The impact of early pay days on employees
Samantha Mann considers how changed pay dates in December can impact employees in receipt of Universal Credit.
Universal Credit was first introduced in 2013 and operates using a monthly assessment period.
The most popular pay period is monthly, but it is by no means the only pay period, which can include weekly, fortnightly or four weekly (as well as many other conceivable periods).
Real Time Information
To support the delivery of Universal Credits, the PAYE system faced its biggest update since first being rolled out in 1944, with the introduction of Real Time Information (RTI), this was an essential step to enable the delivery of Universal Credits.
Employers are required to submit pay information using the RTI system which requires a Full Payment Submission (FPS) to be sent to HMRC, on or before the contractual pay day of their employees.
Where this falls on a non-banking day, such as a weekend or bank holiday, the employer is likely to make payments on the final banking day before the normal pay day, and sometimes after. In this instance HMRC guidance advises the employer to use the contractual pay date as normal on their FPS.
There are bank holidays throughout the calendar year. However, at Christmas we experience, as a minimum, three bank holidays in short order, Christmas Day, Boxing Day and New Years Day, (which extends to two days in Scotland). Add to this complexity, the practice of offering earlier pay days in December, which many employers do, and it is easy to see why December offers significant challenges.
The challenges primarily impact the payroll professional who has to deliver their monthly workload in less time, but why does HMRC tells us to maintain the contractual day on our submission – rather than the actual pay day?
RTI data is transferred from HMRC to The Department for Work and Pensions (DWP) four times a day, so as to ensure that each month’s claim, within the assessment period, is accurately calculated.
Whilst the FPS will include the date of payment for the earnings figure, the earnings will first be assessed by DWP, based on the date that the pay data is received from HMRC, where payments are made outside of their normal sequence, such as with Christmas, this can result in a assessment period (AP) reporting inflated earnings, which if left unchanged can result in an individual’s claim for Universal Credits (UC) being reduced or stopped.
The Universal Credit (Earned Income) Amendment Regulations 2020 came in to force from 16 November which made a significant amendment to enable a claimant to contact their UC work coach to request that the earnings payment be moved to the correct assessment period.
To demonstrate how easily this situation can occur, DWP included some examples in Memo ADM 27/20 to illustrate the problem.
|ExampleRanjeet has an AP that runs from the 28th day of each month to the 27th day of the following month. Ranjeet’s employer regularly pays him on the 28th day of each month. Ranjeet was paid his usual salary on 28.11.20. Because 28.12.20 is a public holiday his salary for December is paid on 24.12.20. The following payment is paid as usual on 28.1.21. The DM determines that the payment received on 24.12.20 is to be treated as paid in the AP that ran from 28.12.20 to 27.1.21.|
The change to the regulations came about following the Court of Appeal ruling against the secretary of state in Johnson and others. This change to the regulations will support the situation that arises with mistimed monthly payments. What is not yet clear is how other situations, where different pay periods are in operation will be impacted, such as weekly where four time a year the employee will receive five pay days in the monthly assessment period; or two-weekly where twice a year three pay days will impact the monthly assessment period; and for four-weekly pay periods, where once a year a monthly assessment period with include two pay days.
Facing up to the payroll challenges
What is key for the payroll professional responsible for processing the payroll is to ensure that the correct process is followed when making RTI submissions, so as to ensure that when the FPS is submitted the correct dates are applied.
Earlier pay dates were the subject of a recent CIPP quick poll which asked: ‘What is the biggest challenge in your payroll department ahead of Christmas pay day?’
As you might imagine the biggest challenge related to the shorter processing month which commanded 83% of responses, but, even allowing for the guidance from HMRC, there still remained 4% of respondents acknowledging that Real Time Information (RTI) considerations were an issue.
Section1.8 within HMRC guidance on the subject can be found at gov.uk.