Contractor (employer) opts to pay the tax

If to retain valuable people on a project for the benefit of a project a Contractor (as an employer) decides to pay the tax on behalf of any effected employees and agency workers via an increase in wages or rates. Is this extra cost a Defined Cost and included in the Schedule of Cost Components?

To add further complexity, what if the issue regarding 2 years has arisen because of the occurrence of Employer risks, i.e. CE’s that have delayed the works extending planned Completion beyond the 2 years?

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The reasoning behind an increase in salary does not alter the fact that salary is recoverable as a people cost (and I have assumed that the description of Employees and agency workers (who fall within 14 of the SCC) is not in doubt). If there were any doubt as to whether it was a “wage” cost or a “salary” cost then it almost certainly falls within 12(a) as a bonus or incentive being paid and is therefore recoverable.

I don’t think the question of whether compensation events push you into a second year actually changes anything. However, without a compensation event you don’t get to the SCC under Options A and B. While you may recover the cost under C, D and E the contractor will be exposed to a pain share, all other things being equal.