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HMRC internal manual

Employment Status Manual

Particular occupations: entertainers - NICs treatment - meaning of "salary" [17 July 1998 to 5 April 2003]

SS (Categorisation of Earners) Regulations 1978 (SI 1978 No.1689) Regulation 1(2), paragraph 5A in Part I of Schedule 1, and paragraph 10 in Schedule 3

There is no statutory definition of the word “salary”. Remuneration does, however, have to have the following characteristics if it is to be regarded as “salary”:

  • it is paid for services rendered or to be rendered
  • it is paid under some contract or appointment
  • it is computed by reference to time worked
  • it is payable at a specified time or at specified intervals
  • it is paid for regular work.

It should also be borne in mind that, although a payment may have some other description such as a fee, its proper description may be salary.

The above statements are based on the following case law.

Re Shine, ex parte Shine [1892, 1QB522]

Mr Shine was a comedian who was declared bankrupt. He was engaged under a two-year contract, which provided for payment of so much per week to cover six performances, with an extra, fixed payment for a seventh performance. For the purposes of the Bankruptcy Act 1883, it was necessary to establish whether Shine’s remuneration was a salary. The Court of Appeal held that it was. In his judgment Lord Justice Fry said

“Whenever a sum of money has these four characteristics - first, that it is paid for services rendered; secondly, that it is paid under some contract or appointment; thirdly, that it is computed by time; and fourthly, that it is payable at a fixed time - I am inclined to think that it is a salary…”

Greater London Council v Minister of Social Security [1971, 2All ER285]

More recently, the High Court had to consider whether Mr Freeman, a dentist engaged by the GLC to work six three-hour sessions per week for an indefinite period, was remunerated by salary for the purposes of the National Insurance (Classification) Regulations 1948 (a predecessor of the above Regulations). He was paid monthly at a rate calculated at an amount per session. Judge MacKenna, finding that the dentist’s remuneration was a “salary” within the meaning of the Regulations, commented

“The word “salary” is not defined in the regulations or in the Acts. The definition in the Oxford English dictionary is in these terms

"Fixed payment made periodically to a person as compensation for regular work - now usually restricted to payments made for non-manual or non-mechanical work (as opposed to wages)."  

He also made two other relevant comments in his judgment. The first emphasises that what matters is the substance of the arrangement and not necessarily the description used by the parties

“Thus, Mr Freedman’s payments fulfilled all the requirements of the definition which I would use in construing the regulations. I would for that reason hold that he was paid a salary. I do not overlook the circumstance that, in the letter [of engagement] which I have quoted, the word “fee” is used and not “salary”. It has often been said in other cases, under these Acts, that the word used by the parties does not govern the court. The cases must be decided according to the substance of the matter. Here the substance is, in my opinion, salary and not fees.”

Secondly, commenting on Lord Justice Fry’s four characteristics, he said

“Where, as here, the unit of time is a short period of three hours actually worked, there must, I think, be added to Fry LJ’s four characteristics, a fifth, that the contract should provide for the recurrence of the sessions of work throughout the contract period, whether that period is fixed or indefinite. A salary is, as the dictionary definition states, a payment made for “regular work”. If the contract provided only for a single session of three hours’ work, the payment, though computed with reference to time, would not be described a “salary”. It would be more aptly described as a “fee”.