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Chapter V4: ESA & employed earners

Contents
Earnings of employed earners
V4001:Introduction
Explanation of terms
V4013:Meaning of employed earner
V4016:Meaning of earnings
V4018:Meaning of derived from
V4019:Meaning of gross earnings
V4020:Meaning of pay period
Calculation of net earnings
V4026:Deductions from gross earnings
V4028:Income tax
V4029:NI contributions

Occupational pension scheme deductions or personal pension scheme payments
V4030:
V4036:Expenses not reimbursed by employer
Treatment of particular kinds of payments from employment
V4046:Introduction
V4049:Employment ended
V4050:Accommodation provided by employer
V4051:Actors and entertainers
V4054:Advance of earnings or loans
V4059:Bonus or commission
V4060:Broadcasting and publication fees
V4061:Councillors
V4062:Directors of limited companies
V4063:Establishing a director's income
V4064:Payments as a director or other employee
V4070:Expenses
V4075:Holiday pay
V4111:Payments in kind
V4113:Payments in lieu of remuneration
V4118:Retainers
V4119:Service user groups
V4120:Meaning of service user
V4122:Special occupations
V4123:Auxiliary coastguards
V4124:Part-time members of a fire brigade
V4125:Part-time crewing or launching of a lifeboat
V4126:Territorial Army or volunteer reservists
V4129:Tips
V4130:Vouchers and child care cheques
Employment and training schemes
V4176:General
V4177:Employees

Work based learning - Skill Build & Training for Work (Wales & Scotland) V4183
V4187:Work Based Training for Young People and Modern Apprenticeships

Payments of compensation
V4622:Meaning of compensation
V4769:The calculation of earnings
V4770:Disregard of fractions
Period over which earnings are calculated
V4771:Calculating the period
V4774:Date on which earnings are due to be paid
V4777:Earnings when employment ends
V4778:Notice given and worked
V4780:Employment terminated by employer without notice
V4781:Employment terminated by employee without notice
V4782:Date on which earnings are treated as paid
V4783:Earnings due before the first benefit week of the claim
V4784:Earnings due in or after the first benefit week of the claim
V4787:Treatment of arrears of earnings
V4788:Arrears paid on due date
V4789:Arrears paid after the due date
V4790:Meaning of benefit week
Period for which payment is made
V4791:Identifiable period
V4792:Employer's pay arrangements
V4793:Supply teachers
V4796:No identifiable period
V4798:Different kinds of earnings received for overlapping periods
Calculation of weekly amount
V4799:Period of a week or less
V4800:Period of a month
V4801:Period of three months
V4802:Period of a year
V4803:Period of more than a week
Calculation of amount where only part of payment overlaps benefit week . V4804 Modifying the weekly amount of earnings
Two payments from same source and of same kind in same benefit week V4806
Two payments taken account of for the same week because of the impracticability
V4807:rule
V4811:Averaging of amounts
Territorial or reserve forces ................................................................ Appendix 1
Statutory guarantee payments ........................................................... Appendix 2

Chapter V4: ESA & employed earners

Earnings of employed earners

V4001 Introduction

This Chapter deals with the calculation of payments made to employed earners.
These will usually be earnings paid by an employer, but can sometimes be other
types of payment.

V4002

How payments made to employees may affect an of ESA will depend on whether
1. the work is continuing
2. the work has ended.

[V4003]

V4004

ESA has no condition of entitlement based on income and so earnings are not taken
into account against the amount of ESA paid to the claimant. However, where a
claimant who is entitled to ESA is working then the guidance in this chapter should
be used to identify
1. the type of earnings and
2. the weekly amount of those earnings.
The level of earnings will then determine whether the work is within the PWK limits (1).
ADM Chapter V3 provides guidance on the effect of work on ESA.
1 ESA Regs 13, reg 39 & 76(8)

[V4005-V4006]

V4007 It is only the amount of a claimant's own earnings that may affect entitlement to ESA
on the grounds of whether the level of earnings is within the PWK limits (1). The
earnings of a claimant's partner cannot affect entitlement to ESA.
1 ESA Regs 13, reg 39

[V4008-V4012]

Explanation of terms

V4013 Meaning of employed earner

The term employed earner means (1) a person who is gainfully employed in GB
1. under a contract of service or
2. in an office (including an elective office) with general earnings.

1 ESA Regs 13, reg 2; SS CB Act 92, s 2(1)(a); 2 Income Tax (Earnings and Pensions) Act 2003, s 7(3)

V4014

Employed earners who are gainfully employed under a contract of service include
employees who work for a wage or salary.

V4015

The phrase "in an office" includes directors of limited companies, clergy, LA
councillors, MPs and sub-postmasters and mistresses. General earnings include any
wage, salary, fee, gratuity, profit or incidental benefit (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 7(3) & s 62

V4016 Meaning of earnings V4046

Earnings means any pay or profit derived from employment (1) and includes
1. bonus or commission (2) (see V4059)
2. PILOR (3) (see V4113)
3. PILON (4)
4. holiday pay (see V4075), but not where it is payable more than four weeks
after the employment ended, or was interrupted (5)
5. retainers (6) (see V4118)
6. payment made by the employer for expenses which are not wholly,
exclusively and necessarily incurred in the performance of the duties of the
employment (7), including any payment made by the employer for
6.1 the employee's travelling expenses between home and work 8 or
6.2 any expenses that the employee may have for the care of a family
member while the employee is at work (9) (see V4070)
7. awards of compensation under employment law (10)
8. payments such as guarantee payments and payments due to suspension
from employment on medical or maternity grounds (11)
9. certain payments which are treated as earnings for social security purposes (12)
10. amounts of compensation paid on the termination of P/T employment (13) (see V4622 et seq)
11. any payment made by a non-cash voucher that has been taken into account
as earnings for the purposes of working out the amount of social security
contributions to deduct (14) (see V4130).
This list is not exhaustive. See V4046 - V4132 for more examples of what are and
what are not earnings.
1 ESA Regs 13, reg 80(1); 2 reg 80(1)(a); 3 reg 80(1)(b); 4 reg 80(1)(c); 5 reg 80(1)(d); 6 reg 80(1)(e);
7 reg 80(1)(f); 8 reg 80(1)(f)(i); 9 reg 80(1)(f)(ii); 10 reg 80(1)(g); ER Act 96, s 112(4) or 117(3)(a);
11 reg 80(1)(h ); ER Act 96, s 28, 34, 64, 68 & 70; 12 reg 80(1)(i);
13 reg 80(1)(j); 14 reg 80(1)(k)

V4017 V4018 V4122 V4123 V4124 V4125 V4128

Earnings do not include
1. payments in kind (1) (see V4111)
2. periodic payments made because employment has ended through
redundancy (2)
3. payments made for periods when an employee is on maternity leave, ordinary
and additional paternity leave, adoption leave, or is away from work due to
illness (3)
4. payments by an employer for expenses wholly, exclusively and necessarily
incurred in the performance of the employment (4) (see V4108)
5. payments of occupational pension (5)
6. redundancy payments (6)
7. any lump sum payments received under the Iron and Steel Re-adaption
Benefits Scheme (7)
8. any payment of expenses paid to the claimant as a result of participating in a
service user group (8) (see V4119)
9. a bounty paid at intervals of at least one year and derived from service in a
special occupation (9)(see V4122)
1 ESA Regs 13, reg 80(2)(a); 2 reg 80(1)(b); 3 reg 80(2)(b); ER Act 96, 75A or 75B; 4 reg 80(2)(c); 5 reg 80(2)(d);
6 ER Act 96, s 135; 7 ESA Regs 13, reg 80(2)(e); 8 reg 80(2)(f); 9 reg 80(2)(g)

V4018 Meaning of derived from

The words "derived from" mean having their origins in (1). Payments made for past or
present employment should be treated as earnings, unless they are excluded under
V4017. Work out the period for which earnings are to be taken into account before
deciding the claim (see V4771 et seq).
1 R(SB) 21/86

V4019 Meaning of gross earnings

Gross earnings means the amount of earnings
1. after the deduction of expenses wholly, exclusively and necessarily incurred in
the performance of the employment (1) (see V4036) but
2. before any authorized deductions are made by the employer. These may include
2.1 income tax
2.2 pensions contributions
2.3 NI contributions (previously called SS contributions)
2.4 TU subscriptions
2.5 payments under a court order
2.6 recovery of any debt.
Note: Where an overpayment of wages is being recovered by means of deductions
from the earnings, the DM should not include the amount being recovered to repay
the overpayment as part of the gross amount of those earnings.
1 R(FC) 1/90 & R(IS) 16/93; 2 R(TC) 2/03

V4020 Meaning of pay period

A pay period is the period for which the employee is, or expects to be, normally
paid (1). This might be a week, a fortnight, four weeks, a month, or any other period.
1 ESA Regs 13, reg 2

[V4021-V4025]

Calculation of net earnings

V4026 Deductions from gross earnings

The earnings of an employed earner which need to be calculated for ESA purposes
are the claimant's net earnings (1).

1 ESA Regs 13, reg 81(1)

V4027

Net earnings are gross earnings less (1)
1. income tax and
2. Class 1 NI contributions and
3. half of any sum paid by the employee, towards an occupational or personal
pension scheme.
1 ESA Regs 13, reg 81(2)

V4028 Income tax

Deduct from gross earnings any income tax deducted by the employer.

V4029 NI contributions

NI contributions are often called SS Contributions or NI Conts. Reduce gross
earnings by any Class 1 contribution deducted by the employer.

V4030 Occupational pension scheme deductions or personal pension scheme payments

Deduct from the employee's gross earnings for a normal pay period one half of any
amount which
1. a person pays into an occupational pension scheme for that period or
2. is deducted by the employer from a payment of earnings as a contribution to
an occupational pension scheme for that period or
3. a person contributes towards a personal pension scheme for that period.

Example

Patricia earns 50 a week and is paid weekly. She pays 26 a month into a personal
pension scheme. Her normal pay period is a week. Her pension contribution is
changed into a weekly figure (26 x 12 52 = 6 pw) and half of this weekly figure
(6 2 = 3) is deducted from her gross weekly earnings (50 - 3 = 47).

V4031

Occupational pension schemes (1) are arrangements by which an employer provides
benefits for employees based on service. The benefits may be provided by the
employer or through a pension provider. Benefits are
1. normally in the form of a pension, all or part of which may be taken as a lump sum
2. payable on death or retirement.
1 ESA Regs 13, reg 2; PS Act 93, s 1

[V4032-V4033]

V4034 Personal pension schemes (1) are
1. a scheme under certain pension and taxation legislation (2) or
2. an annuity contract or trust scheme under certain taxation legislation (3).
They provide benefits independently of any employer (although an employer may still
make contributions to such a scheme). Benefits are payable as annuities which may
provide lump sum and pension payments payable on death or retirement.
1 ESA Regs 13, reg 2; 2 PS Act 93, s 1; Income and Corporation Taxes Act 1988,
Chapter 4 of Part 14 & Finance Act 2004, Sch 36, para 1(1)(g); 3 Income and Corporations Taxes Act 1988,
s 620 or s 621; Finance Act 2004, Sch 36, para 1(1)(f) & Income & Corporation Taxes Act 1988, s 622(3)

V4035

Where a person pays contributions into both an occupational and a personal
pension scheme, the deduction from gross earnings should be one half of the total
payments made for the pay period (1).
1 R(FC) 1/90

V4036 Expenses not reimbursed by employer V4019 V4037 V4039

An expense that is not repaid to an employee by the employer should be deducted
from earnings if it is incurred in the performance of the duties of the employment and
is wholly, exclusively and necessarily incurred (1).

1 R(IS) 16/93

V4037

Examples of expenses for which deductions may be made under V4036 are
1. equipment, tools and stationery
2. overalls and specialist clothing
3. telephone calls made entirely for work purposes
4. travelling costs between different work places and any accommodation costs
involved.

V4038

The expense must be incurred in direct connection with the employer's trade or
business (1). If there is some element of private use, for example telephone bills, that
part of the bill for business use should be allowed (see ADM Chapter V5). Any
decision by HMRC on the apportionment of expenses may be taken into account as
evidence. If there is no doubt, that decision can normally be followed (2).

1 Davies v. Gwaun Cae Gurwen Colliery (1924) 2 K8 651; Borley v. Ockended (1925) 2 K8 325; 2 R(IS) 16/93

V4039

An expense that is in the employee's own interest or benefit, or which merely
enables the employee to go to work, would not satisfy the test in V4036. Child
minding expenses (1), and the cost of travel to a single place of work, are examples of
expenses that would not satisfy the test.
1 R(FC) 1/90

[V4040-V4045]

Treatment of particular kinds of payments from employment

V4046 Introduction V4016

The law (1) gives some examples of what earnings can include (see V4016). But, there
are other payments that count as earnings. Guidance on other types of earnings
paid during a period of employment is in V4050 - V4131.
1 ESA Regs 13, reg 80(1)

[V4047-V4048]

V4049 Employment ended

Payments made as a result of employment ending do not affect ESA.

V4050 Accommodation provided by employer V4046

The value of free accommodation provided by an employer, for example to a
housekeeper or caretaker, should be ignored.

V4051 Actors and entertainers

DMs must consider claims from actors and other entertainers in the same way as
any other claimants. Each case must be decided on its own merits. The DM should
decide whether a claimant's earnings are from employment as an employed earner
or employment as a S/E earner (see ADM Chapter V5 for the meaning S/E earner).

V4052

In general, because of the nature of an actor's or entertainer's employment, the DM
may find that their earnings are from employment as a S/E earner. However, it is
possible for an entertainer whose general pattern of employment is that of a S/E
earner, to have periods of employment as an employed earner at the same time as
his overall self-employment.

V4053

The fact that an actor or entertainer has periods of employment during which class 1
NI contributions are payable is not conclusive when deciding whether that
employment is as an employed earner. It is for the DM deciding the claim to ESA to
decide whether earnings are from employment as an employed earner or from self-
employment. Where an entertainer whose general pattern of employment is that of a
S/E earner contends that certain engagements were as an employed earner and that
class 1 contributions were paid it will be for the DM to decide whether the claimant
was employed under a contract of service as an employed earner or otherwise.

V4054 Advance of earnings or loans

Earnings should be calculated from the date they are treated as paid (1). This is based
on when they are due to be paid.
1 ESA Regs 13, reg 78

[V4055-V4058]

V4059 Bonus or commission V4016 V4623

Payments of bonus or commission should be treated as earnings. V4791 et seq
provides guidance on the period over which they should be attributed.

V4060 Broadcasting and publication fees

Fees and royalties are earnings, no matter how often or infrequently they are paid.
They can be from employment or self-employment (see ADM Chapter V5) and
include payments for
1. taking part in radio or television plays, commercials and documentaries
2. repeat showings of plays, commercials and documentaries
3. interviews with press reporters
4. published items.

V4061 Councillors

For the treatment of councillors and ESA see ADM Chapter V1.

V4062 Directors of limited companies

A limited company, of whatever size, is separate from its employees and
shareholders (1). This means that the profits of the company do not belong to the
directors. A director of a limited company is an office holder in the company, and is
an employed earner.
1 R(SB) 57/83

V4063 Establishing a director's income

The income of a director can include
1. payments for services as a director or any other employment with the company
2. share dividend
3. debenture interest.

V4064 Payments as a director or other employee

Directors have no legal right to receive payment for their services as a director, but
can still be voted payment. Or they may be entitled to payments under the
company's Articles of Association. Any payments voted to a director or to which they
are so entitled should be regarded as earnings.

V4065

A director may also be employed by the company for another reason, for example as
a sales manager. Such a person has a contract of employment with the company
and is entitled to a salary. Any salary should be regarded as earnings.

V4066

If a director in a small company does no other work in it, the services provided will be
limited and the amount of payment expected will be small. If the director also does
other work in the company, then more payment will be expected.

V4067

Many small companies operate with only two directors, for example the claimant and
partner. Such companies normally obtain contracts and pay employees a salary for
work done. Any earnings paid to the claimant will usually be for work done as an
employee of the company.

[V4068-V4069]

V4070 Expenses V4016 V4623

Payments made by an employer for expenses which are not wholly, exclusively and
necessarily incurred in the performance of the duties of the employment are
earnings (1). These can include
1. payments for travelling expenses between home and work
2. expenses for the care of a member of the claimant's family
3. school fees for a claimant's child
4. child care costs.

1 ESA Regs 13, reg 80(1)(f)

V4071

Payments made by an employer for expenses which are wholly, exclusively and
necessarily incurred in the performance of the duties of the employment are not
earnings (1).
1. payments made for travelling expenses and overnight accommodation so that
the employee can attend a meeting
2. a mileage allowance to run a car for business purposes.

1 ESA Regs 13, reg 80(2)(c); R(FIS) 4/85

V4072

An employer may pay for an expense from which the employee gets some private
benefit. If so, divide the payment into private and business use. The part of the
payment for private use is earnings (1). The rest, which is for business use, is wholly,
exclusively and necessarily incurred, and is not earnings.
1 R(IS) 16/93

Example

Winston uses his own private telephone for work purposes. His employer pays the
standing and rental charges for the telephone and 50% of the calls. This is because
Winston also uses the phone for personal calls, and 50% of the calls made are
personal. The DM decides that 50% of the amount paid by the employer for the
standing and rental charges is an expense wholly, exclusively and necessarily
incurred. The remaining 50% is for Winston's personal use and so is earnings. The
amount paid by the employer for calls is wholly, exclusively and necessarily incurred
and is not earnings.

[V4073-V4074]

V4075 Holiday pay V4016

Any holiday pay that is payable within four weeks of the date employment ended, or
was interrupted, should be treated as earnings for ESA (1).
1 ESA Regs 13, reg 80(1)(d)

[V4076-V4110]

V4111 Payments in kind V4017 V4623

A payment in kind, for example free accommodation, should not be treated as
earnings (1).

1 ESA Regs 13, reg 80(2)(a)

V4112

Payments in kind do not include any payment by non-cash voucher if it has been
treated as earnings of an employed earner (see V4130).

V4113 Payments in lieu of remuneration V4016

Payments made in lieu of remuneration are paid in place of a person's normal
wages or salary. Payments made to Justices of the Peace and LA councillors for
loss of earnings are examples of such payments. Employment Tribunal
compensation awards for a past employment and awards made under sex and race
discrimination law can also be PILORs. PILOR are earnings (1).
1 ESA Regs 13, reg 80(1)(b); R(SB) 21/86

[V4114-V4117]

V4118 Retainers V4016 V4623

Retainers (1) are payments made for a period when no actual work is done, for
example to employees of school meals services during the school holidays. These
are earnings. Retainer payments include
1. statutory guarantee payments (see Appendix 2) and
2. payments made where the claimant has been suspended on medical or
maternity grounds.
1 ESA Regs 13, reg 80(1)(e)

V4119 Service user groups V4017

Payments other than expenses received for taking part in a service user group
should be treated as earnings for ESA.

Example

Jenny is in receipt of ESA. She is involved in a tenants association which discusses
LA housing issues. In return for attending the meetings, Jenny receives 20 from the
LA. The DM decides that the payment is a payment of earnings.

V4120 Meaning of service user

A service user is (1)
1. a person who is being consulted by or on behalf of
1.1 a body which has a statutory duty to provide services in the field of
1.1.a
health or
1.1.b
social care or
1.1.c
social housing or
1.2 a body which conducts research or undertakes monitoring for the
purpose of planning or improving the services in 1.1
in their capacity as a user, potential user, carer of a user or a person affected
by those services or
2. the carer of a person consulted under 1..
1 ESA Regs 13, reg 80(5)

V4121

V4122 Special occupations V4017

Some occupations are known as special occupations. These are service as
1. a P/T fire-fighter in a fire brigade maintained under relevant legislation (1)
2. a P/T fire-fighter employed by a fire and rescue authority
3. a P/T fire-fighter employed by the Scottish Fire and Rescue Service
4. an auxiliary coastguard in respect of coast rescue services
5. a person engaged P/T work manning or launching a lifeboat
6. a member of the territorial or reserve forces (2) (see Appendix 1 to this Chapter).
See V4017 on the treatment of a bounty paid in respect of special occupations.
1 Fire and Rescue Services Act 2004; 2 SS (Contributions) Regs 2001, Sch 6, Part 1

V4123 Auxiliary coastguards

Payments received for watch keeping duties should be treated as earnings.
Payments for expenses of coastal rescue activities should also be treated as
earnings, unless they were wholly, exclusively and necessarily incurred in the
performance of the coastguard's duties (see V4017).

V4124 Part-time members of a fire brigade

Payments for drills, services or retaining fees, should be treated as earnings.
Payments for expenses should also be treated as earnings if they were not wholly,
exclusively and necessarily incurred in the performance of the duties (see V4017).

V4125 Part-time crewing or launching of a lifeboat

Treat payments for drills, services or retaining fees, as earnings. Payments for
expenses should also be treated as earnings, unless they are wholly, exclusively and
necessarily incurred in the performance of the duties (see V4017). Territorial Army
or volunteer reservists

V4126

Members of the Territorial Army or Royal Navy/Royal Air Force volunteer forces may
receive a training expenses allowance, paid at a flat rate. The allowance is for meals
and other incidental expenses while on duty. It is not for expenses wholly, exclusively
and necessarily incurred in the performance of the duties and should be treated as
earnings.

V4127

Payments for travelling expenses between the volunteer's home and place of duty,
for example the drill hall, are also not wholly, exclusively and necessarily incurred.
Such payments should be treated as earnings (1).

1 ESA Regs 13, reg 80(1)(f)(i)

V4128

Treat other payments, for example drill night pay, as earnings, unless they are for an
item wholly, exclusively and necessarily incurred in the performance of the duties
(see V4017).

V4129 Tips

Tips are expected in some jobs, for example hairdressers, waiters and bar staff.
They may be made because of the services rendered by the employee in the course
of the employment. The average weekly amount of any such tips received should be
included in the calculation of earnings. Do not include tips made as gifts on grounds
that are personal to the recipient and unconnected with the employment.

V4130 Vouchers and child care cheques V4016 V4112 V4132

An employee may receive vouchers instead of, or as well as, earnings. These can include
1. luncheon vouchers
2. child care vouchers
3. child care cheques.

V4131 V4046

Earnings of an employed earner include the amount for any payment made by a
non-cash voucher that has been treated as earnings for the purposes of working out
the amount of NI contributions to deduct (1).
Note:
The amount taken into account as earnings for NI purposes may be equal, or
be more or less than, the face value of the voucher.

1 ESA Regs 13, reg 80(1)(k)

V4132 V4016

Payments in kind are not normally regarded as earnings of an employed earner.
Payments in kind do not include any non-cash voucher if it has been treated as
earnings of an employed earner (1) (see V4130).
1 ESA Regs 13, reg 80(3)

[V4133-V4175]

Employment and training schemes

V4176 General

Employment and training schemes are funded out of public funds by the Young
People's Learning Agency for England, the Chief Executive of Skills Funding or by or
on behalf of the Secretary of State for Education and Skills, Scottish Enterprise, the
Highlands and Islands Enterprise, Skills Development Scotland or the Welsh
Ministers. Where a person is on such a scheme, establish whether they are employees

V4177 Employees

Employees get a wage from their employer. Treat the wage as earnings.

[V4178-V4182]

V4183 Work based learning - Skill Build & Training for Work
(Wales & Scotland)

Work Based Learning (TfW in Scotland and WBL - SB in Wales) is a voluntary
scheme for the long term unemployed in Scotland and Wales. It is provided by
Scottish Enterprise, the Highlands and Islands Enterprise, Skills Development
Scotland or the Welsh Ministers (1). Schemes may be known locally by a name other
than Work Based Learning. Local Jobcentre Plus offices can confirm whether a
particular scheme is Work Based Learning.

1 TfW (Miscellaneous Provisions) Order 1995

V4184

Participants receiving or entitled to receive remuneration from the employer
providing the training facilities who are treated as employees.

[V4185-V4186]

V4187 Work Based Training for Young People and Modern Apprenticeships

WBTfYP (Skillseeker's in Scotland) and Modern Apprenticeships provide training for
young people who
1. have reached the minimum school leaving age
2. are not attending school or college F/T as a pupil or student
3. are not in higher education
4. are not in custody as prisoners or on remand
5. are not overseas nationals subject to
5.1 employment restrictions or
5.2 a time limit on their stay in GB (other than a refugee or asylum seeker)
and
6. are not benefiting from any other Government scheme (for example work
based learning).

V4188

Young people on WBTfYP (Skillseeker's in Scotland) and Modern Apprenticeships
can be employees or trainees with wages or training allowances. Employee status is
more common on Modern Apprenticeships. Courses may vary in length and typically
may be around two years on WBTfYP or three on Modern Apprenticeships.

[V4189-V4621]

Payments of compensation

V4622 Meaning of compensation V4016

A payment is compensation only if
1. it is made for or on the termination of employment and
2. claimants have
2.1 not received any PILON which they are due or
2.2 only received part of the PILON they are due or
2.3 not received any or all of the PILON they are due because they have
waived their right to it (1).
A payment made for or on the termination of employment is not compensation if
claimants have worked all their notice and been paid for it or if they have received all
the PILON they are due.

1 ESA Regs 13, reg 80(4)

V4623

Payments of compensation do not include (1)
1. any bonus or commission (see V4059)
2. PILOR, except any periodic sums paid because employment has ended
through redundancy
3. PILON
4. holiday pay
5. retainers (see V4118)
6. payments for expenses which are not wholly, exclusively and necessarily
incurred in the performance of the duties of the employment (see V4108)
7. awards made under employment and trade union law, including any award of compensation
8. payments in kind (see V4111)
9. payments for a period when the claimant is on maternity or sick leave
10. payments for expenses wholly, exclusively and necessarily incurred in the
performance of the employment (see V4070)
11. any occupational pension
12. any redundancy payment (2)
13. refunds of contributions to which the claimant is entitled under an occupational
pension scheme
14. compensation payable under certain education law (3)
15. any lump sum payments received under the Iron and Steel Re-adaption
Benefits Scheme
16. payments in respect of expenses as a result of participating in a service user
group.
1 ESA Regs 13, reg 80(4);2 ER Act 96, s 135(1); 3 Education Reform Act 1988, s 173

[V4624-V4625]

V4626 The period for which the payment of compensation is calculated is one week (1). This
period begins on the date on which the compensation is treated as paid (2) (see V4782
et seq).
1 ESA Regs 13, reg 76(6); 2 reg 78

[V4627-V4768]

V4769 The calculation of earnings

This guidance deals with
1. how to decide the period over which earnings should be calculated - see V4771 et seq
2. how to calculate the weekly amount of earnings - see V4799 et seq
3. the special rules for modifying the weekly amount of earnings - see V4806 et
seq.

V4770 Disregard of fractions

Where the calculation of earnings results in a fraction of a penny, the amount should
be rounded to a penny, either up or down, whichever is to the claimant's advantage (1).
Note:
If deciding the amount of an income includes more than one calculation, each
fraction should be rounded to the claimant's advantage.
1 ESA Regs 13, reg 4
Period over which earnings are calculated

V4771 Calculating the period V4018 V4769

To determine how earnings should be calculated in relation to an award of ESA the
DM needs to establish
1. the date of claim
2. the first day of the claimant's benefit week (see V4790)
3. the date on which the earnings are due to be paid (see V4774 et seq)
4. the date on which the earnings are treated as paid (see V4782 et seq) and
5. either1
5.1 the period for which the payment is made or
5.2.
the amount of ESA that would be payable without the earnings.
Note:
If the income is a payment of earnings when employment ends see V4798
where different kinds of earnings are received for overlapping periods.
1 ESA Regs 13, reg 76(2)

[V4772-V4773]

V4774 Date on which earnings are due to be paid V4771 V4782 V4787

To determine the period over which earnings should be calculated, the DM needs
information on the date a payment is due to be paid. This may be different from the
date a payment is actually made or received. But earnings are often paid on the date
they are due.

V4775

When deciding the date a payment is due the DM should consider that
1. due means legally due, for example under a contract or statutory provision
2. if there is no legal obligation to make the payment on a particular day, the
person or body making the payment should be asked when they consider the
payment is due
3. the date when the payment is received may be assumed to be the due date where
3.1 the available evidence
3.1.a
does not give a due date (1) or
3.1.b
is not considered credible and
3.2 no further evidence can be obtained.

1 R(SB) 33/83

V4776

The date on which a payment of earnings is due will be the normal pay day agreed in
the contract of employment. The terms of a contract
1. may be
1.1 express (in writing or verbal) or
1.2 implied (by the actions of or understanding between the two parties)
and
2. may be varied
2.1 if both parties agree to it (the variation may be express or implied) or
2.2 because of certain action taken by either party (such as dismissal or
resignation).

V4777 Earnings when employment ends

When employment ends, the date on which a payment of final earnings is due to be made
1. is a mixed question of fact and law and
2. depends on the circumstances in which the employment ended and the terms
of the contract.

V4778 Notice given and worked

Final earnings are payable on the dates agreed in the contract of employment where employment
1. has run its full course, for example a fixed period engagement has reached its
end or
2. is terminated by the employer after due notice has been given and worked.

V4779

This means that the claimant should receive the following payments on the final pay-
day (often the last day of employment)
1. the normal week or month's earnings, including any part week or month's earnings
2. wages held in hand
3. holiday pay.

V4780 Employment terminated by employer without notice

Where the employer terminates employment without due notice they are legally
obliged to pay on the last day of employment (1)
1. wages earned between the end of the employee's previous pay period and the
last day of employment
2. wages held in hand
3. holiday pay
4. a payment in lieu of notice.
Note: The last day of employment is not necessarily the same as the last day the
claimant attended work.
1 R(SB) 23/84

V4781 Employment terminated by employee without notice

Where employment is terminated by the employee without due notice, employers
can rely on the contract of employment to pay
1. wages earned between the end of the employee's previous pay period and the
last day of employment
2. wages held in hand
3. holiday pay on the day that each payment is due to be paid.

V4782 Date on which earnings are treated as paid V4623 V4771 V4791 V4798 V4806

The date on which earnings are treated as paid may not be the same as the date on
which they are due to be paid under V4774 et seq.

V4783 Earnings due before the first benefit week of the claim

A payment of earnings should be treated as paid on the date it was due, if it was due
to be paid before the first benefit week of the claim (1).
Note:
A payment of may be due before the date of claim and still be within the first
benefit week (see V4790).
1 ESA Regs 13, reg 78(a)

V4784 Earnings due in or after the first benefit week of the claim

If a payment was due to be paid in or after the first benefit week of the claim, it
should be treated as paid on (1) the first day of the benefit week in which it is
1. due to be paid or
2. practicable to take the payment into account (if this rule is used the DM should
record the reasons for using it).
1 ESA Regs 13, reg 78(b)

[V4785-V4786]

V4787 Treatment of arrears of earnings

If the amount of a regular payment increases, or the claimant starts to receive a new
income, the first payment may include arrears. The treatment of the arrears will
depend on whether they were paid on the date on which they were due to be paid
(see V4774).

V4788 Arrears paid on due date

Arrears which are paid on the due date should be
1. treated as paid on the first day of the benefit week in which
1.1 they are paid or
1.2 it is practicable to take them into account (1) and
2. calculated
2.1 for a period calculated in the normal way (see V4791 et seq)2 and
2.2 from the date on which they are treated as paid.
1 ESA Regs 13, reg 78; 2 reg 76(2)(a)

V4789 Arrears paid after the due date

Arrears paid after the due date should be treated as paid
1. on the first day of the benefit week in which they were due or
2. on the due date if they were due before the first benefit week of the claim (1).
1 ESA Regs 13, reg 78(1)(a)

V4790 Meaning of benefit week V4771 V4783

Benefit week means a period of seven days ending on such day as the Secretary of
State may direct, but for the purposes of calculating any payment of income "benefit
week" means the period of seven days ending on
1. the day before the first day of the first period of seven days which
1.1 ends on such day as the Secretary of State may direct and
1.2 follows the date of claim for an employment and support allowance or
2. the last day on which an employment and support allowance is paid if it is in
payment for less than a week
1 ESA Regs 13, reg 2
Period for which payment is made

V4791 Identifiable period V4059 V4788

If the period for which a payment is made can be identified, then the length of time
for which it is calculated will depend on whether the payment is monthly or not.
Where the period for which the payment is made is
1. a
month (1), it should calculated for a period ending with the date immediately
before the next monthly payment would have been treated as paid (whether or
not the next monthly payment is actually paid) or
2. other than a month (2), it should be calculated for an equivalent period (for
example a payment for a week should be calculated over a week).
The period begins from the date determined by following the guidance at V4782 et
seq.
1 ESA Regs 13, reg 76(2)(a); 2 reg 76(2)(b)

V4792 Employer's pay arrangements

Where an employer has specific pay arrangements, which mean employees are
paid at specific intervals, such as monthly, a payment should be calculated for a
period equal to the pay interval (1).
1 R(IS) 10/95

V4793 Supply teachers

An LA may create a pool or panel of supply teachers. The LA calls on these teachers
as and when needed, but the teachers may refuse work if they wish. In these
circumstances the DM should note that
1. the supply teachers have a separate contract of employment for each period
they work (1) but
2. if the LA pays them at regular intervals for the work they have done, each
payment should be taken as paid for a period equal to the pay interval (2).
1 R(U) 2/87; 2 R(IS) 10/95

Example

A supply teacher is paid on the 16th of every month for all the work she has done in
the previous month. On 16 October she is paid for the four days she worked during
September. The payment is in respect of one month.

[V4794-V4795]

V4796 No identifiable period

If the period cannot be identified, the DM should calculate the amount by dividing the
claimant's net earnings (1) by the weekly amount of ESA to which the claimant would
have been entitled had the payment not been made.
1 ESA Regs 13, reg 76(2)(c)

Example

Sheila is in receipt of ESA of 45 per week and works part-time for the local council.
She has been offered a payment by her employer to redress historical pay
inequalities between female and male employees. Sheila's employer offers her a
payment of 7,200. She can agree to accept this sum as a final and full settlement of
any unequal treatment claim that she could have brought against her employer.
Alternatively, Sheila can have the option of taking a net payment of 720 but this
amount would be deducted from any future settlement won through action at an
Employment Tribunal or as part of any negotiated settlement between herself and
her employer.
Sheila decides to accept the sum of 720 and this is duly paid to her with her salary
by the employer. The DM decides that the payment is a payment of earnings but
cannot identify a period in respect of which the payment is made. The DM therefore
performs the calculation in V4796 where:
720 is divided by 45 = 16
The DM decides that the claimant has earnings at a weekly rate of 45 for a period
of 16 weeks.

V4797

If the calculation does not result in a whole number of weeks, the balance of the
payment should be taken account of for a corresponding fraction of a week (1).
1 ESA Regs 13, reg 76(9)

V4798 Different kinds of earnings received for overlapping periods V4771

If different kinds of earnings are received from the same source, and the periods
over which the earnings would calculated overlap, the earnings should be taken
account of
1. for the total of the periods which apply to each of the different kinds of
earnings and
2. from the earliest date on which any of those earnings would be treated as paid
under V4782 et seq (1) and
3. in the following order (2)
3.1 normal earnings
3.2 PILOR and PILON
3.3 compensation payments
3.4 holiday
pay.
1 ESA Regs 13, reg 76(3); 2 reg 76(4)
Calculation of weekly amount

V4799 Period of a week or less V4769

Where the period for which a payment is made is a week or less, the weekly amount
will be the amount of the payment (1). But see V4804 et seq and V4811.
1 ESA Regs 13, reg 79(1)(a)

V4800 Period of a month V4803

Where the payment is for a month the weekly amount should be worked out by
1. multiplying the amount of the payment by twelve and
2. dividing the result by 521.
1 ESA Regs 13, reg 79(1)(b)(i)

Example

A payment of 100 is made for a period of a month. The DM calculates that the
weekly amount is 23.07 (100 x 12/52).

V4801 Period of three months

Where the payment is for a period of three months the weekly amount should be
worked out by
1. multiplying the amount of the payment by four and
2. dividing the result by 521.
1 ESA Regs 13, reg 79(1)(b)(ii)

Example

A payment of 100 is made for a period of three months. The DM calculates that the
weekly amount is 7.69 (100 x 4/52).

V4802 Period of a year V4803

Where the payment of income is for a period of a year the weekly amount should be
worked out by dividing the amount of the payment by 521.
1 ESA Regs 13, reg 79(1)(b)(iii)

V4803 Period of more than a week

Where the payment is for more than a week, and V4800 - V4802 does not apply,
the weekly amount should be worked out by
1. multiplying the amount of the payment by seven and
2. dividing the result by the number of days in the period for which the payment
is made (1).
1 ESA Regs 13, reg 79(1)(b)(iv)

Example

A payment of 100 is made for a period of four weeks. The DM calculates that the
weekly amount is 25 (100 x 7/28).

V4804 Calculation of amount where only part of payment overlaps benefit week V4799

Where a payment for one week or less is treated as paid before the first benefit
week of the claim, it may fall to be taken account of for only some days in the first
benefit week. The DM should determine the amount to be calculated by
1. multiplying the amount of the payment by the number of days in the period of
the overlap and
2. dividing the result by the number of days in the period for which payment is
made (1).
Note:
If the period the payment overlaps is a part week see ADM Chapter S1.

1 ESA Regs 13, reg 79(2)

V4805

Where a payment is for one week or more, and is to be taken account of for some
days only in a benefit week, the DM should determine the amount to be taken into
calculated by
1. multiplying the amount of the payment by the number of days in the period of
the overlap and
2. dividing the result by the number of days in the period for which the payment
is made (1).
Note:
If the period the payment overlaps is a part week see ADM Chapter S1.
1 ESA Regs 13, reg 79(3);
Modifying the weekly amount of earnings

V4806 Two payments from same source and of same kind in same benefit week V4769 V4807

The weekly amount of earnings in a benefit week should be restricted where an income
1. is or has been paid regularly and
2. two payments
2.1 from the same source and
2.2 of the same kind
would be taken account of in the same benefit week following the rules in V4782 et
seq 1. The amount of income should be restricted to the weekly amount which is
treated as paid first.
1 ESA Regs 13, reg 79(4)

V4807 Two payments taken account of for the same week because of the impracticability rule

The special rules in V4806 do not apply if
1. it is not practicable to take an income into account in the benefit week in which
it was due and
2. in the next benefit week in which it is practicable to take it into account the
claimant receives another payment
2.1. of the same kind and
2.2. from the same source
which is to be taken into account in the same week (1).
In these circumstances both payments should be taken into account in that week,
with a separate disregard on each of the payments.
1 ESA Regs 13, reg 79(4)

[V4808-V4810]

V4811 Averaging of amounts V4799

The weekly amount of a claimant's earnings may be averaged (1) if the amount varies
or the regular pattern of work means that the claimant does not work every week.
The DM should average over
1. a complete cycle if there is a recognizable cycle of work (see ADM Chapter
R2 on establishing a recognizable cycle) or
2. five weeks or
3. another period if this means a more accurate weekly amount can be
calculated.

1 ESA Regs 13, reg 79(5)

V4812

The averaging of the weekly amount of earnings does not change the other rules on
its treatment such as the date that it is treated as paid. This means that earnings can
only be averaged where the claimant is actually in receipt of a payment.

Example

Dot works at a school term-time only as a classroom assistant. During the school
holidays she doesn't work and receives no earnings.
The DM can only average Dot's earnings during term-time when she is actually in
receipt of an income. During the school holidays Dot receives no earnings so there
are no earnings to take into account.

[V4813-V4999]

Appendix 1
Territorial or reserve forces
Territorial or reserve forces prescribed in SS (Contributions) Regs 2001, Sch 6, Part I.
Royal Naval Reserve
Royal Marines Reserve
Army Reserve
Royal Fleet Reserve
Territorial Army
Royal Air Force Reserve
Royal Auxiliary Air Force
Royal Irish Regiment (to the extent that its members are not members of the regular
naval, military or air forces of the Crown)
Appendix 2
Statutory guarantee payments
Amount payable to employees under section 31 of the Employment Rights Act 1996.

From 1.2.12
23.50 per day
From 1.2.13
24.20 per day
From 6.4.14
25.00 per day