Payroll insight
Although the examples in the DWP’s guidance document for staff use large bonus figures to demonstrate the workings of the rules, any earnings are caught. The regulations specify a buffer of £2,500 in each period which has meant that they have had no noticeable effect; however, the buffer is due to fall to £300 in April 2019, but the secretary of state has power to extend the larger disregard. The reduction in the disregarded figure will mean that the rules can apply to many more people, and in particular they may apply to those whose entitlement to UC ceases because of extra paydays in a particular UC period, such as this example. If we use the current figures for earnings and UC entitlement but apply the £300 buffer figure from April 2019 it is possible to show the effect on the person in the Example. The double earnings figure, which stops entitlement to UC in those months, will be used in a surplus earnings assessment when UC is claimed again. The effect of taking into account the higher earnings during the double pay period, against the zero earnings paid in the following UC assessment period, is to count some of the higher earnings against the new entitlement. The result is shown in Figure 2. The number of assessment periods between the two- and zero-payday months in Figure 2 has been reduced in order to show the effect when those occur. The high UC figure in zero-pay months is reduced by the excess income in the two-payday months, although the buffer may be seen as providing some additional benefit. There are, however, further potential complexities that need to be considered. ● Couples – The situation of couples
where both are earning and paid on different days in the month, or on different pay cycles, introduces further complexities. ● The benefit cap – There are maximum amounts of benefit which can be paid. The cap does not recognise that many people on average pay also receive benefits, because their needs are higher. Although this capping does not apply when people receive pay at more than sixteen hours a week at national living wage levels, the effect of the pay cycle can mean that people may find their benefit capped in months when they are treated as having low, or no, earnings and consequently higher UC. ● Passporting – Receipt of UC means that a number of other, particularly health related, services, such as prescriptions, are free. This means that the loss of benefit, because of the notionally higher income in an assessment period, can also lead to the loss of these. ● Free school meals – There is an entitlement to free schools where people receiving UC have less than £7,400 in earnings. Oddly, local authorities have been told to ignore the normal monthly basis for everything UC and, instead, to average earnings over the previous three assessment periods. These again could have varying numbers of paydays in them but potentially out of step with UC payments. ● Pension contributions – If a person is contributing to a pension then 100% of those contributions are disregarded in the UC calculation. This means that the same amount of income is not taken into account in the calculation and the effect of this is that for every £100 a month paid into a pension scheme the UC entitlement increases by £63. If s/he pays £100 in a month when treated as having no
earnings, s/he won’t get any extra benefit as it is an offset against earnings in the period. If s/he makes £100 contribution on each payday, for example as an automatic deduction, then s/he may still gain no benefit if her/his total earnings in that period stop entitlement to UC. ● Timing of claim – It is possible to be a winner or a loser based simply upon the date that UC is claimed. A high earner who claims the benefit on a date which means that there will be no paydays in the assessment period will be able to qualify for UC for at least that month; and potentially for any following month with a zero-pay day period, although subsequent months may be subject to the surplus earnings rules. More concerning will be the case of somebody whose claim is made when there are two paydays in that month (or where there are extra paydays in one of the weekly cycles). They may find themselves with no entitlement to UC in that period and, unless aware or advised, may not realise that this is not their usual entitlement situation. n This article is an edited version of a blog which can be found here: https:// bit.ly/2E1s1DY. Ferret reckoners The following reckoners, which were used in the above calculations, may be found for a short time at: ● Ferret’s Pay Periods Reckoner – https://bit.ly/2KCkig5 ● Ferret’s Surplus Earnings Reckoner – https://bit.ly/2QtWGja
Note these are not for use with clients and no reliance should be placed on them as they are still in development.
Figure 2.
Surplus Earnings Adjustment
Actual earnings / Earned income
Original surplus earnings
Total earned income for UC
Surplus earnings carried forward
Period
UC payable
1 2 3 4 5 6
£0.00
£342.33
£215.67 £686.24 £686.24 £1,372.48 £215.67
£0.00 £0.00 £0.00
£752.14 £281.57 £281.57
£1,089.27 £1,089.27 £2,178.54
£0.00 £0.00 £0.00
£342.33
£0.00
£0.00
£342.33
£0.00 £0.00
£752.14 £281.57
£1,089.27
£0.00
£686.24
31
| Professional in Payroll, Pensions and Reward |
Issue 46 | December 2018 / January 2019
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