Statutory Sick Pay – Earnings below the NICs lower earnings limitMonday, July 19th, 2010
An employee is not entitled to SSP if the employee’s average earnings in the eight-week relevant period prior to the payday before the first day of the period of incapacity is less than the NICs lower earnings limit (currently £97 per week/£421 per month).
But what happens if an employee receives no wages during the relevant period because, as later determined by an employment tribunal, there were unlawful deductions from wages? If the wages had been paid at the correct time, the employee would have been entitled to SSP.
This was the issue before the First Tier Tax Tribunal, as reported in the decision given on 14 June 2010, in the case Seaton v Revenue & Customs. Mrs Seaton would have been entitled to SSP between May and December 2006 but did not receive any because her employer had not paid her any wages during the relevant period, a situation that was only corrected in August 2006 when she won an employment tribunal case against the employer for unlawful deduction of wages. When she asked for a ruling on whether she was entitled to SSP, HMRC said that she was not, because she had no earnings in the relevant period. (The case report does not explain why it took so long for the matter to be heard by the Tax Tribunal.)
Section 163 of the Social Security Contributions and Benefits Act 1992 defines the rule as follows:
“… an employee’s normal weekly earnings shall … be taken to be the average weekly earnings which in the relevant period have been paid to him or paid for his benefit under his contract of service with the employer in question.”
Although acknowledging the unreasonableness of the situation, the Tribunal decided that, because section 163 specifically says “in” the relevant period, not “in respect of” or “for”, it had no option but to rule that there was no entitlement to SSP.
The Tribunal did, however, refer to the anomaly that arises between the specific wording of the Act and HMRC’s non-statutory concession for “mistimed payments” (see page SPM10605 in HMRC’s Statutory Payments Manual and page 12 of the E14 Employer Helpbook for Statutory Sick Pay), which allows payments made outside of the relevant period to be included in the average earnings calculation in certain circumstances. The Tribunal had not been given an answer by HMRC as to why the guidance in these two publications appears to contradict HMRC’s interpretation of section 163, which HMRC used to reject the claim for SSP in this case. Why indeed!