For example Ceridian Payroll offers Regular (or Periodic) and Irregular payment after leaving options as standard. This automatically reopens and closes the employee record and handles all the tax and NIC implications for you. There's no need to enter or change tax codes or NIC letters - all this is automated. All you have to do is enter the correct employment status indicator type (P or I) and the additional payment amounts to be made.