[Closed] Redundancy payment question - tax

Probably to avoid jumping through the hoops that redundancy can potentially require.

It sounds questionable but I'm not an HR expert though I did understand that since you've been there over 2 years, you'd be eligible for redundancy payment.

My understanding is that if it is a contractual payment it IS taxed, if non-contractual then it isn't.

Compromise and redundancy payments are not contractual so are not taxed until £30k reached.

Why are they getting rid of you? Is the role redundant?

http://www.personneltoday.com/hr/terminating-fixed-term-contracts/

I thought the 2 year ruling applied only to perm.

Not any more (for several years now IIRC).

The link suggests that my view of things is correct if the role the OP is doing is redundant.

Well you have a fixed term contract and they are not renewing it, thats not redundancy. However what seems odd is they are making a payment equal to statuatory redundancy but you are not technically being made redundant. I would press for the tax free treatment but perhaps they could pay you zero, depends what the contract says.

It can be redundancy as he's been there more than two years. Read the link I posted.

as stated above, because the payment is stated in your contract it will be taxable. it needs to be an ex-gratia payment for it to be non taxable

Presumably if it's a fixed term contract they could just let it run out? By definition a fixed term contract will always be redundant when it runs out, it's the whole point why it's used when you don't want to have to hire someone permanently (covering sick, maternity, sabbatical leave etc).

If they're paying you as per the termination clause that's not really redundancy. Hence it's taxed. I guess it might hinge on the exact wording as to if it should be rounded up to cover the tax/ni etc, but if it's not then i'd have assumed it was taxable (just like you don't expect them to quote net salary).

It can be redundancy as he's been there more than two years. Read the link I posted.

Depends if they can justify it some other way.

My gut instinct is they want it taxable so that it's not redundancy (are they giving another reason?), and therefore don't have to follow the procedures (which could end up with them scoring a permanent employee lower, you both leaving, and having to immediately recruit someone).

Employment law changed to prevent people being on constant fixed term contracts having no rights - basically if you've been there five years (ie over 2 years) on a fixed term contract(s) then you get treated like a perm because basically that's what you are...

Many companies now have a policy of not retaining contractors over two years to avoid this very issue.

Thanks for the responses so far. To fill in the blanks, my position is a grant-funded academic position. The grant is not being renewed when it completes this month. I've known for quite a while this was going to happen, and I take no issue with being made redundant.

As stated by others, after 2 years of fixed-term, you're treated as non-time-limited for redundancy purposes.

I somewhat understand what several have said about the payment being contractual, and not ex gratia, and therefore subject to taxation. However, given that it doesn't give me rights or benefits above the legal minimum, I don't understand the intent of the clause in the contract. Does my employer benefit in any way from giving me this rather than SRP? I know I don't benefit.

This implies that if a company writes into your contract that you'll get paid redundancy if you're made redundant, you have to pay tax on it.

They benefit by it being simpler for them...

You'll need to talk to someone with a proper understanding of employment law really... Just because it's in a contract doesn't make it legal but there may well be some aspect of the law that I and others don't know about.

Your contract of employment
If you have worked on a succession of fixed-term posts for the same employer, you may have sufficient service to qualify for an 'open-ended' employment contract. However, if funding comes to an end for your fixed-term post and no suitable alternative work is available, you may simply find yourself entitled to redundancy pay.

http://www.academiccareer.manchester.ac.uk/about/phdandbeyond/fixedterm/

https://www.ucu.org.uk/article/3547/The-ending-of-a-fixed-term-contract---some-information

The ending of a fixed-term contract - some information

The ending or expiry of a fixed term contract is regarded as a dismissal in law.

For such a dismissal to be fair it must relate to one of the following reasons:

redundancy
capability or qualifications to perform the work
conduct
complying with legislation
'some other substantial reason'.
A member of staff must have completed at least 24 months with the same employer (but not necessarily in the same post or department) to be able to claim for unfair dismissal in an employment tribunal.

Redundancy

Where a member of fixed-term staff is dismissed because the requirements for employees to carry out work of a particular kind have ceased or diminished then the dismissal will be for reason of redundancy. In most cases, the ending of a fixed-term contract will be a redundancy.

It certainly sounds like redundancy to me...

http://www.ucl.ac.uk/unions/UCU/rights/fixedterm/

You get the idea...

Which uni and who is your contract actually with - ie does the grant pay you or the university? Presumably the university gets the grant and your contract is with the university.

I'd rather not name my uni, but the grant goes to them, they pay me. My contract is with the uni, not the grant provider.

I want to reemphasise that the issue is not that I've been made redundant, it's that I'm losing nearly a third to tax+NI. It looks like redundancy, smells and tastes like redundancy, but somehow the payment isn't redundancy.

Interesting situation, cos you can understand HMRC not wanting people to get paid a reduced salary plus large tax-free "redundancy" as a tax evasion measure (even tho limited to 30k). On the other hand, the gov.uk website is clear that if being made redundant, you are entitled to redundancy pay and this is tax free. Maybe the real law contains more detail but there's no hint of it here for example: https://www.gov.uk/staff-redundant/redundancy-pay

Are you being paid in lieu of notice i.e. you are will leave before your contract expires? If so your contract may dictate that this is taxable as it is normally classed as advanced wages.

Yes and that would be perfectly normal. Not getting redundancy AS redundancy seems to me to be incorrect and in every way I can see you do qualify as being made redundant.

Not being PILON. I've noticed the contract doesn't say the payment is instead of SRP, only that a payment equivalent to SRP will be made. Is it possible for them remove my right to SRP by contract? In their greed, have they inadvertently made it so I am due SRP and the termination payment?

I don't think it is - Redundancy is something clearly defined and as far I can see, you qualify for it.

I wonder if the contract has just remained since before the law changed to give improved rights to contract workers.

FWIW, it doesn't sound like greed, just trying to avoid hassle.

I don't think it'll be redundancy based on

To fill in the blanks, my position is a grant-funded academic position. The grant is not being renewed when it completes this month.

The link above would suggest it'll be covered under "some other substantial reason (SOSR)", i.e. the funding running out so it's not redundancy attracting SRP. If the organisation had been funding you directly (I'm assuming the grant is from a third party) you'd have been entitled to SRP, more advice [url= https://www.citizensadvice.org.uk/work/work-comes-to-an-end/redundancy/redundancy-pay/#h-must-you-pay-tax-on-a-redundancy-payment ]here[/url] which is tax free up to £30k. If you get notice money and it's not written into your contract that they can pay you in lieu of notice you may have been able to get that tax free if you had entered a compromise agreement.

FWIW work out how much paying tax on it is going to loose you, for a couple of hundred pounds I'd let it go, if it's thousands it would be worth pursuing it but I reckon you'll need legal advice to sort it properly. Your employer is likely to err on the side of caution and pay the tax on it on your behalf leaving you with the onerous job of trying to convince HMRC to give it back, personally I'd rather stick pins in my eyes.

Is it possible you waived your rights to a standard redundancy payment? Seems unlikely, as that's the whole point of the law changes - that you are considered entitled to redundancy. You should check with your Union - you are a member, right?

I don't think that's right stumpyjon - the OP is employed by the university to allow the university to fulfill their end of the funding agreement. The funding ends so the role at the university is considered redundant... besides, the links I posted from unis suggest that they think the same

2. Redundancy rights. The end of a contract or post does not justify sacking a particular employee.

Your employer is UCL - not the department, research group or funding body. The employer must demonstrate that the duties have ended and that the individual member of staff has been fairly selected for redundancy. You have a right to trade union representation (if you join the union) and to appeal against the redundancy decision. If all else fails, you can go to an Employment Tribunal to challenge the decision.

However a funding end date in a contract does not justify a redundancy. [b]The law cannot be dodged by euphemism[/b]. They can only be used to remind management to plan to avoid redundancy by applying for funding and developing new posts. It is doubtful whether such statements have a place in a contract of employment at all.

It's not a huge amount of money, about 750 quid. Not worth getting a solicitor involved, but worth a punt here, and certainly worth a few hours of my time researching and pushing back on HR.

I've sent an inquiry to HR. I'll check with the union tomorrow.

Sounds to me like you are due a (taxable) contractual termination payment AND (tax-free within limits) statutory redundancy pay.

Just because the employer says you aren't being made redundant, doesn't mean that's actually true. There is a lot of misunderstanding about fixed term contracts.

My initial thought was grumpysculler was right, the payment is clearly taxable as contracted, but on reading [url= http://www.acas.org.uk/index.aspx?articleid=4587 ]this note[/url] on the Acas site, there may be reasons why "additional" redundancy is not due.

Hang on, this is STW. You should be overjoyed at the opportunity to do your bit and donate to the public purse.

Nemesis, you may be right but what the OP needs to do is ask what grounds the contract is being terminated on if it's not redundancy, it can be only a couple of other official reasons, capability and SOSR being two. If they don't come back quoting one of the recognised reasons then he's got a case.

[i]as stated above, because the payment is stated in your contract it will be taxable. it needs to be an ex-gratia payment for it to be non taxable [/i]

This.

But tbh at £750..., not really worth the cost to argue.