Employers have expressed disappointment with the government’s decision to remove the national insurance (NI) exemption from holiday pay fund schemes.
Nationwide Building Society, Abbey, Informa and rail company GNER are among the organisations affected by the announcement, that employers would lose the NI exemption on holiday pay funds from 30 October, except those in the construction industry which would be allowed a five-year transition period.
In the pre-Budget report, Chancellor of the Exchequer, Alistair Darling said that some employers had been using the tax rules on the funds solely to reduce NI contributions and that this went against the policy behind the exemption, which was to make it easier for workers in the construction industry to receive payment for holidays.
Abbey’s head of reward, Melanie Morris, said: “We are highly disappointed that it has been withdrawn and [so suddenly].”
Following the announcement, her team had just two days to close payroll and to tell 17,000 employees to submit their claim for NI on holiday pay, a time frame which meant some staff missed out.
She added: “I understand why a holiday pay fund works for the construction industry, but what I don’t understand is why it should have NI-free holiday pay and everybody else doesn’t.”
Benefits manager for GNER, Jane Birch, said: “We are really disappointed by this. Since introducing [the holiday pay fund in July] we had found that staff were submitting time sheets to record their annual leave in a more timely fashion and we were able to track annual leave better.”
She believes that the removal of the exemption will have implications on the amount of holidays that staff take and that the move flies in the face of government policy on employers providing statutory leave.
However, Nationwide’s head of reward, Paul Bissell, said: “The change is one that had been anticipated for some time.”
Information services company, Informa has also had to tell its 3,000 staff that the NI tax break is no longer available. Tom Humphris, HR director for the maritime and transport division, said: “We have communicated this to staff and they fully understand. We always presented it as a benefit that may one day change depending on government legislation.”