Is my employer pocketing the tax on a 'buy holiday' scheme?

gerardflanagan

Overview
My employer has said we can 'buy holiday' for between Jan and March 2018. I think we have to pay them a premium to do it, rather than just sacrifice the pay. Can anyone confirm please?

Their terminology in the faqs isn't detailed, but confirms that the amount to take is calculated from gross pay but deducted from net. As far as I can tell, that means they will pocket the tax part of the gross that would have gone to the tax man if I'd worked, rather than taken the holiday. I'm sure it is legal, but I'm not happy if they are doing that and not making it explicitly clear. Please see these examples, I think example b) is what is happening.


Example scenarios (made up figures):
In both examples assume if I took no holiday that I get £1000 gross for two days. And I get paid £800 net after tax.
Assume no higher tax rate/lower tax rate payer elements.

Example a) (no premium to pay)
Employer calculates my deduction based on gross and deduct it from gross. If I don't work for one day, I will be deducted £500 gross pay. Therefore I would be paid £400 net.

Example b) (pay Employer a premium [£100 in this example])
Employer calculates my deduction based on gross and deduct it from net. If I don't work for one day, I will be deducted £500 gross pay. But it will be deducted from my £800 net. So I get paid £300. And the employer keeps the £100? Or has my employer still had to pay the taxman the £100, even though I didn't work that day, which would make it bizarre to pay tax on earnings I never made.

Employer response
I have had 17 emails back and forth with them, culminating in the below emails. They compared it to a season ticket loan, but I don't think that is the same, because there is not an initial gross calculation that involves tax to be paid:

'If you earn £10 an hour and buy 7 hours holiday you will pay £70. This will be deducted from your net pay, i.e. once you have paid tax. There is no premium to pay.

In order for the £70 to be deducted from gross pay it would need to be taken under a salary sacrifice arrangement. We have an agreement with the HMRC that we can operate a salary sacrifice scheme for buying holiday over 12 months. We offer this benefit to colleagues in March, to take effect from April for the full year.

The net pay holiday benefit that we are offering now (to be taken between Jan and March 2018) operates just like a season ticket loan. You pay tax on your salary and then an amount is taken from your net pay. '

Thanks! :money:

sangie595

gerardflanagan wrote: »

Overview
My employer has said we can 'buy holiday' for between Jan and March 2018. I think we have to pay them a premium to do it, rather than just sacrifice the pay. Can anyone confirm please?

Their terminology in the faqs isn't detailed, but confirms that the amount to take is calculated from gross pay but deducted from net. As far as I can tell, that means they will pocket the tax part of the gross that would have gone to the tax man if I'd worked, rather than taken the holiday. I'm sure it is legal, but I'm not happy if they are doing that and not making it explicitly clear. Please see these examples, I think example b) is what is happening.


Example scenarios (made up figures):
In both examples assume if I took no holiday that I get £1000 gross for two days. And I get paid £800 net after tax.
Assume no higher tax rate/lower tax rate payer elements.

Example a) (no premium to pay)
Employer calculates my deduction based on gross and deduct it from gross. If I don't work for one day, I will be deducted £500 gross pay. Therefore I would be paid £400 net.

Example b) (pay Employer a premium [£100 in this example])
Employer calculates my deduction based on gross and deduct it from net. If I don't work for one day, I will be deducted £500 gross pay. But it will be deducted from my £800 net. So I get paid £300. And the employer keeps the £100? Or has my employer still had to pay the taxman the £100, even though I didn't work that day, which would make it bizarre to pay tax on earnings I never made.

Employer response
I have had 17 emails back and forth with them, culminating in the below emails. They compared it to a season ticket loan, but I don't think that is the same, because there is not an initial gross calculation that involves tax to be paid:

'If you earn £10 an hour and buy 7 hours holiday you will pay £70. This will be deducted from your net pay, i.e. once you have paid tax. There is no premium to pay.

In order for the £70 to be deducted from gross pay it would need to be taken under a salary sacrifice arrangement. We have an agreement with the HMRC that we can operate a salary sacrifice scheme for buying holiday over 12 months. We offer this benefit to colleagues in March, to take effect from April for the full year.

The net pay holiday benefit that we are offering now (to be taken between Jan and March 2018) operates just like a season ticket loan. You pay tax on your salary and then an amount is taken from your net pay. '

Thanks! :money:

I have an idea. If you aren't happy about it, stop bombarding your employer with emails (which will undoubtedly be p***ing them off too) and simply don't buy any holiday. What you personally consider is entirely irrelevant. This is a scheme being offered to all employees, obviously on some sort of trial basis. Some of your colleagues may really want, or even need, to buy extra leave. What you are doing is almost guaranteed to ensure the employer considers it more trouble than it is worth and never does it again.

The terms of the scheme are the terms of the scheme. If you don't like them, don't ask to buy extra leave. Nobody is being forced to join the scheme.

bugslet

Before reading sangies reply, I thought I'd hate to be that employer.

As a company we have always been reluctant to start offering schemes as there is always someone that looks for the worst, even when it's done for the best of reasons. It just gets to be hard work.

As sangie says, if you think it's a bad deal, you don't have to take it.

glentoran99

'If you earn £10 an hour and buy 7 hours holiday you will pay £70. This will be deducted from your net pay, i.e. once you have paid tax. There is no premium to pay."




That seems pretty clear and fair? you want £70 worth of leave you pay them £70. You aren't "paying tax on earnings you never made" your employer will still be paying you your full wage

hcb42

I think it would be unlikely that a company would operate a scheme where you were effectively worse off per hour for salary sacrificing for more holidays. My company offer a very popular one and no one is worse off for it. Perhaps something is getting lost in translation?

theoretica

gerardflanagan wrote: »

In order for the £70 to be deducted from gross pay it would need to be taken under a salary sacrifice arrangement. We have an agreement with the HMRC that we can operate a salary sacrifice scheme for buying holiday over 12 months. We offer this benefit to colleagues in March, to take effect from April for the full year.

The net pay holiday benefit that we are offering now (to be taken between Jan and March 2018) operates just like a season ticket loan. You pay tax on your salary and then an amount is taken from your net pay. '[/I]

Thanks! :money:

I read the response from your employer as saying the tax goes to the taxman but you can commit to buy days for the next financial year without this happening.

getmore4less

For a scheme to be "fair" as in neutral for both parties you have to factor in the holidays already getting paid.

A weeks pay is nominally £X/52 or close to 1.923%

Using statutory 5.6 weeks for a salary of £X and employer gets 46.4 weeks work each weeks work is worth close to 2.155% to the employer.

gerardflanagan

Thank you all for your replies.

WobblyDog

From my point of view, the fact that the deal being offered is not highly attractive to the employee is reassuring.

My employer is currently offering an attractive (to the employee) deal to encourage people to buy extra leave, which suggests they are slightly desperate to temporarily reduce the wage bill. People are starting to worry about their job security.

iammumtoone

They offer a buy back holiday scheme at my work (up to a maximum amount of days).

To be honest it never even crossed my mind to check the breakdown of what they charge I am told how much will come out of my wages that's all I need to know. I and others pay it, the extra holiday is worth more to me than money its not compulsory. I consider it a perk and hope that no one questions it to the extent of the OP in case they decide they will withdraw the offer.

steampowered

The employer seems to have fully answered your question.

In order for the £70 to be deducted from gross pay it would need to be taken under a salary sacrifice arrangement. We have an agreement with the HMRC that we can operate a salary sacrifice scheme for buying holiday over 12 months.

That is very clear to me. HMRC decides whether the employer can deduct the holiday from gross.

You don't get to decide. I'm no expert, but I doubt it as simple as just deducting the cost of holiday from gross. You pay tax on your salary and your salary hasn't changed.