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HMRC internal manual

Statutory Payments Manual

Average Weekly Earnings (AWE) - SMP/SAP/ShPP/SPP: earnings covered by PAYE settlement agreement and subject to Class 1B NICs

If an employee does not qualify for SMP/SAP/ShPP/SPP because their AWE are less than the LEL for NICs purposes, they may be able to qualify if benefits and/or expenses were paid to them during the relevant period.

The employer must check whether they received any benefits and/or expenses during the relevant period, which would have attracted a Class 1 NICs liability, but:

  • were subject to a PAYE Settlement Agreement and
  • were benefits subject to Class 1B NICs.

If so, they must re-calculate the AWE including all the benefit/expense payments which would have attracted Class 1 NICs if they had not been included in a PAYE settlement agreement.

Where a back dated pay award covers a relevant period (where earnings included in a PAYE settlement agreement have already been taken into account), AWE should be calculated as follows:

  • use the original earnings excluding any earnings which attract liability to Class 1B NICs
  • add on the back dated pay award, and
  • if the earnings are still below the qualifying level, add all the earnings which attract liability to Class 1B NICs.

The employer should then pay any SP arrears taking into account the difference between the amount actually received at the time and the amount they would have received if the pay rise had been given on the date it was due.

Exceptionally, this figure may be less than the amount originally received if the PAYE Settlement Agreement earnings are more than the backdated pay award. In this situation the employer should make no adjustment to the payment already made to the employee.