Paying Gratuity payment on retirement

Question

Good evening

I have just reviewed our clerks contract of employment (which is dated 2006 and not been reviewed since then) within in is a gratuity payment 3.75 % of earning etc x years of service; it totals  todate around £12000.  Our clerk has reached pension age 66 but continues  to work for us,   The problem appears that we have not budgeted for this payment, and of course it increases each year of service.   Are these payments still made?   Can you cap them?    Our clerk deserves every penny but would like some advice please.  Our clerk opted out pension a few years ago

Answer 1

We had a similar claim for £21,000 in 2014. The clerk claimed it and was paid it by the council at the time. It sounds like your clerks contract might refer to the out dated Part K of the local government superannuation regulation 1986. This doesn’t exist any longer. Our clerk had to pay it back! Who wrote the contract? Was it agreed and minuted somewhere? As your Clerk is your RFO, he should have budgeted somewhere for the payment.  I think you have a responsibility to your parishioners.

Answer 2

If the gratuity was included in the clerks contract of employment and the PC has not done an annual review then it would appear that you are stuck with it and it must be paid as and when specified. The fact that monies have not been put aside to meet this obligation is again an oversight by the council. Several things need to be looked at. Firstly was this gratuity financed by the clerk agreeing to receive a lower pay rate than they should have ( effectively saving monies on her behalf) or as an incentive to give longer service to the council.

The council must effectively balance the books by increasing the precept to "top up " this amount in reserve based on anticipated service left from the clerk or "buy" this gratuity from the clerk with an offer before they retire or leave. Surely when the clerks salary was reviewed the gratuity part would have been included?

This illustrates what can happen when Parish Councils do not navigate the mine fields they exist in, lacking the most basic of mine detecting equipment. Professionalism the watch word

Answer 3

If it’s in their contract then is is classed as a term and condition. As the clerk she has probably figured it into the costing for when retirement beckons. There is no reason why they may not be planning to keep on working as nobody is or should be forced to retire if they choose to keep working and can do the job in question

Comments

Yes absolutely.  I wanted to ensure she was entitled to it as some other councillors told me it can not be paid due to government legislation.  Its in her contract and signed so in my eyes she is entitled to it.

It has not been factored into our budget.  I am not too keen in comes out of our reserves; when the time comes.    I do not think she realises how much it is.    Her pay scale when she started was just over £8 and hour for 60 hours per month its now double that and 100 hours per month so its adds up ....

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If you did not pay it she could claim for loss of earnings
There is comments further back about gratuity payments

Answer 4

It sounds as though this is a contractual obligation, unless there is anything in the contract that implies discretion of any sort. Is it defined by reference to final salary? You will need to start budgeting for this payment, ideally within your precept calculation for 2021/22, unless you have sufficient reserves to pay it now.

If this payment is not linked to your pension scheme or used to purchase an annuity, it is likely to be taxable in full. You may wish to seek guidance from HMRC on this, as the timing of the payment may affect the tax liability. Assuming it is taxable, it should be run through your normal payroll, rather than paid directly to the Clerk, otherwise the council might find itself liable for the tax at a later date.

Comments

Yes my preceding clerk received a gratuity of £22k. He was employed in 1976 and served for 42 years. He arranged discussions with HMRC to clarify the status of the gratuity and he had budgeted each year. He retired in March and took the gratuity in April . He also engaged with the Local branch of Nalc to get an opinon.

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Thank you for your comment   Very helpful.   I will contact our SALC.

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Having delved a little deeper on this one, it appears that if there is a specific and quantified entitlement in a contract dated before 16 January 2012, the gratuity can be paid. This would apply in the situation outlined above. If the contract merely indicates that an unspecified gratuity may be paid upon retirement, it can no longer be paid. The legislation covering gratuities was revoked on the above date.

Answer 5

WARNING !!! I would urge any Parish Council seeking to pay a retirement Gratuity to their Clerk to look at the NALC Legal Topic Note LTN 34 dated May 2012. -
The majority of town, parish and community councils cannot now pay a gratuity. However, the Government’s view (with which NALC is in agreement) is that they can pay a gratuity if there was an extant contractual obligation to do so before repeal.

If councils consider that retiring employees may have an extant contractual obligation to a gratuity, they should contact NALC’s legal department for advice. For more information see E07-11 Repeal of the Local Government (Discretionary Payments) Regulations 1996 and E01- 12 Repeal of the Local Government (Discretionary Payments) Regulations 1996 – NALC and SLCC model employment contract.

If the contract specifies a gratuity based on the 1996 Regulations. They prescribed the maximum amount for a gratuity based on either pay or the Lower Earnings Limit (LEL), whichever was the lesser amount.

The council did not (and does not) have the power to exceed the maximum gratuity payment permitted by the 1996 Regulations. If the current LEL is less than the clerk’s pay, the calculation for a gratuity should be based on the LEL for the current year (2022/23 is £6396 p.a.) Service over the age of 70 is not taken into account in calculating a gratuity. The gratuity calculation is: 3.75% x service (to the date of retirement or to when the clerk turned 70 whichever comes first, including part–year) x 6396.