COMPLIANCE
AEOs and employer obligations
Lauren Handley MCIPPdip, CIPP course material author, provides a recap of Attachment of Earnings Orders (AEOs) and the associated legal requirements
W hen an Attachment of Earnings Order (AEO) is received in the payroll department, it means an employee owes a debt that the court has enforced, such as a county court judgment. Employers are legally obliged to follow the instructions on the order and implement the deductions as instructed in the Attachment of Earnings Order Act 1971. Although AEOs are technically in operation from the day they are received under section 7 of the 1971 Act, payroll departments have a legal obligation to implement the order within seven days of receiving it. This isn’t always possible in practice, however, as the pay frequency may not match up to this timeline. AEOs should therefore be operated as soon as possible in the next available pay period. Failure to do so is an offence which can lead to the court taking legal action against the employer, potentially resulting in the employer becoming responsible for paying any outstanding monies – with no recourse to recover it from the employee who is the subject of the order. It’s important that upon receiving an AEO from the courts, the employer checks the subject of the order is an employee. If the individual has left the organisation or was never employed by them, then there is a ten-day period in which the employer has to notify the court. On the other hand, where an employee leaves employment with an outstanding AEO, then the employer has a duty to notify the court of the end of the employment and provide the new employer’s details, if known. The time limit for this is also ten days, except Council Tax Attachment of Earnings Orders (CTAEOs) which have a 14-day time limit. The employer not only has obligations to the courts upon receiving an AEO, but also has a duty to inform the employee
in writing of the deduction. This doesn’t mean that the employer must write letters to every employee with an AEO, however, as this would be time consuming and costly. This can be done through the payslip, so it’s important that deductions are labelled clearly and accurately to satisfy this requirement. This will also help to reduce queries from employees. AEOs are a type of statutory deduction from earnings. What is classed as earnings for AEOs is given a specific definition in section 24 of the Attachment of Earnings Order Act 1971. Earnings include wages and salary (including bonuses, overtime and commission), pension (except CTAEOs, but Guaranteed Minimum Pension is included for these types of order) and statutory sick pay (SSP). SSP is the only statutory payment included in earnings for AEOs. Tax, National Insurance contributions, pension contributions and any other order with a higher priority are deducted from earnings to leave what is referred to as ‘attachable pay’. This is the amount from which an order can be deducted. It’s important to note that while statutory parental payments are not included in earnings, occupational parental payments are included because they are a form of contractual payment. AEOs come in four different types – priority, non-priority, CTAEOs and Schedule 5 AEOs. Priority orders are specifically for maintenance for dependents or payments of fines. Non-priority orders are reserved for payments of debts. It’s possible to have more than one order for an employee. Where this occurs, the order with the highest priority takes precedent before the non-priority order. The priority order’s deduction will also reduce the amount of attachable pay available for the non-priority order. Where both orders
have equal priority, then they should always be operated in the order of the date they were issued. The oldest order should always come first, followed by a subsequent non-priority order. Both priority and non-priority orders have a normal deduction and an amount of protected earnings. The normal deduction is a set rate that should be deducted each pay period. The protected earnings are the minimum pay the employee should receive, and the normal deduction should not take the employee’s earnings below this amount. The protected earnings are usually calculated by the court based on the employee’s outgoings to determine their affordability of the order. CTAEOs are for collecting unpaid council tax. Unlike priority and non-priority AEOs, which have a normal percentage rate, CTAEOs use tables of earnings and percentage deductions which are applied based on the employee’s pay frequency. The tables are prescribed in legislation and have monthly, weekly and daily rates available. The daily tables are used for employees who have an irregular earnings interval. An employee can’t have more than two CTAEOs in operation at the same time. If there are two CTAEOs in operation, then the oldest order has priority and reduces the attachable earnings for the subsequent order. Schedule 5 AEOs were introduced in April 2004, under the Courts Act 2003 to collect fines issued by a magistrates’ court. These types of AEO don’t have a normal deduction rate or a protected earnings rate. Instead, percentage tables are used to calculate the deduction in each pay period. These tables are identical to those used to calculate Council Tax AEOs. For more information, see https:// ow.ly/Brcn50TfOnl. n
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| Professional in Payroll, Pensions and Reward |
Issue 104 | October 2024
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