An Employer’s Guide to Payrolling Statutory Payments

As an employer there are various statutory payments that you must pay your employees when they become eligible for them. Thinking about if your employee is eligible and what they need to be paid can seem like a daunting subject! This guide contains everything you need to know about making statutory payments.

Statutory Sick Pay (SSP)

For the 2021-22 tax year, Statutory Sick Pay should be paid at £96.35 per week and can be paid by an employer for up to 28 weeks of illness. After the 28 weeks, it is then at the discretion of the employer whether they continue to pay sick pay. Some companies offer a ‘Company sick scheme’, which may mean that the employee will be paid more than the SSP entitlement. If offered, this should be explained in the employment contract.

Is my employee eligible for SSP?

• The employee must have carried out some work for the employer.
• The employee must earn an average of £120 per week
• The employee must have been ill for more than 4 days in a row including non-working days. The first 3 days sick are not paid sick pay under SSP rules.
• The employer must be informed that you are not able to attend work within 7 days.
• For periods of sickness that are more than 7 days in a row, a ‘sick note’ from a doctor must be provided to the employer.

Linked periods of sickness

If you are ill for more than 4 days on multiple occasions that are less that 8 weeks apart, the sickness may be classed as being ‘linked’. This means that you do not have the 3 days unpaid ‘waiting period’ for every spell of sickness. If this is continuous for more than 3 years, you will no longer receive SSP.

As an employer, you cannot claim Statutory Sick Pay back from HMRC unless the sickness is Covid-19 related.

There are different rules regarding sick pay due to Coronavirus. If you would like further information on this, please call us on 01785 254550.

Statutory Maternity Pay (SMP)

Statutory Maternity Pay is paid to an employee for up to 39 weeks.

What should I pay my employee?

• First 6 weeks – 90% of the employee’s average gross weekly earnings
• Remaining 33 weeks – The lower of £151.97 or 90% of the average gross weekly earnings.
• Tax and National Insurance is to be deducted from SMP payments where applicable.

SMP starts when an employee begins their maternity leave, it also automatically begins if the employee is unable to work due to a pregnancy related illness within the 4 weeks before the baby is due.

Is my employee eligible for SMP?

• The employee must give the correct notice and proof of the pregnancy to be eligible for SMP.
  • The employer must be notified of the pregnancy at least 15 weeks before the baby is due.
  • The employer must then write to the employee within 28 days of being notified, confirming the start and end dates of the Maternity Leave.
  • If the employer decides that the employee is not eligible for SMP, a SMP1 form must be provided within 7 days explaining the decision.
• The employee must earn on average £120 per week.
• The employee must have worked in the current employment for at least 26 weeks before the ‘qualifying week’. The qualifying week is the 15 weeks before the baby is due.

Can I claim back SMP from HRMC?

Employers can claim the SMP payments back from HMRC by reducing their monthly PAYE payments by the SMP amount.

Statutory Paternity Pay (SPP)

For the 2021-22 tax year, SPP is paid at the lower of £151.97 per week or 90% of the employee’s average gross weekly earnings.

Employees have a choice of taking SPP for 1 or 2 consecutive weeks leave and the start date must be either the day the baby is born or an agreed number of days following the birth.

Is my employee eligible for SPP?

• The employee must be one of the following:
  • Father of the baby
  • Child’s adopter
  • Intended parent if they are having a baby through a surrogacy arrangement
• The employee must earn at least £120 per week in an 8-week relevant period and must have been employed for at least 26 weeks up to the qualifying week.
• The employee must give the correct notice of the pregnancy.
• The employee must be responsible for the child’s upbringing

Shared Parental Pay (ShPP)

Shared Parental Leave/Pay allows parents to split leave and pay following the birth of a baby.

Is my employee eligible for ShPP?

• Both parents must have been employed by their employer for at least 26 weeks before the qualifying week (15 weeks before the baby is due)
• Both parents must earn an average of £120 or more per week.
• The correct notice of the pregnancy must have been provided to the employer.

What should I pay my employee?

ShPP is paid at the lower of £151.97 per week or 90% of your average weekly earnings.

Statutory Adoption Pay

Statutory Adoption Leave is made up of 52 weeks split into 26 weeks Ordinary Adoption Leave and 26 weeks Additional Adoption Leave. Only one person in the couple can take adoption leave, however if this is the mother, then the father may also be entitled to Paternity Leave.

Adoption leave can start up to 14 days before the child starts living with you.

Is my employee eligible for SAP?

• The employee must give the correct notice of the adoption.
• The employee must provide proof of the adoption if the employer requires it.
• The employee must have been employed for at least 26 weeks before the week that they were matched with a child.
• Earnings must be an average of at least £120 per week

What should I pay my employee?

• First 6 weeks – 90% of the employee’s average gross weekly earnings
• Next 33 weeks – The lower of £151.97 or 90% of the average gross weekly earnings.
• The remaining 27 weeks would be unpaid or paid at the discretion of the employer

All the above payments must be recorded, processed and submitted to HMRC through a payroll scheme.

If you require any further information regarding any of the above statutory payments, please feel free to give us a call on 01785 254550.

What Is Domestic Reverse Charge

What is the domestic reverse charge:

A change in the way CIS registered construction workers handle and pay VAT.

When does it apply:

Domestic reverse charge became effective on 1 March 2021.

Who does it affect:

Individuals or businesses within the CIS scheme who are VAT registered. It applies to standard and reduced rate supplies.

What does it mean for you:

• If you are a subcontractor:
  • You will no longer charge VAT to your CIS customers if they are not the end-user of your service (the end-user is the final customer who will not make an onward supply of the building and construction services supplied to them).
  • You will need to state on your invoices that the customer is responsible for VAT and show the VAT rate that would apply to your sale.
  • The value of the sale will be included in your net sales figure on your VAT return, but no output VAT will be included.
  • If your customer is the end-user or your supply is zero-rated, then you will account for VAT in the normal way and the domestic reverse charge will not apply.

• If you are a contractor:
  • You will report the VAT from your subcontractors’ invoice as both output VAT and input VAT.
  • The net value of the invoice will be reported in your net purchases amount but NOT in your net sales amount.

Impact on your business:

• Cash flow:
  • If you are a subcontractor then this change will have a negative impact on your short-term cash flow as you will now be receiving the net amount of your sales invoice rather than the gross. Many businesses rely on the time delay between receiving the VAT element of their sales invoice and paying it over to HMRC. Businesses should, therefore, consider how they will deal with this change.
  • If you are a contractor then this change will have a positive impact on your short-term cash flow as you will only be paying the net amount to your subcontractors rather than the gross.

• Accounting systems:
  • If you are a contractor then the way you report your purchases from your subcontractors has changed. You will need to ensure that your accounting systems are sufficient to help you deal with this change. Most cloud accounting software is equipped to deal with the domestic reverse charge, so if you are not using cloud software yet then now may be a good time to start.

• Flat rate VAT scheme:
  • You cannot account for reverse charge supplies using the flat rate scheme. Reverse charge supplies must be dealt with as outlined above.
  • If you are on the flat rate scheme and the domestic reverse charge applies to you then you will need to consider if it is still beneficial for you to remain on the scheme.

• VAT refunds:
  • If you are a subcontractor and all, or majority, of your sales, are dealt with through the reverse charge scheme then it is likely that your VAT returns will now result in refunds being payable to you as you will claim the VAT on all your relevant purchases but will have no, or little, VAT to pay over on your sales.

If you need any help or advice on the Domestic Reverse Charge, please do not hesitate to contact us and we will provide all the assistance you need.