Sick leave after the pay date in a month

Questions about how to correctly handle sick leave that happens after the pay date in a month

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I have questions relating to the correct handling of what I would imagine is a common scenario. Consider an employee getting paid regular monthly salary, where the pay date is the 20th day of the month, so most of the salary is paid in arrears but a portion of it is being paid in advance for that month. The payroll is run, payslips are produced for the month and the employee gets paid. After the 20th, the employee has 2 days of sick leave (SSP does not apply) for example on the 25th and 26th of the month. The employer does not have a sick pay scheme, so the employee's salary should have been zero for the 2 sick days.

The main question is what is the correct way to handle this from a payroll/payslip/amendments point of view? Two possible approaches come to my mind:

1) The payslip for the month in question is corrected and reissued. Note the employee has already been paid based on the original payslip, so this would mean the corrected payslip does not match the amount actually paid.

2) The amount of pay in the next month is reduced by 2 days' worth of salary, and this is shown on the next payslip for the next month. The firsth month's payslip is left as is.

My questions are:

a) Is approach 2 legal at all, or should any reduction in pay always be applied to the month in which it should have taken place?

b) If both approaches are legal, what is common practice? Do accounting software generally accomodate either of these approaches?

c) National Insurance contribution implication: my understanding is that NI contribution is always calculated on the pay in a given month, without reference to any other months. Hence moving pay between diffrent months (as in approach 2) can potentially result in different total NI contribution for the year. Would this be allowed?

d) From an accounting point of view, what is the correct way to handle approach 1 and approach 2, considering payroll, payslips, FPS to HMRC etc.?

e) Does the employer need to ask the employee's permission for either approach? What if, due to NI contributions, one approach means the employee is worse off than with the other?

Thanks in advance to anyone willing to clarify the above.

Replies (16)

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By FactChecker
19th Jun 2024 22:12

Too many questions for a hot (at last!) summer's evening, but ...
... without knowing your role/function, you're starting with the wrong questions.

Forget accounting for a minute, Payroll has a lot of legislation wrapped around it - of which probably the best known (if least understood) are the RTI rules.
And this means you'll (hopefully) have submitted the FPS prior to paying employees ... so you must NOT issue a payslip that is not consistent with what you've reported to HMRC (and what employees have been paid).

I said 'the wrong question' but maybe I should have said 'starting from the wrong perspective' ... a payslip is a record of what was paid (and deducted etc), NOT of what was or wasn't 'due' (let alone of what is retrospectively decided as intended).
So you need to be maintaining a record of when the employee was sick and the impact of that (whether zero pay or PIW or whatever) - just like you presumably do for leave and/or maternity and/or overtime etc - which may be within an HR system or your Payroll or a spreadsheet or ...

Those are all do to with demonstrating compliance with Employment legislation ... whereas PAYE is based simply on taking what was paid in that pay period (not why or related to when) and processing that via all the PAYE regs that are hopefully applied by your Payroll software.

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Replying to FactChecker:
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By Lorogel
19th Jun 2024 22:48

Thank you FactChecker for the speedy reply.

I am an employee having a dispute with my employer. The employer has an accountant who deals with payroll. My question above is a simplified version of what the dispute is about.

I appreciate that I asked many questions, I was hoping to understand several aspects of the situation, not just one particular piece.

Let's try and focus my question on how this situation should be dealt with in practice. A payslip is produced in time, correct RTI reporting is done and employee is paid on time on the 20th. Sick leave then happens after that, but still within the same month.

Assuming that records are kept impeccably by everyone (employee, employer, accountant), what should happen next to correctly deal with 2 days' worth of salary deduction?

I have read that payslips can be corrected, if an error was made, and a correction may be submitted to HMRC, and over/underpayments, incorrect deductions etc. dealt with in that way. For example see https://www.gov.uk/payroll-errors/correcting-pay-or-deductions . Is that applicable here?

Or is it allowed (legal and/or employer can choose to) to simply deduct 2 days' salary from next month's pay?

I would like to know what choices the employer (and accountant) are allowed/not allowed to make in this situation.

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Replying to Lorogel:
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By FactChecker
20th Jun 2024 11:30

I don't know why, but your post above didn't appear until this morning (the system held it up for some reason) .. so despite the date-stamp it has appeared *after* all the comments below.

Anyway, it would have been a lot simpler if you'd been upfront in the first place about what you wanted to know (although we still don't know what your gripe is) - but:

* "A payslip is produced in time, correct RTI reporting is done and employee is paid on time on the 20th. Sick leave then happens after that, but still within the same month"
= all fine, and (this is the important bit) it was correct at the time of processing / reporting / paying .. so there is *nothing to correct* for that tax month.

* "Assuming that records are kept impeccably by everyone (employee, employer, accountant), what should happen next to correctly deal with 2 days' worth of salary deduction?"
= as you've been told several times already, what should happen next is that an adjustment should be made in the *next* pay period (assuming that the employment T&Cs authorise the ER to not pay for such a period of sickness).

* "I have read that payslips can be corrected, if an error was made, .. . Is that applicable here?"
= No; this is not a correction (where the wrong figure was fed into Payroll or a Payroll calculation went wrong), it is an adjustment due to new information being received after that month's payroll was processed.

* "is it allowed (legal and/or employer can choose to) to simply deduct 2 days' salary from next month's pay?"
= Yes (if that is covered by the T&Cs of your Employment contract - which by default will be the case).

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By Paul Crowley
19th Jun 2024 22:56

Knock the two days off next month, provided that the nil pay option is legal.
Wages does not need to be difficult.
The same applies to overtime are other variations.
Simples.

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Replying to Paul Crowley:
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By Lorogel
19th Jun 2024 23:09

Thanks Paul for the quick response.

What if taking two days off next month results in higher combined NI contributions for the two months, compared to taking two days off the month in which the leave actually happened? In other words, what if the employee is worse off with this solution?

Let me put it this way: with your solution the employer is effectively paying 2 days' salary too early, and in doing so causing higher NI contributions for the employee. Can the employer choose to do this without input from the employee?

It is not the employee's choice when/how the employer decides to run payroll or on which date of the month salaries are paid. Would the salary pay date be for example the 28th, then the 2 days' salary would have been taken off the first month, and the employee would be better off. Does this matter?

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Replying to Lorogel:
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By Paul Crowley
19th Jun 2024 23:16

That is just how the cookie crumbles. Two days in a month? Unlikely.
There is a cut off date and that is just how it works.
Our overtime cut off is the 25th.

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Replying to Paul Crowley:
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By Lorogel
19th Jun 2024 23:27

In my original post I simplified the situation to try and understand the basics of the scenario.

A more complex scenario, where this starts mattering, is this:

Employee is out on sick leave for most of the month (say 26 days). The employer accounts for 13 days of that leave in one month and 13 days of that leave in the next month. In other words, the employer is deducting 13 days' salary from each month. This results in certain amount of NI contributions each month.

However, if the employer instead deducts 26 days' salary from a single month, the total NI contributions for the two months are significantly different (due to spanning the 8%/2% bands very differently).

Does the employee get any say at all about how the deductions are made, or is the employer free to do as they wish? What about any constraints on the employer given that all the leave really did happen in a single month?

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Replying to Lorogel:
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By Paul Crowley
20th Jun 2024 00:36

You have changed the scenario to a higher rate employee
Splitting 26 days to 13 and 13 does stretch credibility
Simple answer is the employer decides, but if it gets challenged then he is on his own defending the action he took.
I would not accept an employee telling me to split the figures to his best advantage, because the employee wins and if challenged the employer pays the top up with no recourse to the employee.
If you are prepared to fiddle this then as an HMRC operative I would crawl all over the last four years as a minimum because your morals are completely flexible.
And having found deliberate and concealed error, maybe I will go back even further

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Replying to Lorogel:
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By FactChecker
20th Jun 2024 00:49

There's not much point in people replying if you then ignore the answers.

You can make up (which is what you're obviously doing) as many convoluted scenarios as you wish, but you're still going to be faced with two facts:

1. Almost every factor that determines *when* something is to be paid is set by Employment (not Payroll) legislation AND the terms of the individual's Employment Contract.
[For instance it's not legal to withhold any contractual pay, such as Salary, unless the T&Cs of the contract specifically give the ER the right to do so in specific circumstances - which every such contract I've seen would cover in the case you've mentioned by having a Sickness Policy.]

2. As previously stated, the rules for Payroll aren't concerned with how you arrive at the Gross Pay for the pay period - just with processing whatever that pay happens to be with regard to the rules for calculating Tax, NICs, SL, etc .. and then reporting that via RTI and then paying the net pay (and providing a payslip) to the employee.

All of the above is of course a simplification (otherwise people wouldn't need to spend years getting acquainted with all the oddities of Payroll) ... but this forum isn't here to provide you with a detailed training course.
However you now have the knowledge to understand why your original post didn't really contain 'two options' ... and why your worries are unnecessary.

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Replying to FactChecker:
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By FactChecker
20th Jun 2024 01:02

If you prefer direct answers to (wrong) questions:

* "Does the employee get any say at all about how the deductions are made?"
No - they get no say in any circumstances.

* "is the employer free to do as they wish?"
No - they have to follow the PAYE defined procedures.

* "What about any constraints on the employer given that all the leave really did happen in a single month?"
No idea what 'constraints' you have in mind - but the sickness (not leave unless you've changed your mind again) is not automatically tied in the way that you keep assuming to when pay (or deduction) for it is applied.

What on earth do you imagine happens when a new employee starts late in the month (after that month's payroll has already been run) ... or when a manager forgets to authorise a timesheet until after the payroll cut-off for that month .. or when commission is paid for the last quarter's sales .. or (there are infinite examples).

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By SXGuy
20th Jun 2024 06:58

This has been spoken about before.

The pay date is the date you pay people based on past work.

If an employee is off sick after that pay date or before the next pay date those days fall in to then it is paid the following pay day.

What hasn't helped the situation is paying people on the 20th for not only the previous month but as you say some weeks in advance of that month.

Who does that? You either set the pay date to the end of the month or you pick a date and pay people based on the work previous to that date.

Some issues I can see arising from your set up. What do you do if someone leaves on the 21st of the month? Good luck clawing back those advanced days of pay or any overpaid holiday.

My advice, sort out your payment date then worry about what happens in between.

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Replying to SXGuy:
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By accountaholic
20th Jun 2024 13:47

Agree with most of the above except that I have found it very common to have a pay date earlier than the last day of the month. Even paying on the last day of the month someone could go off sick that day after the payroll has been run.
Paying employees a bit in advance is just another commercial risk for the employer to manage. Often there are variable pay elements paid in arrears, thus allowing for a corrective deduction the following month.
You're right if someone leaves you can have a problem, and I don't think I've ever seen an employer get any money back from an employee who has left.

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By Lorogel
20th Jun 2024 13:57

Thanks very much to everyone who provided detailed replies, the picture is getting much clearer for me now.

Although I have asked about a few different hypothetical scenarios, it wasn't with the intention of hiding or obfuscating any details. Simply out of curiousity, I first wanted to understand how the simplest case should be handled (just 2 days off sick) as a reference, before asking about more complicated cases, or indeed the specific case I am actually facing.

The actual situation I am faced with is this:

I have been off on sick leave in June since the 5th June, and looks like I will continue to be on sick leave until the end of June. I let my employer know that I will return to work on 1 July. The sick leave was planned in advance, and I have let the employer know well in advance that it will happen although its exact length was unclear ahead of the time. I have sent a fit note from a doctor to my employer on 10th June. It correctly covers the entire period of my expected sick leave.

My employer typically sends payroll related information to his accountant sometime in the middle of the month. He has done so a few days ago for June. In the information he sent to his accountant he let the accountant know about the number of sick days I have taken from 5th June up until the day he sent the information to the accountant, so roughly half the month. However he did not indicate to the accountant that I would be off sick for the rest of the month.

The accountant has produced a payslip for June in which roughly half the month's salary is deducted on account of sick leave, and SSP has been (correctly) added for roughly half the month. When I queried the situation, I was told that in July they will again subtract roughly half a month's salary and pay the remaining half of SSP.

I disputed this way of handling things for the reason that it felt odd to me that all my sick leave has happened strictly within June, in one consecutive period, yet its impact has been split across two months.

This impacts me because a significant portion of my pay is in the 2% band for NIC, so how exactly the pay deductions happen significantly impacts the amount of NIC paid.

1) If I was paid almost nothing in June and a full salary in July, I would be paying almost no NIC in June, and in July on a full salary I would pay 8% on some and 2% on the rest.

2) Instead, the way the employer has split things, I will end up getting about half my salary in June and half in July, and will pay 8% NIC on both amounts.

The way the employer has dealt with this results in a noticeably higher total NIC contribution than if it was all handled within a single month.

I don't have an ulterior motive or angle here, nor am I even that upset over the excess NIC I feel I am having to pay. My main goal here was to understand if this is a reasonable way (or even legal way) for my employer to handle to situation, or if I have any grounds for disputing it. Hence my questions about "moving" pay deductions to the next month for sick leave that happened (or will happen) this month.

Once again I appreciate everyone's insight.

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Replying to Lorogel:
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By Bobbo
20th Jun 2024 16:37

It would've been much easier, and wasted less of everyone's time, if you had just posted this actual scenario in the first place!!!

My view:
If your employer knew you would be off sick for the entire rest of June but failed to inform the payroll processor of this fact and then did not point this out as a correction on review of the payroll output back from the payroll processor, in my opinion they have they have effed up.

Equally were I the payroll processor I would have queried whether there were expected to be any further sick days taken beyond the number actually taken at the time information was passed from your employer to payroll processor.

So based on your explanation not great from both parties there.

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Replying to Bobbo:
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By Lorogel
20th Jun 2024 18:28

Thanks Bobbo for your input.

I don't believe I am wasting anyone's time, as it's completely voluntary for anyone to read or reply on here. I personally have learnt a lot from everyone's reply and feel it was interesting to see discussions of different situations, including simpler/hypothetical ones, like the case of only 2 days off.

Now we are at an interesting point, because there are all the previous replies to the example case of just 2 days off, as well as your reply to my particular situation. The two situations can now be contrasted.

Everyone seems to have been in agreement that when there were only 2 days off, which all happened after the pay date, it is completely fine to just deal with that as part of next month's pay/payslip.

When I pressed him, my employer's stance is, on advise from his accountant, that they always deal with all sick leaves in a consistent way. Always report actual number of days taken until the day he reports to the accountant, and never predict the future. I could return sooner, could be off longer than expected, so try not to even guess.

The accountant's advice is based exactly on the example of the 2 days' sick leave that happens after the pay date. They just want to move any and all bit of leave to the next month, which happens after the pay date. This in their opinion is consistent and doesn't require any guesswork (which I can see the point of).

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Replying to Lorogel:
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By FactChecker
20th Jun 2024 18:52

It's not just 'consistent' ... it's the correct legal method IF any of it is determined by statute (like SSP for instance).
You (as in an ER) are not allowed to pay SSP for days where you don't have evidence of the absence (which by definition will always be in arrears).

Anyway, I'm done with all the theory here.

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