NIC liability on payments made on termination of employment, particularly payments in lieu of notice (PILONs) and payments in lieu of remuneration (PILORs) and redundancy payments, has for some time been a source of difficulty. The main problem arises in trying to decide whether such payments are :
A compensation payment usually relates to the recompense offered
and accepted in relation to the cancellation of a contract. It must
be distinguished from a payment given under the terms of a
contract.
For example, a compensation payment may take the form of a
sum awarded as damages by a court where an employer breaches the
terms of a contract of employment, possibly by not giving the
required period of notice of termination of the employment.
Alternatively, it may be a sum negotiated to prevent court action.
Compensation payments can also be described as ‘ex
gratia’ payments or ‘golden handshakes’. If so,
consider the agreement reached between the employer and employee to
see whether or not it falls within the description of a
compensation payment outlined above.
You should remember that it is important always to establish
the exact nature of a payment by determining the reason for its
being made. You should not be misled by how the employer titles the
payment and you must always look at the facts surrounding the
making of the payment rather than relying on what the employer
calls it.
See also :
