Reversing PAYE after evaluation, clawback

Reversing PAYE after evaluation, clawback

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I want to bring on board a person who would be working with me for the foreseeable future. I want to pay that person GBP 30,000 per annum, and another GBP 30,000 if he works well (meets certain goals)
 
 

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By WhichTyler
12th Nov 2015 23:02

Yes
Don't pay him for the next three months.

The suggested scheme is bonkers

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Euan's picture
By Euan MacLennan
13th Nov 2015 10:21

Odd way to incentivise

The obvious method would be:

Month 1 - pay £2,500 gross salaryMonth 2 - pay £2,500 gross salaryMonth 3 - pay £2,500 gross salaryMonth 4 - conduct evaluation.  If fail, pay £2,500 gross salary; if pass, pay £2,500 gross salary plus £7,500 gross bonus for previous quarter.

If he is already being paid at the rate of £60,000 a year, where is the incentive to work better?  Your proposed method is all stick and no carrot.

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paddle steamer
By DJKL
13th Nov 2015 10:57

Besides, if not a director nice lumpy periodic bonus payments will save a little employee NI, shifting a chunk of earnings from 12% to 2%- as can be pointed out to him. Your approach, if in future no payments to be made some months re clawback, would result in wasting part of the annual nil rate NI threshold  for the months pay witheld. 

However as stated above cannot think of anything that would be more likely to breed resentment if targets missed than what you propose.

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Stepurhan
By stepurhan
13th Nov 2015 11:04

Clawback how?

OP wrote:
4th month beginning : Have evaluation, if things are good, keep paying. Else somehow claw back 2500 * 3 = 7500 from employee
So how do you get back the £7,500 if you need to? Not pay them for three months? Insist on a cheque from money they spent in the belief they were meeting the targets?

"somehow" is not a plan and you really haven't thought this through.

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By craig preece
13th Nov 2015 13:45

NMW

Agree with Euan -basic and retrospective bonus makes more sense, well any sense in my opinion.

Not paying for 3 months would mean paying less than NMW. Although there are various reasons this may be allowed the only ones I can see that may be relevant are a. repayment of a loan or advance of wages or b repayment of an accidental overpayment of wages.

If you are running the £5K per month gross salary I do not see how either could apply as IMO it is salary not a loan/advance (assuming PAYE + NI applied to whole £5K) and if it was pre agreed and processed as such it was not an accident. 

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By Anne Robinson
13th Nov 2015 13:49

what happens if he does a runner
I cant think of anywhere which would have a system like this - if he left how would expect to recover the overpaid amounts.

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7om
By Tom 7000
16th Nov 2015 11:52

simple

wrong plan, right decision to ask us what to do

 

listen to the boys above.

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By David Gordon FCCA
16th Nov 2015 11:52

Overpaid-

 

 Apart from the previous comments-

 A hourly paid client (On PAYE with the NHS trust) was overpaid by an NHS trust- to the extent that they doubled his salary.

 This went on for two years. finally, in the third year- client paid correctly, someone noticed what had happened. The trust asked for its money back.

 In employment law it was apparent that if you pay someone, except and unless any error is noticed within reasonable time, (A couple of months for monthly paid staff) the employer cannot reclaim the overpayment. There were no arguments, on being advised of the regulation the trust immediately conceded the point.

 Postscript: My client is an honourable person and not a highly paid medical person, we negotiated a compromise goodwill repayment.

 Many years ago a well known theatrical organisation accidentally paid stage staff five days' pay for working Boxing Day. It was supposed to be one day plus one extra day for working on that day, and one extra day in lieu of holiday.

 Revenue Law and Employment law is straightforward. When you pay someone, including directors, under PAYE that is it. 

 

 

 

 

 

 

 

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By Anne Robinson
16th Nov 2015 13:20

Amazed
How would it take you 3 years to notice that your salary had doubled!

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By paywatch
16th Nov 2015 14:52

negative taxable earnings

The £7,500 quarterly bonus, NMW considerations and 2% primary employee NIC over UEL on great part of bonus are all valid points and sound advice.

The issue of 'negative taxable earnings' was dealt with in Martin v Revenue and Customs Commissioners [2014] UKUT 429 (TCC), [2014], where the Upper Tax Tribunal ruled on the liability of the taxpayer to repay to his employer a proportion of a taxable signing on bonus paid under deduction of PAYE and Class 1 NIC, when he had given notice to resign prior to the end of the five year period for which he had committed to remain an employee.

The tribunal held that the individual was able to deduct the repayment from his taxable earnings for the tax year in which the repayment was made, as the repayment was ‘negative taxable earnings’ under the contractual terms surrounding the repayment and not liquidated damages.

The repayment was due in a different tax year to the one on which the full bonus amount was originally subject to PAYE tax and Class 1 NIC. A relief claim can be made under s.128 Income Tax Act 2007 for a deduction from earnings for the tax year in which repayment was made. The relief claim in the NIC regulations does not allow for NICs to be repaid on the original bonus amount, as NIC liability is only refundable on an error made in good faith at the time of payment.

So worth noting this decision when dealing with recovering repayments of previously taxed and NI liable earnings, as s.11(3) ITEPA 2003 taxes earnings less any deduction allowed under specified provisions, which includes s.128 ITA 2007 and recognises that taxable earnings can be a negative figure.

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By Brend201
23rd Nov 2015 22:16

Good answers already.

The real problem is "with the tacit implication that in X month's time".  If you intend to leave someone with, potentially, no pay in a future period, you had better make sure that it is more than a tacit implication.  It would definitely need to be very explicit and clearly understood.  

 

 

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