Statutory Pay Disputes and Disagreements

When disagreements arise between employers and employees about statutory pay entitlement — such as Statutory Sick Pay, Statutory Maternity Pay, or other statutory payments — there's a formal process for resolving the dispute. Employees can ask HMRC to make a binding decision, and if either party disagrees with that outcome, there are appeal routes available through tribunals. Understanding this process helps you handle these situations correctly and avoid potential penalties.

When disputes occur

If you've decided that an employee isn't entitled to a statutory payment (or they disagree with the amount you've calculated), they have the right to challenge your decision. Before taking formal action, your employee should first ask you for a written statement explaining their statutory pay position. You should also discuss the matter with them directly to see if you can resolve the disagreement informally.

If you're uncertain about whether statutory pay is due, you can contact HMRC for an informal opinion. However, you cannot ask HMRC to make a formal decision on your behalf — only the employee can request that.

The HMRC formal decision process

When an employee asks HMRC to make a formal decision, an authorised HMRC officer will review the case and make a decision strictly based on the facts and the law.

Both you and your employee will be asked to provide written observations and supporting evidence. Neither of you will be required to appear before the officer. It's important to note that in the event of an appeal, your evidence will be shared with your employee and vice versa, so both parties can see what information has been provided.

The HMRC officer will send the formal decision to both you and your employee in writing. If the decision confirms that statutory pay is due, it will specify the time limit by which you must make the payment. The decision notice will also explain your appeal rights in full.

If new facts emerge after the decision that affect the outcome, HMRC will review the decision and may issue a revised decision. You'll then have fresh appeal rights against the revised decision. This is why it's crucial to provide all relevant facts upfront during the initial decision process.

The appeals process

If either you or your employee disagrees with HMRC's decision, you can appeal. HMRC will notify the other party that an appeal has been lodged.

When you appeal, the HMRC officer will attempt to discuss the case with you to reach an agreement between all parties — you, the officer, and your employee. Any agreement must comply with the relevant legislation.

If everyone cannot reach agreement, you'll be offered a review. An officer who wasn't involved in the original decision will carry out this review. If you accept the review but still disagree with the conclusion, you have a further 30 days to notify your appeal to the independent tribunal.

Tribunal hearings

Once you've notified your appeal to the tribunal, they will consider your case. Both you and your employee have the right to appear in person at the hearing and can be represented (for example, by a solicitor or advisor).

Tribunal decisions are final in most circumstances. However, you can appeal on a point of law, with permission, to the Upper Tribunal. In Scotland, appeals go to the Court of Session, and in Northern Ireland to the Court of Appeal (NI).

Payment deadlines after a decision

When a decision confirms that statutory pay is due — whether from HMRC, the tribunal, or the Upper Tribunal — you must make payment within strict legal time limits if you don't appeal or once the appeal period expires.

You must pay no later than the first payday after the decision. If that's not practicable, you must pay by the second payday at the latest. If you fail to make payment within this legal time limit, you may face a civil penalty.

Compromise agreements and statutory pay

If an employee leaves your employment and you're settling outstanding claims through a compromise agreement (sometimes called a settlement agreement), you need to be careful about how you handle statutory pay entitlement.

Statutory pay is a legal entitlement. If the qualifying conditions are met, your employee must receive it — you cannot contract out of this obligation. Some compromise agreements use vague language such as "in lieu of statutory pay entitlement" or refer only to an overall settlement figure. This may not satisfy the legal requirement.

To meet your obligation properly, you must:

• Refer to the specific statutory payment by name (for example, Statutory Sick Pay or Statutory Maternity Pay)
• Properly calculate the entitlement
• Clearly identify it as statutory pay in the agreement

Remember that statutory pay is subject to tax and National Insurance contributions, and you must make the relevant deductions when paying it to your employee.

Sources

• Statutory Pay entitlement: how to deal with disagreements
• Statutory Payments and Compromise Agreements

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.