Professional November 2018

PAYROLL INSIGHT

Working around universal credit

Steven Tucker, managing director of The Payroll Site Ltd, exposes the impact of employers’ pay practices and suggests a workaround

A s universal credit is being rolled out across the UK, problems are emerging with the way it adjusts to account for a claimant’s wages. Although employers are not responsible for these problems, they may be in a position to help, by choosing a ‘UC-friendly’ payroll that is kinder to employees who receive this social security benefit. Universal credit replaces six benefits, including working tax credit and child tax credit. Its roll out is due to cover the whole of the UK by December 2018. A key feature of universal credit is that, each month, it adjusts payments for the claimants who have jobs. This is possible because employers report real time information about wages, in the form of a full payment submission (FPS). Assessment periods The process of calculating universal credit is described in the Universal Credit Regulations 2013 (https://bit.ly/2y6tIKW). When someone makes a claim, that day is the start of the first assessment period, beginning a regular, monthly assessment cycle. As there are up to 31 days in a month, it means that there are 31 possible assessment cycles. The earnings information comes via HMRC, as explained in regulation 61(2)(a): “the amount of the person’s employed earnings from that employment for each assessment period is to be based on the information which is reported to HMRC under the PAYE Regulations and is received by the Secretary of State from HMRC in that assessment period.” The condition that the information must be received ‘in that assessment period’ implies that assessments can only

be reliable if FPS returns are made on or before the pay date. The other parts of regulation 61 give the secretary of state for work and pensions the power to deviate from the above rule in certain cases. ...up to 31 days in a month, it means that there are 31 possible assessment cycles Early warning system The Child Poverty Action Group (CPAG) set up an early warning system with the support of Oak Foundation and the Barrow Cadbury Trust. This initiative gathered information and case studies from universal credit claimants, which were published in a report. Most of the problems uncovered were a direct result of universal credit assessment periods being out of step with the way people’s wages were actually paid. Some problems were caused by apparent fluctuations when weekly, fortnightly or four-weekly payments were shoehorned into monthly assessment periods. Other complications occurred when a monthly pay date changed to avoid weekends and bank holidays. The CPAG report gives a detailed insight into the consequences of the mismatch between real-world pay practices and the monthly assessment cycles. Affected employees and their families can be subjected to a benefit cap, lose their work allowance, receive erratic universal credit payments and be deprived of their free health entitlements.

It is important to note that these problems don’t affect every employee who claims universal credit and can seem quite arbitrary. Two people in identical jobs may have very different experiences, depending on which day they completed the online form to claim universal credit. You can read the report, Rough Justice – Problems with monthly assessment of pay and circumstances in universal credit, and what can be done , at https:// bit.ly/2y9WcDg. What can be done? The CPAG report makes a number of recommendations to the government on how to improve universal credit and alleviate the issues identified. In the meantime, employers may wish to consider whether their payrolls might trigger any problems, and whether to apply a workaround. Changing the pay dates for an existing workforce, just to help a few employees, is unlikely to be practical; however, there is also the option to create a new, UC- friendly payroll next to the old one, and just move across those employees who request it. The business case Although employers are not responsible for the way universal credit was designed and have no obligation to solve this problem, some do care about the welfare of their employees and want to help them avoid unnecessary hardship and distress. The case studies in the CPAG report include instances of severe financial insecurity, rent arrears, depression and being unable to afford to travel to work. If a business case needs to be made, it is that when these problems occur it

| Professional in Payroll, Pensions and Reward | November 2018 | Issue 45 18

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