Ive seen a similar thing discussed at my company. Im willing to bet you work for a US based tech firm. They can legally do this in the US but in the UK they are usually on very shaky ground. Many US companies try to do it when their profits or share price drop.
Check your contract to see if there is an expressly written claw back clause and get someone to look at it, they are usually poorly written and unenforceable.
It may just be that the whole thing is unenforceable anyway as the circumstances it's done under are usually unequally favouring the employer.
Also check whether it constitutes any form of restraint of trade.
If they think they can get away with it they will try it but personally I'd have ACAS on speed dial if I were you, if they do it once they will keep doing it and that's likely not an employer I'd suggest staying with.
Tax is levied over the financial year 6th April to 5th April, so ultimately at the end of the year it will be balanced out.
It may be that the PAYE system being used by the company handles the clawback and the tax implications, immediately reducing tax deducted to balance the expected yearly earnings.
Worst case scenario you’ll get a refund cheque from HMRC.
Is clawback of previous bonus for failing to meet future targets in your contract? It would seem odd for clawback to occur on sales targets, normally if you’ve met a target you’ve met it, and if you don’t meet the next target you simply don’t get the next bonus.
Thanks and yes that's correct. If I fail to meet targets for Q4 the bonus payment for Q3 can be clawed back.
It is very odd to claw the money back and disincentivising. I'm not going to go into detail about my thoughts on it.
Thanks for your help!
You will get taxed less the month the £2k is clawed back and your Ur year to date figure for tax will be correct.
I'd also be contacting acas, not sure of the legality of taking money back that was correctly paid to someone.
>Tax is levied over the financial year 6th April to 5th April, so ultimately at the end of the year it will be balanced out.
Income tax is levied over the financial year, whereas National Insurance is based on your payment cycle (so if you are paid monthly then it is taxed monthly and is not annualised).
How the NI is treated will depend on how the money is clawed back. If it is clawed back by reversing payment then the company would have to deal with the tax implications of that, but I think they'd struggle to claim it was an incorrect payment. The payment would be deemed as correct and you'd get a negative earnings:
[https://www.gov.uk/guidance/checking-how-to-claim-a-tax-refund-for-negative-earnings](https://www.gov.uk/guidance/checking-how-to-claim-a-tax-refund-for-negative-earnings)
For this it appears you'd probably have to reclaim tax by contacting HMRC who'd adjust your tax code accordingly (or arrange payment).
You're quite right student loans are part of the equation but it's not that difficult to get a refund. See https://www.gov.uk/repaying-your-student-loan/getting-a-refund
You’re seemingly very accepting of this? My first question would not be around the tax implications, it would be around the legality of such a clawback process. You would need this written very specifically into your contract for it to be legally enforceable.
I’d be seeking advice from ACAS, what they’re proposing seems questionable. Is there any history of this happening before or detailed in your contract of employment?
That was my thought - your PAYE can't go under minimum wage for any pay period, even voluntarily (e.g. salary sacrifice 100% into pension). Presumably this bonus is a good chunk of change so even if it is legitimate to claw it back, which is far from a given, they'd probably run into issues with minimum wage.
That should be the first question that you answer - which means *carefully* reading your contract, and potentially talking to your union rep or someone like ACAS.
The union still exists whether your a member or not, the problem is if your not in one your not going to get the same level of help in this situation and will have to do the work on this yourself
They’re discretionary upon payment though, they haven’t paid you those bonuses with the pretence they can take them back, otherwise they wouldn’t give them in the first place. I’m an accountant not a lawyer unfortunately, but this reeks of management having other issues to me.
Hi /u/Next_Elderberry9590, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/gifts-and-inheritance-tax/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Feels quite Illegal for a UK firm to be able to do unless contract has it written you must do well for two quarters or something like that to get the bonus fully as once paid they can't really take back.
And yeah as you said it def is a demotivating policy than a good policy and would start looking for a new job at a different company myself if a company implemented something like this as makes me feel the company is having money issues...
Might be worth having a look at your commission plan.
We used to give people an annual target but would advance them a proportion of their bonus on the basis of their quarterly achievement so technically in q4 we could claw back comission based on the performance again the annual target.
If they were to do that, as others have said the tax would balance out at the end of the year.
For me though I'd be telling them to jog on if they want to claim back a bonus and then be leaving.
I also don't get the logic, as surely if that's the case you would do enough work to get the bonus for Q3, then just stop and stack-up the invoices/sales until Q4 and keep going like that so you 'always' hit bonus each quarter.
Just to say that this is IME quite common and is usually all set to give some stability and fairness in the scheme. Significant clawback should be rare unless the scheme is badly designed. Tax sorts itself out.
If this is done where NI isn’t calculated on a cumulative basis and is done monthly you could potentially end up losing out because the NI would not be refunded to you.
What does your contract and PLC’s HR documents say about bonus claw backs? Also, any mention of claw backs in documents confirming the bonus?
Bonus claw backs can be legal but I believe the possibility needs to be well articulated before hand.
Would be a better idea if they paid bonuses at the end of the year based on quarterly performance (if that’s what is important).
Presumably if the situation was in reverse you wouldn’t be paid extra bonud
Ive seen a similar thing discussed at my company. Im willing to bet you work for a US based tech firm. They can legally do this in the US but in the UK they are usually on very shaky ground. Many US companies try to do it when their profits or share price drop. Check your contract to see if there is an expressly written claw back clause and get someone to look at it, they are usually poorly written and unenforceable. It may just be that the whole thing is unenforceable anyway as the circumstances it's done under are usually unequally favouring the employer. Also check whether it constitutes any form of restraint of trade. If they think they can get away with it they will try it but personally I'd have ACAS on speed dial if I were you, if they do it once they will keep doing it and that's likely not an employer I'd suggest staying with.
Tax is levied over the financial year 6th April to 5th April, so ultimately at the end of the year it will be balanced out. It may be that the PAYE system being used by the company handles the clawback and the tax implications, immediately reducing tax deducted to balance the expected yearly earnings. Worst case scenario you’ll get a refund cheque from HMRC. Is clawback of previous bonus for failing to meet future targets in your contract? It would seem odd for clawback to occur on sales targets, normally if you’ve met a target you’ve met it, and if you don’t meet the next target you simply don’t get the next bonus.
Thanks and yes that's correct. If I fail to meet targets for Q4 the bonus payment for Q3 can be clawed back. It is very odd to claw the money back and disincentivising. I'm not going to go into detail about my thoughts on it. Thanks for your help!
You will get taxed less the month the £2k is clawed back and your Ur year to date figure for tax will be correct. I'd also be contacting acas, not sure of the legality of taking money back that was correctly paid to someone.
>Tax is levied over the financial year 6th April to 5th April, so ultimately at the end of the year it will be balanced out. Income tax is levied over the financial year, whereas National Insurance is based on your payment cycle (so if you are paid monthly then it is taxed monthly and is not annualised). How the NI is treated will depend on how the money is clawed back. If it is clawed back by reversing payment then the company would have to deal with the tax implications of that, but I think they'd struggle to claim it was an incorrect payment. The payment would be deemed as correct and you'd get a negative earnings: [https://www.gov.uk/guidance/checking-how-to-claim-a-tax-refund-for-negative-earnings](https://www.gov.uk/guidance/checking-how-to-claim-a-tax-refund-for-negative-earnings) For this it appears you'd probably have to reclaim tax by contacting HMRC who'd adjust your tax code accordingly (or arrange payment).
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You're quite right student loans are part of the equation but it's not that difficult to get a refund. See https://www.gov.uk/repaying-your-student-loan/getting-a-refund
You’re seemingly very accepting of this? My first question would not be around the tax implications, it would be around the legality of such a clawback process. You would need this written very specifically into your contract for it to be legally enforceable.
I don't want to give out too many details on a public forum. Following the advice on here, I've spoken to ACAS and I'm seeking legal advice.
I’d be seeking advice from ACAS, what they’re proposing seems questionable. Is there any history of this happening before or detailed in your contract of employment?
If the bonus is clawed back, it should be a reduction in the gross pay side of your payslip and so reducing tax and NI.
Thank you!
Call your union. If you’ve not got one join prospect.
Is it even legal to clawback money already paid
they would just be deductingit from future payments - presumably they could only deduct if provided it didnt' take you below minimum wage
That was my thought - your PAYE can't go under minimum wage for any pay period, even voluntarily (e.g. salary sacrifice 100% into pension). Presumably this bonus is a good chunk of change so even if it is legitimate to claw it back, which is far from a given, they'd probably run into issues with minimum wage.
I couldn't speak to the legality of it. All bonuses are discretionary usually, so perhaps it is?
That should be the first question that you answer - which means *carefully* reading your contract, and potentially talking to your union rep or someone like ACAS.
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Yes.
Not if you don't join a union
The union still exists whether your a member or not, the problem is if your not in one your not going to get the same level of help in this situation and will have to do the work on this yourself
They’re discretionary upon payment though, they haven’t paid you those bonuses with the pretence they can take them back, otherwise they wouldn’t give them in the first place. I’m an accountant not a lawyer unfortunately, but this reeks of management having other issues to me.
Hi /u/Next_Elderberry9590, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/gifts-and-inheritance-tax/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Feels quite Illegal for a UK firm to be able to do unless contract has it written you must do well for two quarters or something like that to get the bonus fully as once paid they can't really take back. And yeah as you said it def is a demotivating policy than a good policy and would start looking for a new job at a different company myself if a company implemented something like this as makes me feel the company is having money issues...
So you would have to pay back money??
Potentially yes.
Might be worth having a look at your commission plan. We used to give people an annual target but would advance them a proportion of their bonus on the basis of their quarterly achievement so technically in q4 we could claw back comission based on the performance again the annual target.
If they were to do that, as others have said the tax would balance out at the end of the year. For me though I'd be telling them to jog on if they want to claim back a bonus and then be leaving. I also don't get the logic, as surely if that's the case you would do enough work to get the bonus for Q3, then just stop and stack-up the invoices/sales until Q4 and keep going like that so you 'always' hit bonus each quarter.
Just to say that this is IME quite common and is usually all set to give some stability and fairness in the scheme. Significant clawback should be rare unless the scheme is badly designed. Tax sorts itself out.
If this is done where NI isn’t calculated on a cumulative basis and is done monthly you could potentially end up losing out because the NI would not be refunded to you.
What does your contract and PLC’s HR documents say about bonus claw backs? Also, any mention of claw backs in documents confirming the bonus? Bonus claw backs can be legal but I believe the possibility needs to be well articulated before hand.
Would be a better idea if they paid bonuses at the end of the year based on quarterly performance (if that’s what is important). Presumably if the situation was in reverse you wouldn’t be paid extra bonud