Most of those questioned believed that parties generated ill-feeling and could lead to official complaints after the event. Three-quarters of respondents have already taken disciplinary actions following a staff Christmas party and two-thirds had sacked a member of staff because of their behaviour at one.

Elizabeth Weston, a former solicitor from Merrill Lynch, took legal action because of a colleague’s behaviour at a Christmas party. He spilled wine down her top, complimented her on her “great waps” and made jokes about her sex life.

An internal disciplinary hearing ensued but Weston was unhappy with how the company dealt with the issue and sued the firm. Days before the employment tribunal, she settled out of court for a reported £1 million.

“Employers clearly recognise that inappropriate sexual remarks or behaviour made in the office are discriminatory and these are therefore dealt with severely,’ comments Mark Shaw of insurance company Hiscox. ‘However, discrimination claims can be made against companies even if the remarks or behaviour are made outside of the office and outside of working hours. The law states that a harassment claim stands if the offence took place ‘in work or at a work-related function’, which includes company parties.’

Hiscox recommends a number of steps that companies should take to avoid leaving themselves exposed to these types of claims:

• Implement a harassment policy setting out the kind of behaviour that constitutes ‘harassment’ or ‘bullying’. Make it clear that these apply to all informal work gatherings, including those outside official working hours, as well as to formal work-related activities.
• Train employees on the policy. Ensure all employees attend training.
• Make it clear that all inappropriate acts, both in and outside of work, will be considered gross misconduct, which may lead to dismissal.
• Issue reminders, re-running training sessions at appropriate times such as before the Christmas party
• All allegations of discrimination should be investigated promptly, sensitively and fairly.
• Always follow a clear and fair disciplinary procedure when addressing inappropriate behaviour. Failure to do this could leave you open to claims for unfair dismissal.
• Consider taking out Employment Practices Liability Insurance, which will cover legal costs should a discrimination claim be brought against you.

See also: More tips on dealing with staff problems at Christmas.

If you are feeling brave enough to go ahead with the traditional Christmas party, accountancy firm, Horwath Clark Whitehill warns not to get stuck paying a hefty tax bill.

Many employers do not realise that there is no taxable benefit on parties costing £150 or less per head. This is the total cost per person and includes VAT and any transport or accommodation provided by the employer. Spouses and partners are also included in this calculation, so for partners attending a party costing £149 per head – or £298 per couple – the benefit will not be taxable, assuming that this is the only event in the tax year.

Employers should be aware that the rule only applies to an annual Christmas party or another annual event of a similar nature that is open to staff generally. In addition, if the cost exceeds £150 per head the employee will be taxed on the whole amount, not merely the excess over £150.

’If the £150 per head limit is exceeded, employers can enter into PAYE Settlement Agreements (PSAs), where the employer pays the tax on the employee’s behalf,’ explains Graeme Surtees, tax partner at Horwath Clark Whitehill. ‘This can be extremely costly, though, as the employer pays tax on the tax paid on the employee’s behalf, plus employer’s National Insurance Contributions on the whole lot! Potentially, the cost of the Christmas party to employers can nearly double.’

See also: Employees have witnessed cheating at the office Christmas party