Voluntary Severance & Maternity Leave

garden_gate

Hello,

My first post...and it's a complicated one!

My wife has just been offered Voluntary Severance from her job - the amount is one years salary.

She is currently 6 months in to a 12 month spell of maternity leave. The offer is 36k.
From the letter, the first 30k is tax free, but the rest is "subject to tax in accordance with your personal tax coding"

Under the terms "there is no entitlement to pay or benefits in lieu of notice"

and

they "require that you take all of your annual holiday entitlement before you leave"

That is fine by us as the Severance amount more than compensates for this and she is on maternity leave anyway!

Our concerns are:

The problem is that while on maternity leave you still gather holiday (which I have always thought a bit strange). This means she has lots of outstanding holiday but can't take it - will she get taxed on this?

She has received maternity pay with the assumption that she would return to work. Her boss has said on the phone that the maternity pay would not have to be paid back. If she takes the offer she will not be able to return to work for the normal 3 months minimum after maternity leave. Will she become liable to pay back any government paid part the maternity pay or have to pay extra tax on it?

I have also heard that if the 3 months notice is not handle correctly this might also have an effect on the taxable amount.

Any advice much appreciated.

Thanks
garden_gate

jamminca69

Hi

Im in similar situation to your wife - she doesnt work for a uni does she?!? - in that the terms of my VR are identical. See my post here http://forums.moneysavingexpert.com/showthread.php?t=2278267&highlight=

As i understand it there will be a compromise agreement drawn up that will overcome the issue of the 3 months notice (PILON) and if all holiday pay is taken then that also isnt an issue.

With regards to your wife, could see not arrange an earlier return to work and try to agree with employer that she takes her outstanding holidays for that time? i.e. if she has 20 days hols left then return 4 weeks early and then take them all as holidays?

If the employer says there isnt a need to pay back the maternity pay (my wife is currently on maternity and she needs to work 13 weeks on return to not have to pay it back) then i dont see the problem. The govt aspect of the statutory maternity pay wont be reclaimed as far as i know?

Uncertain

I'm not sure how they will "overcome" the tax situation on the PILON.

If 3 months notice is your contractual entitlement then this is (normally) taxable. It is only the compensation element (up to 30K) that is tax free.

If they have found a legal way round this then great but do take care. A standard clause in most normal compromise agreements is that both parties "think" they have dealt with the tax correctly but that the employee will reimburse the company if HMRC demand more! Obviously you can have a different clause if both parties agree but this is by far the most common.

jamminca69

Uncertain wrote: »

I'm not sure how they will "overcome" the tax situation on the PILON.

If 3 months notice is your contractual entitlement then this is (normally) taxable. It is only the compensation element (up to 30K) that is tax free.

If they have found a legal way round this then great but do take care. A standard clause in most normal compromise agreements is that both parties "think" they have dealt with the tax correctly but that the employee will reimburse the company if HMRC demand more! Obviously you can have a different clause if both parties agree but this is by far the most common.

This was something i brought up in my VR meeting, my employer said that PILON was not part of CA.

The agreement will be set out that its a lump sum payment and not PILON, in settlement of all claims including claims arising from contractual conditions (i.e. notice pay) and that my payment will be a ex gratia (non-contractual) payment.

Apparently all this means that PILON wont apply and that the first 30k isnt taxable.