Direct Earnings Attachments: Who knew?
There can be very few people in the country who are not aware of the changes being introduced to the benefits system over the coming months, explains Helen Hargreaves of the CIPP.
News bulletins over recent weeks have informed us all about the contents of the Welfare Reform Act 2012. We know about the introduction of Universal Credit which is replacing six benefits for those out of work or on a low income. We know that to make the Universal Credit system work HMRC has changed the way we report PAYE so employers now submit information in real time. But what most of us do not know is that the Welfare Reform Act also allows the Department for Work and Pensions (DWP) to recover overpaid benefits by deduction from an individual’s earnings from 6 April 2013. Welcome to Direct Earnings Attachments (DEA).
What is a Direct Earnings Attachment?
The DWP is responsible for debt owed in the UK under the Social Security Administration Act 1992. When the secretary of state, or authority administering Housing Benefit, has not been able to recover money owed to the DWP by individuals no longer receiving benefits, the debt may be recovered by a deduction from the individual’s earnings. Unlike some other deduction orders, the DWP can issue a Direct Earnings Attachment without going through the civil courts.
Applying a DEA
A DEA has its own regulations which follow some of the workings of a Deduction from Earnings Order (DEO) and some workings of an Attachment of Earnings Order (AEO). But a DEA does not replace any of these other orders and in some circumstances employers may receive requests to implement deductions for a DEO and a DEA for the same employee. If an employee does have other deduction orders the following take priority over a DEA:
England and Wales
- DEO for child maintenance
- AEO for maintenance or fines
- Council Tax Attachment of Earnings Order
- Student Loan repayment
- DEO for child maintenance
- Earnings Arrestment
- Student Loan repayment
Once these priority orders have been taken into account in the calculation, a DEA then takes priority in relation to other orders or notices in date order.
The employer then has a legal obligation to:
- Deduct, as per legislation, the DEA amount from the employee’s attachable earnings
- Make payment to DWP by the 19th of the month following the deduction
- Keep a record of the deduction taken, and the employee it was taken from
- Advise the employee of the amount deducted including any admin fee (up to £1). This can be done on the payslip
- Notify the DWP if a DEA comes through for someone who is not an employee
- Notify the DWP if an employee for whom a DEA is being operated leaves
The definition of attachable earnings is the same as for the Child Maintenance DEOs, and a full list of attachable and excluded earnings is included in the guidance on GOV.UK.
The key facts are:
- A DEA is operated on the usual pay frequency
- The DEA reference is the employee’s National Insurance number
- A protected earnings amount of 60% must be applied
- Tables are provided to calculate in percentages the amount due
- If the amount calculated results in a fraction of a penny it is rounded to the nearest whole penny, with half a penny being round down
- Advanced holiday pay is treated as a separate deduction calculation
Don’t panic yet!
Rather than a big bang, the DWP is introducing DEAs through a pilot. The pilot will involve a very small sample of DWP customers and as such, the impact even on large employers, is expected to be minimal.
Furthermore, businesses who have started since 6 April 2013, and micro employers (employers with fewer than 10 employees) are not obliged to operate DEAs. That’s not to say they can’t operate DEAs, only that there is no legal requirement for them to do so. If either of these circumstances applies, the employer must write to the DWP within 10 days of receipt of the request notifying them of the reason the DEA will not be operated.
Let’s talk timing
There’s no getting away from the fact that DEAs have come out of the blue for most of us. We now understand that the DWP did consult a number of employers whilst developing DEAs; however it appears that those consulted were not fully conversant with payroll procedures and believed that, as their payroll departments deal with other deduction orders now, it would be relatively straightforward to add another deduction order to the list. Unfortunately this is not the case, and this significant administrative burden is only reduced by payroll software.
As this issue has only just come to light, it is unlikely that software will have the ability to process the first DEAs which payroll staff will need to process manually.
When processing orders manually, payroll staff will need to check whether there are any other orders already in place, as they will need to check the priority and date of each order. If the DEA takes priority, and there will be insufficient earnings to action the original order once the DEA has been processed, the other orders will need to be stopped on the payroll system until the DEA has been actioned.
The CIPP is now a key stakeholder on this project and we are working closely with the DWP to make up for lost time. The DWP will also be working with the payroll software industry, ironing out any teething issues throughout the pilot so that they are in a position to finalise the software specification, before full “go live” happens in 2014.
The CIPP has been, and will continue to work with DWP's Debt Transformation colleagues in respect not only of DEAs, but any future work around benefits. This will mean any aspects of the Welfare Reform Act, or indeed any future legislation, will be tested not just for employer involvement, but also the effect and requirements of payroll.
More information, and detailed guidance, is available on GOV.UK.
Helen Hargreaves is a senior policy and research officer at the Chartered Institute of Payroll Professionals (CIPP).