Most employees are paid on the same date each month, or the last working day of each month. However some employees are paid weekly, every 2 weeks or every 4 weeks. But what has this got to do with Universal Credits?
Quite a lot. Let me explain.
Unlike wages, that are paid within a PAYE month, every Universal Credit (UC) claimant has a monthly claim date that is personal to them, therefore has no connection at all to any employer pay cycle.
To ensure that the correct Credits are paid to claimants, HMRC share with DWP payroll information reported through RTI, 4 times a day. These times are 03.30, 09.30, 15.30 and 21.30.
To ensure that claimants are paid the correct amount of Credits in a monthly cycle, DWP use the RTI information obtained from HMRC to calculate the amount. There are standard amounts of UC payable dependent on age, relationship status and number of children.
However deductions are made of 63 pence for every £1 earned over a certain amount.
Claimants on a 4 weekly pay cycle who earn roughly the same amount each pay period will know the amount of UC they will receive and therefore budget accordingly.
Potential problems with this
A problem arises when the employee is paid twice within their own UC month, which will happen at least once a year for four weekly paid employees.
When an employee receives two earnings payments within their own UC period, their income may be too high to qualify for UC payments because of the claw back based on the RTI information that DWP have received from HMRC.
When this happens DWP will notify the claimant and reduce or even stop the UC payments, explaining that the income received is too high. The significant downside for the employee/claimant is that they will need to re-apply to DWP for UC’s. If this claim is not submitted immediately, more than one month’s UC could be affected.
The same issue will also befall two weekly and weekly paid employees who will have more than the expected pay periods in a PAYE month. Solving the problem for two weekly and weekly paid employees is more problematic than four weekly, because those employees expect payment every week or every other week.
What is the solution to this anomaly?
There is a solution to this but it requires a change to the employee’s contract of employment in respect of the pay periods.
Moving to monthly paid ensures that there is only 1 payment within a claimants claim period, whatever that claims period may be.
It is clearly in the employees’ interest to change from 4 weekly to monthly. However to successfully achieve such a move there must be consultation and agreement with the employees. The terms of the Contract of Employment must change to reflect the new pay periods. Failure to do so will be in breach of the contact and could cause employers significant problems.
For more information please contact Paul Chappell, Head of Legislation and Compliance at Dataplan on 03331 123456