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HMRC internal manual

National Insurance Manual

Class 1B NICs: liability: special requirements for SSP, SMP, SPP and SAP entitlement

Regulation 17(2) of the Statutory Sick Pay (General) Regulations 1982, regulation 20(2) of the Statutory Maternity Pay (General) Regulations 1986 and regulation 39(2)(b) of the Statutory Paternity Pay and Statutory Adoption Pay (General) Regulations 2002

By replacing Class 1 NICs liability with Class 1B NICs on items included in a PSA, there may be occasions when an employee fails to qualify for Statutory Sick Pay (SSP), Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP) or Statutory Adoption Pay (SAP). (See NIM18010 and NIM18110 for information about when Class 1B NICs are payable in place of Class 1 or Class 1A NICs.)

This is because entitlement to SSP, SMP, SPP and SAP relies upon the level of gross earnings paid in a specific period being at least at the level of the lower earnings limit. The introduction of Class 1B NICs will mean that the gross pay recorded by an employer for individual employees may be reduced as they no longer have to identify the full remuneration applicable to every employee.

The consequence for SSP, SMP, SPP and SAP is that this could mean that the amount which goes through a PSA is not taken into account for the purposes of calculating average weekly earnings. As a result, the employee’s average weekly earnings may be below the lower earnings limit. This would mean that the employee would not qualify for SSP, SMP, SPP or SAP.

To safeguard against this circumstance the forms which notify employees of their failure to satisfy the conditions for SSP, SMP, SPP and SAP carry a notation advising employees to contact their employer where they have received payments which have not been shown on their payslips. Where the only reason for an employee failing to qualify for SSP, SMP, SPP or SAP is the fact that their earnings have been calculated to be below the lower earnings limit, the employer must

  • track the payments to the individual which have gone through the PSA and which would otherwise have attracted a Class 1 liability
  • recalculate the gross earnings for SSP, SMP, SPP or SAP by taking into account the earnings which went through the PSA
  • determine whether the employee’s total earnings actually satisfy the average earnings condition so that they qualify for the benefit.

Although this additional work may seem to counter the administrative benefit of the PSA (that is, the employer no longer having to keep detailed records of such payments) few employees will have a significant amount of their earnings included in a PSA. It follows that not many employees will have their rights to SSP, SMP, SPP or SAP impacted in this fashion.