Altering notice period before redundancy...

Hi,

We have had to make some redundancies, and are looking at the most tax efficient way to pay the PILON and statutory redundancy pay - tax efficient both for the employer and redundant employees.

Is it possible to alter the notice period in the redundancy notice, with the employees consent, so that the notice period is the statutory minimum? This enables us to reduce the taxable element of the payment, and increase the tax-free redundancy payment to a level above the statutory minimum.

The employee will receive more money than under their normal notice periods, and we make a saving on E'er NI.

Is this above-board, and does anybody know of other companies who have done anything similar?

We need to send redundancy notices today (1 May) so a prompt answer is crucial.

Thank you.

Hi Alimbada

Purely from an employment law point of view, yes you can agree an alteration in notice periods with your employees. As it is a term of the contract, you are able to alter it by consent.

I think your real question, however, is more to do with taxation and I don't purport to be a tax expert. As far as I understand it, PILON is taxable if it is a considered a contractual payment rather than as compensation for breach of contract. In other words, if your contract allow you to make payment in lieu of notice it will be considered as pay and subject to normal deductions (this would also be so if it was your invariable practice to pay in lieu, as it could be considered an implied term of the contract).

It sounds like you expect to deduct tax and NI on PILON but I imagine HMRC would challenge you if they found out that you had reduced notice just before making these payments - particularly if you are also paying enhanced redundancy.

You may be better off checking this with your accountant.

Regards

Pete