Income from Equal Pay awards

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    I’m just finalising our processes on how our LA will deal with payments made as a result of equal pay awards. Obviously the amount received must be treated as earnings for the period covered. However, I’m looking at whether it should also be treated as capital from this point in time onwards. In the working age regs (2006), it seems reg 41(3) maks provision that this is income only and should not be treated as capital as well. But I can’t seem to find any similar provision in the pension age version – should it be there or have I missed it??


    My understanding is that this is still under discussion. Here is a short informal briefing note I have draw up (any comments?):

    My research has lead me to conclude that the payments are not retrospective earnings but compensation because:-

    1) The payments are being made as part of negotiated collective settlements in advance of individual cases or groups of individual cases being taken forward for determination under the specific provisions of Employment Rights and related legislation.

    2) No individual rate of tax or NI is being required by Her Majesty’s Revenues and Customs (HMRC) (formerly Inland Revenue) on these compensation payments. Instead HMRC is apparently content that authorities will apply a national, pre-agreed collective deduction rate to the overall total of the payments in lieu of tax and National Insurance before distributing individual payments to employees.

    3)I further understand that these payments will not feature on future annual P60 certificates issued by local authorities to compensation payment recipients. Indeed it is unlikely that specific individual gross and net payment details will be available to provide to individual payment recipients if specifically requested.

    4) HMRC has indicated that it will not treat any of the compensation payments as retrospective earnings for working tax credit purposes.

    Regulations 35 and 25 respectively of the recently updated and consolidated Housing Benefit Regulations 2006 and Council Tax Benefit Regulations 2006 prescribe those payments which must be treated as earnings. The compensation payments referred to above do not feature in that list of payments and therefore need not, and indeed should not, be treated as earnings. The only compensation specified in these regulations is that awarded under section 112 of the Employment Rights Act 1996, specifically section 112(4) or117(3)(a) (remedies and compensation for unfair dismissal).No other compensation awards are specified as earnings in the latest HB and CTB regulations.

    Each compensation payment will however need to be considered as an addition to existing capital of current HB/CTB claimants – ongoing entitlement will need to be reassessed from the date of payment with due regard to the capital thresholds, upper limits and tariff income provisions as prescribed in the current HB and CTB legislation.

    Where current or past employees choose not to accept the compensation and opt to pursue a claim for payment under the specific provisions of the Employment Rights Act and other related legislation then in those cases the status of any awards may have to be reconsidered, possibly no longer being viewed as compensation but as backdated earnings which would then require retrospective reassessment of any HB and CTB already awarded for the period of the adjustment.


    Thanks for the comments Peter.

    The Inland Revenue are treating our payments as “in the character of pay” albeit they are being paid outside the P60 – we are also making good the tax and NI as you mention above.

    The amount of the payments being received reflect the underpayment of earning -so it seems that these should fall under the the definition of “earnings” – CIS-590-1993 seems to back this up as well. Its just the capital bit I’m worried about.

    Julian Hobson

    Peter –

    Please see the content of the discussion attached as my comment to what you are saying in your post. I’m with anthony on this one.


    Julian – thanks for the link. Do you have a view on the capital aspect I’ve mentioned?

    Julian Hobson

    Under the old regs I looked at reg34(3) and sch5 p21 and decided to disregard the capital, to stop double counting.

    I didn’t spot that there wasn’t a pension age equivelant. I’ve had another look and it looks like pensioners are treated differently.

    I haven’t looked to see if the income rules apply to pensioners (and don’t have time today) I’ll give this another look and let you know.


    I have bumped this up to the top because Lancashire County Council is in the process of making 8,000 compensatory payments that I feel should be treated as earnings under HBR 35(1) – remuneration or profit derived from employment. The payment is being made in return for the employee giving up their right to take the matter to employment tribunal.

    The payment is based on number of years service and average hours worked for the last 6 months of 06/07.

    1. Does anybody know if a decision to treat such payments as earnings has gone to the Commissioners.
    2. Has anybody taken such cases to an Appeal Tribunal – what was the result?
    3. What period should they be taken into account – number of years service?

    Any advice would be much appreciated.

    Julian Hobson

    The only CD I know of is this one (courtesy of rightsnet)

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