NIM02185 - Class 1 NICs: Earnings of employees and office holders: 'Golden hellos' - inducement payments

Section 3(1) Social Security Contributions and Benefits Act 1992

Employers, and occasionally interested third parties, sometimes make inducement payments – often referred to as ‘golden hellos’ – to employees to recruit their services. These payments are normally paid when the employee is:

• engaged under a contract of service ; or
• acting under an implied contract of service (before the employment is taken up).

An example of an implied contract would be where someone leaves one company and immediately receives an inducement payment from another company, even though the new company may not want them to take up the duties of the employment until some future date. In such a case the person concerned is regarded as receiving a payment of earnings from the new employment.

There may be a letter from the individual or an entry in the company’s minute book which confirms their acceptance of the employment. The date of the letter or entry should be accepted as the date of the individual’s decision.

A payment to induce someone to take up an office or employment is liable for NICs if it is a payment derived from the employment. It will be derived from the employment where it is made to reward or thank the individual for joining the workforce. It is therefore very important to establish all the facts concerning an inducement payment in order to be able to decide whether the payment is derived from the employment (as required by section 3(1) SSCBA 1992 – see NIM02010) or whether it is made for some other reason.

Useful guidance on relevant tax case law can be found at EIM00700.