Maternity pay as a lump sum??

Alibali

Hi

Im not sure if this is the right board to be posting but I really need some advice....

I work on a temporary contact, due to start maternity leave on the 22nd March and have since found out that my contract wont be renewed on the 31st march. My employer has a liability to pay me statutory mat pay because it starts whilst I am in employment, however, they have told me today that they are considering paying this to me in a lump sum.....I am not pleased (and it doesn't seem like i am going to get a choice!), if it is paid in a lump sum it will be massively taxed, NI & student loan deductions taken off, whereas if it was paid weekly or monthly (as it should) then I would not have any deductions taken from it.

Considering how low maternity pay already is and that I dont have a job to go back to, this will cause me real financial hardship. I have spoken to HMRC who advised that if paid in a lump sum if would be taxed etc and i would have to wait until the end of the tax year (april 2013) to reclaim this money and I might not get the student loan deductions back at all.

Has anyone experienced this and what did you do?

chrisbur

It is possible that your employer is not fully aware of the implications of paying SMP as a lump sum, both for you and for themselves. May be worth checking with them as it will be more expensive for them as well as for you.

From your point of view assuming that the payment is made in next tax year (I assume this is the case as you refer to having to wait untill April 2013 for a rebate) then you will pay extra tax but I would have thought that you could make a claim for a tax rebate on a P50 every four weeks after you finished work.
More NI will be deducted than if it was paid monthly and there is nothing you could do about this.
Student loan would be deducted but if your total earnings for the year were under a certain level (£15000 at the moment have a vague feeling it goes up next year but not sure) you could reclaim it.

From your employers point of view they will also pay extra NI by way of employers NI if it is paid as a lump sum.
If you fail to qualify for the full payment they then have the problem of chasing you up to try and get a repayment from you.

Alibali

chrisbur wrote: »

It is possible that your employer is not fully aware of the implications of paying SMP as a lump sum, both for you and for themselves. May be worth checking with them as it will be more expensive for them as well as for you.

From your point of view assuming that the payment is made in next tax year (I assume this is the case as you refer to having to wait untill April 2013 for a rebate) then you will pay extra tax but I would have thought that you could make a claim for a tax rebate on a P50 every four weeks after you finished work.
More NI will be deducted than if it was paid monthly and there is nothing you could do about this.
Student loan would be deducted but if your total earnings for the year were under a certain level (£15000 at the moment have a vague feeling it goes up next year but not sure) you could reclaim it.

From your employers point of view they will also pay extra NI by way of employers NI if it is paid as a lump sum.
If you fail to qualify for the full payment they then have the problem of chasing you up to try and get a repayment from you.

I dont think they are aware to be honest, as they advised when I spoke to them that they had only just had confirmation that they were allowed to pay it as a lump sum, so suggesting to me that this is the first time have looked in to paying it this way. Do you happen to know what kind of percentage employers NI is? Im hoping to work out the figures and use this in my argument for having it paid monthly.

I didn't actually know that I could reclaim the tax via a P50 - i thought I would have to wait until the end of the tax year before I would be able to reclaim. I think my employer was planning to pay the money to me at the end of March, until I pointed out that I would have no chance of reclaiming the excess tax if they paid it this way, so they said they would look in to paying it in April at the start of the new tax year.

I can live with paying the extra NI if i can atleast get the tax & student loan payment back.

chrisbur

Employers NI rate is 13.8% assuming you are not in a contracted out pension.
Next tax year this will be payable on earnings over £144 if paid weekly or £624 if paid monthly.

Assuming monthly paid...
Take each months pay and deduct £624. Any month under £624 no employers NI is due. Any month over £624 then 13.8% of that amount over is due. That will give the ers NI if paid monthly
Assuming lump sum paid...
Take the total lump sum and deduct £624. Take 13.8% of whats left and that is the ers NI if paid as a lump sum.

[Deleted User]

chrisbur wrote: »

Employers NI rate is 13.8% assuming you are not in a contracted out pension.
Next tax year this will be payable on earnings over £144 if paid weekly or £624 if paid monthly.

Assuming monthly paid...
Take each months pay and deduct £624. Any month under £624 no employers NI is due. Any month over £624 then 13.8% of that amount over is due. That will give the ers NI if paid monthly
Assuming lump sum paid...
Take the total lump sum and deduct £624. Take 13.8% of whats left and that is the ers NI if paid as a lump sum.

This is not always the case in a lump sum SMP as the lump sum often goes above the upper earnings limit and drops to 2% NI. It would be useful if we knew the exact figures we are talking about.

chrisbur

Deleted_User wrote: »

This is not always the case in a lump sum SMP as the lump sum often goes above the upper earnings limit and drops to 2% NI. It would be useful if we knew the exact figures we are talking about.

We are talking about employers national insurance, the upper earnings limit applies only to employees national insurance, employers get no reduction to 2%

[Deleted User]

Sorry quoted the wrong post. What I meant to say is the Employee is not always worse off getting a lump sum as the NI often works out roughly the same and tax can be reclaimed depending on when paid.

Alibali

Deleted_User wrote: »

This is not always the case in a lump sum SMP as the lump sum often goes above the upper earnings limit and drops to 2% NI. It would be useful if we knew the exact figures we are talking about.

Thanks for all of your help guys - the lump sum would be made up of

5 weeks at 90% (the first week I will get in my march pay as I will still be an employee) which equates to £2001.98 and then 33 weeks at statutory rate £128.73 which equates to £4248.09, so lump sum would be £6250.07 in total.

If my figures are right, the student loans company will get £450 of this.

If anyone is able to shed any light on how much tax & NI would be taken off this that would be great.

And I am assuming that my employer pays 13.8% employers national insurance on the full amount? if so, this may go in my favour as I work for quite a large charity, so as you can imagine money is tight and they would have to part with approx £776? is that right?

chrisbur

Deleted_User wrote: »

Sorry quoted the wrong post. What I meant to say is the Employee is not always worse off getting a lump sum as the NI often works out roughly the same and tax can be reclaimed depending on when paid.

I take your point, I was assuming that the OP was not very highly paid. Certainly worth checking if the OP would like to give details of the six weeks 90% pay figure and if on weekly or monthly pay.

Alibali

Deleted_User wrote: »

Sorry quoted the wrong post. What I meant to say is the Employee is not always worse off getting a lump sum as the NI often works out roughly the same and tax can be reclaimed depending on when paid.

Joanne, I noticed your signature, you say you've worked in payroll - the girl from HR reckoned that as they would process me as a leaver on the 31st March and pay me the lump sum in April's payroll, they would not have to deduct tax/NI or student loan payment.....this didn't seem right to me and she was waiting to check with someone from payroll.....could you shed any light on this??

Alibali

chrisbur wrote: »

I take your point, I was assuming that the OP was not very highly paid. Certainly worth checking if the OP would like to give details of the six weeks 90% pay figure and if on weekly or monthly pay.

Monthly pay.