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Adam Partington

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Ask the Expert: Should car allowances be included in sick pay?

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The question 

I have a case of someone who is taking long-term sickness absence (eight months). They were paid a combination of statutory sick pay and company sick pay for the first six months, which included their monthly car allowance in full.
 
Their manager has now decided to stop paying the car allowance, saying that the cash benefit is provided for the performance of work duties, which means that they are not required to pay it.
 
The employee is unable to drive and has been paid this annual cash allowance since the beginning of his employment there over 10 years ago.
 
He is arguing that the cash allowance is regarded as a ‘permanent cash allowance’ that was awarded to him as an uplift to his salary (given that he made it clear during the recruitment process that he could not/would not be driving).
 
The HMRC treats the allowance as remuneration, but what is the view from an employment law perspective? For the last three months of his sick pay, he was on half of his basic salary, although a full car allowance was paid.
 
There is no mention in the employee’s contract that the car allowance would be withdrawn during a period of illness and there is no mention of how to handle car allowances in the case of his absence.
 
The employee is likely to be off work for at least a few more months and so the loss of this income has a significant impact on his day-to-day living standards while he is ill.
 
It should also be noted that other staff members receiving the car allowance are not obliged to buy a car with it and, if they choose to do so, can use it in a personal context ie it is not a purely ‘business’ benefit as his employer is claiming.
 
Who is correct in this instance and should the employee be advised to make a claim?
 
 
The legal verdict
 
Adam Partington, a solicitor at Speechly Bircham
 
In order to understand what the employee’s sick pay entitlement is, it is important to evaluate any relevant written documents and understand what the employer’s normal practice regarding the payment of sick pay is across the entire workforce.
 
These activities will help to establish what the employer’s contractual obligations are to the employee in relation to sick pay, over and above its statutory obligations.
 
If the payment of any company sick pay is at the organisation’s discretion, it will give the employer more flexibility. If this is the case, the employer will have to think about how they exercise that discretion and, in doing so, take into account how they treat other staff members. 
 
As the employee is taking long term sickness absence, it would be worth looking at whether they are disabled as defined under the Equality Act 2010 because such a scenario could give rise to other considerations.
 
Therefore, it would be best to obtain further details in order to determine the employee’s precise rights and entitlements. 
 
Adam Partington is a solicitor at Speechly Bircham LLP.
 
 
Esther Smith, a partner at Thomas Eggar
 
This car allowance payment, although labelled as such, does appear on the basis of the facts provided to be more of an uplift to the employee’s salary, given that their job does not involve driving and their employer is, and always has been, aware that they cannot drive.
 
Moreover, as the sum has been paid without question for 10 years, the staff member also clearly has a reasonable expectation that it will continue to be paid, which further lends support to the argument that it constitutes wages.
 
Provided employees meet specific requirements, if they take four or more days off due to sickness, they are entitled to statutory sick pay, which is currently £85.85 per week.
 
Apart from this, there is no statutory right for staff members to be paid wages during a period of sickness absence. Any right that an employee may have to such payment would need to be laid out in their employment contract. The contract could also expressly provide that the allowance was not paid during periods of sickness.
 
But this particular employee’s contract is silent on this point. Moreover, if there is no established company practice of withholding this sum during sickness (which could result in a term to this effect being implied into the employment contract), the car allowance payment would need to be treated in the same way as basic wages under the employment contract. 
 
In this instance, it would appear that wages were paid in full for a certain period of time, before being reduced by half. Therefore, the employee actually gained as they were paid the full car allowance for a longer period of time than was necessary without seeing it halved as well.
 
Their employer will now need to ensure that it continues to make payments as per their contract and should only stop paying the allowance when the employee exhausts their contractual right to sick ‘pay’.
 
But as their employer has paid the allowance in full for the last three months when it should have been paid at only half this rate, they may be hoping to withhold it over the next three months so that it all evens out.
 
However, such an action could be treated as an unlawful deduction from wages unless the deductions are authorised by the employee’s employment contract.   
 
Esther Smith is a partner in Thomas Eggar‘s Employment Law Unit.
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