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HMRC internal manual

National Insurance Manual

Class 1 NICs: earnings of employees and office holders: lost time payments / Financial Loss Allowance

On occasion, a person may be unable to undertake their usual employment because of another call on their time. Such examples of this are where the person is called to serve as a juror or perhaps if they are participating in duties for a trade union or other organisations.

Where this happens the employer might legitimately reduce the amount of earnings paid to the employee, though they do not have to. In such cases, the organisation that receives the assistance of the person involved may arrange to do something financially to counter the loss felt by the employee. These payments are commonly referred to as Lost Time payments or as a Financial Loss Allowance. How the payment is dealt with depends upon the circumstances under which it is provided and also by whom it is provided.

The following examples illustrate typical situations seen. Where other scenarios arise of similar nature then the facts should help establish if the payment is genuinely compensatory (in which case no liability to NICs arises) or whether it is a payment for undertaking the ‘duties’ of the alternative role, in which case this will be an alternative employment and Class 1 NICs will arise from that employment

Jury Service

A person will typically be called to serve as a juror for a period of two weeks, though in certain circumstances a trial may be known to be of longer duration and a person might be called upon to serve for a much longer period. This is a statutory obligation. During this time the employer does not have the service of his employee and might choose to cut the employees wage.

The employee is therefore at a financial loss and can ask the Ministry of Justice (MoJ) for payment to cover the shortfall. MoJ is able to assist but there is a limit to the amount of restitution that can be provided. However, as the role of juror is not a paid office or employment nor is MoJ paying the original wage on behalf of the employer, the payment is therefore compensatory in nature and does not fall liable for NICs.

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The role of magistrate is ‘an office’ and the magistrate agrees to sit for a minimum period of at least 13 days a year. This role is not normally paid.

Where the magistrate also has a cut in earnings, then they too may approach the MoJ for payment. In this scenario, they are awarded a fixed fee per half day or full day of sitting rather than an amount to compensate towards any loss of earnings. The ‘office’ then becomes an office of profit. The amount paid is therefore earnings and Class 1 liability arises, subject to observing ordinary earnings periods. The MoJ is the liable secondary contributor

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Trade Union or other organisation

Many companies allow certain employees ‘facility time’ to undertake duties not strictly for undertaking the employment but usually connected to it. An example of this would be to allow trade union members to attend union meetings, or - if a union official - to support other staff, to have meetings with management etc. Conditions vary but this can be provided either as a set number of days a year, or simply on an as required basis. Usually there is no reduction in earnings but that can vary from employer to employer or upon the duties undertaken

When a reduction in earnings does occur and the organisation makes a payment, the reason that payment is made should be considered.

  • If the payment is merely compensatory then the employer has no NICs liability to meet, even if they are asked by the organisation to pass on the payment to the employee.

  • If the employer is reimbursed for his loss and the employee is still paid in full, then the payment is earnings liable for Class 1 NICs

  • If the union pays the union official, they are providing earnings to that official for undertaking union duties. That is an office of profit and will be liable for Class 1 NICs, subject to usual thresholds. The trade union is the liable secondary contributor