HR Industry News

HMRC announces change to holiday pay via third parties

— 12 October 2007 —

The exemption from National Insurance Contributions (NICs) of holiday pay paid via a third party is to be removed for all sectors outside the construction industry.

The exemption was aimed at addressing problems of high mobility and turnover of the labour force in the construction industry, but working time regulations now ensure holiday entitlement is preserved in all sectors, and therefore an ongoing exemption for construction is no longer appropriate.

However, given the longstanding nature and wide range of benefits typically provided by schemes, the exemption will be maintained for the construction industry for 5 years to give it sufficient time to adjust.

Employers outside the construction industry will no longer benefit from the exemption from 30 October 2007. The last payment of holiday to an employee that could be considered NICs free from such a fund (non-construction) has to be made on or before 29 October 2007.

Ceridian’s Simon Parsons underlined that the announcement only affects a small minority of employers: “Only a very limited number of employers outside of the construction industry were using such schemes to avoid NICs. This effects around 300,000 employees but across a very small number of employers.”

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