Being made redundant with extra pay

getmore4less

I think jimmo has the answer unless you can get them to change their minds and make it part of redundacy.

Would save them employers NI.

OurKev

I would contact an employment lawyer and ask for a free telephone consultation.

They should be able to tell you the best way to handle this, as it is their main business.

In my case, a few years ago, PILON was not in my contract of employment so it could be paid as part of the redundancy package (required a "compromise agreement"), but if it is mentioned in your contract it would be hard to avoid paying tax on it.

jimmo

OurKev wrote: »

I would contact an employment lawyer and ask for a free telephone consultation.

Whilst it may well be better to seek a professional opinion, rather than relying on a forum, it is best to do your homework first. There may well still be things we can help you with.
First of all you already knew that your employer is talking nonsense in labelling the potential payment as PILON.
So you can then discount all posts on here about whether PILON is taxable in full or only as part of your redundancy package.
Second, you should remember that your employer's primary interest is himself, not you.
In that context, if your employer deducts PAYE from the proposed payment he will be in the clear with HMRC. If he fails to operate PAYE when he should, they could come down on him like a ton of bricks.
If your employer operates PAYE in error HMRC will repay you (eventually).
Third, but perhaps most importantly, if you have something in writing from your employer promising the money on the condition that you perform a task satisfactorily you have some security of payment, albeit after deductions.
If you rip up your evidence in exchange for a verbal promise from your employer then you run a very real risk that you will end up with nothing.
A solicitor once told me that an Englishman's word is not his bond. It is only worth the paper it is written on.
Only you know all the circumstances but I can't help the feeling that I would take the money on offer and take the tax hit.

taxing

They have said that in addition to minimum stat. redundancy payment, they will pay me an extra 3 months salary if they are happy with the training of other employees to do my duties I have been asked to provide.

I have asked if the extra 3 months salary payment (if made) will be subject to tax. I am aware you can be paid up to £30K when you leave tax free under some circumstances.

IMHO - it appears to me that, in reality, the employer considers the contract of employment to be continuing for the 3 month training 'others' period.

The OP is then to be made redundant at the end of those (additional) three months (this period, of course should be added into the calculation for statutory redundancy - which is tax & nics free).

At the end of these three months the period of notice would start but the employer is saying that will instead be paid in lieu of notice as being at the end of contract.

Regards

outgoingzero

Thanks very much for all the advice.

I myself have wondered whether I should be asking my employer to ensure the 3 month extra payment after my 3 month notice period ends should be tax free - I'm not contractually bound to receive it so I want to make sure they don't withdraw it. But I also don't want to throw away 1000s in tax if I don't have to.

I don't think they are counting my notice period as starting after I've done 3 months after being notified of redundancy, and hence PILONable. I'm pretty sure I'll be getting a letter clearly saying the next 3 months are my notice period which I have to work (handing over to other people). It will be in black and white, and I've already got something telling me my position is at risk of redundancy setting out the likely termination date, which is in line with the above.

So I still don't understand how they can say the 3 month equivalent bonus/compensation/redundancy (i.e. whatever) payment is PILONable as jimmo also says, because it isn't notice pay - sorry if I'm sounding like a broken record here. I really need to get my employer to recognise this, or at least explain why it is notice pay.

As jimmo says, having this payment on offer down in writing is a good idea. I'm working on that, all I've got is an email saying the below at the moment:

Further to your enquiry, as I thought, HR say that the additional proposed payment is classified as payment in lieu of notice and therefore should be taxed.

I suppose there is always the chance the payment would be PAYE and then I could make a case to HMRC after the fact. However, I bet that would be bloody difficult!

I think I'm going to email my employer (politely) asking them to explain why the extra payment is notice pay (and therefore possible to PILON) when they've told me I have to work my notice. Thanks for all the help here - it's not a magic wand but it does help to frame my thoughts.

jimmo

I do think you are getting a bit hung up on this "PILON" question and it may distract you from what could prove to be more important.
Speaking as a former taxman with precious little experience of work in the private sector it does seem somewhat bizarre to me that an employer requires an employee, who is about to be made redundant, to train up his replacements but obviously it can happen because it is happening to you.
The fact that your employer seems to be prepared to pay you for that has to be good.
My guess, and it is a guess, is that your employer's policy does not recognise that a situation, such as your's, might arise. Therefore there is no mechanism to enable the payment to be processed.
HR, in their wisdom, seem to have decided that labelling the payment as PILON is the most convenient, or only, way that the payment can be processed by payroll.
If I am anywhere near the truth I fear you will be banging your head against a brick wall trying to get them to change the label.
I don't see much point in going into the whys and wherefores of whether PILON should be taxed as pay or paid as compensation. Sufficient to say that your employer does operate PAYE when and if they pay PILON.
From the taxman's point of view, you employer will operate PAYE when the payment is made and there will be no need to look any further than that.
So, the taxman will not even look at this issue unless you take it up with him.
When the taxman does look at these things the labels attached to the payments are pretty unimportant. the taxman will look at the underlying facts rather than the bits of paper.
By far the most common thing that the taxman looks into is Compromise Agreements.
Take a look at the following 2 links.
http://www.hmrc.gov.uk/manuals/eimanual/eim12855.htm
http://www.hmrc.gov.uk/manuals/eimanual/eim12856.htm
To me, the most important question is not "Is this PILON?"
The real question is "Is the payment taxable?"
It may well already be the case that the HR records already contain clear evidence that the payment will be a reward for service and therefore taxable.
Even if they don't, your dilemma then is that the more you do to get your employer to commit to the payment, the more evidence is likely to build up that the payment is truly taxable.