Direct Earnings Attachment. A Guide for Employers

Transcription

1 Direct Earnings Attachment A Guide for Employers

2 What this Guide is about This guide explains what you, as an employer, need to do if you are asked to implement a Direct Earnings Attachment (DEA). Where you receive a notice to operate a DEA we ask you to read the information contained in this guide. It provides general information on: o what a DEA is o how a DEA operates o how to calculate a DEA (including how to do this manually pending the introduction of payroll software changes) o your responsibilities o DEA exemptions and o how to make payments to the Local Authority. This guide is intended to help you understand the main points about a DEA. It is not a full description or statement of the law. From 8 April 2013 we have been able to use DEA as a method to recover money owed to Shepway District Council.

3 If you are using a computerised payroll system and you receive a request to set up a DEA before your software is updated you will need to; 1. Manually calculate the DEA amount to deduct from earnings - please see how to do this in the section How do I calculate a DEA amount manually 2. Check whether there are any other orders currently in place as these may take priority over the DEA - please see a full list of the orders and how they may impact on a DEA in the section Other Orders & Priorities 3. Ensure that the total deductions from all orders, which includes the DEA, does not exceed 40% of the employees net earnings - the employee must be left with 60% of net earnings for each pay period following the deduction of all orders. 4. If the total deductions exceed 40% of net earnings, adjust the amount of the DEA where applicable. (See Protected Earnings)

4 Contents Introduction to a Direct Earnings Attachment (DEA) How does a DEA arise? What are my legal responsibilities? What duties does a DEA place on an employer? How does a DEA operate? Exemptions Protected Earnings Net Earnings The definition of earnings for a DEA What counts as earnings What does not count as earnings How do I calculate a DEA amount manually? Other Orders & Priorities First DEA deduction (pay day) Administrative Costs Making payments to the DWP Methods of payment DEA payment schedule (DEAps) Questions & Answers Comments about our service Appendix 1 - deductions from earnings tables

5 Introduction to a Direct Earnings Attachment (DEA) The Welfare Reform Act 2012, which became law in March 2012, allows Local Authorities to ask you, as an employer, to make deductions directly from a customer's earnings. We do this by asking you to operate a DEA. We do not have to go through the civil courts to do this, unlike the Attachment of Earnings Order (AOE) process, for example. Within the Welfare Reform Act, the legislation covering DEAs, part of the Social Security (Overpayment and Recovery) Regulations 2013, came into force on 8 th April 2013 and the regulations are available on the internet. Note that these regulations are only in force in England, Scotland and Wales and so exclude Northern Ireland. 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), particularly a Council Tax Attachment of Earnings Order (CTAEO). A DEA does not replace any of these other orders and in some circumstances employers may receive requests to implement deductions for multiple orders for the same employee. How does a DEA arise? Where the Secretary of State or authority administering Housing Benefit has been unable to recover monies owed to the Local Authority by customers not currently in receipt of benefit, and who have not voluntarily agreed to pay, that money may be recovered by deduction from the customer's earnings.

6 What are my legal responsibilities? As an employer - you have a legal obligation to: implement a DEA when we send you a notice to do so and make deductions from the employee s net earnings. Net earnings for DEA calculations are defined as earnings minus: o income tax o Class 1 contributions o all Pension Contribution amounts which provides payment of annuities or lump sums: 1. to the employee on retirement at a specified age or on becoming incapacitated at an earlier age 2. on the employees death, to the personal representative, widow, surviving civil partner, relatives or dependants keep a record of each deduction taken, and the employee from whose earnings it was made continue to operate the DEA until the Local Authority advise you to stop or your employee leaves If you fail to comply, you may be subject, on conviction, to a fine of up to 1,000.

7 What duties does a DEA place on an employer? To the Local Authority - you have a duty to notify us within 10 days: after the date the notice has been issued if we have asked you to operate a DEA for someone who does not work for you from the date an employee ceases to be in your employment after the date the notice has been issued if you are exempt under the regulations (See Exemptions) If any of the above applies, please write to us at the address shown on the DEA notice letter. To your employee you have a duty to: Notify your employee in writing of: o the amount of the deduction taken, including any amount taken for administrative costs. (see section on Administrative Costs) o how the deduction amount was calculated. The above information can be provided on the payslip. You must do this (and record it) no later than the payday after the one on which the deduction for the DEA was taken. You should also let us know: if your business ceases trading.

8 How does a DEA operate? We will send you a letter (notice) which tells you to implement a DEA for one of your employees. This notice will include a payment schedule which will inform you: how you can pay us Exemptions As an employer you are exempt from operating a DEA where: you are a new employer whose business started in the first year of the DEA process being introduced by DWP (i.e. between 8 April 2013, and 31 March 2014) In this instance, any exemption would only apply up to and including 31 March 2014 you are a micro employer (having fewer than 10 employees) as defined in the regulations. If your business grows to 10 or more employees you will be entitled to a grace period before we ask you to comply with a DEA. If this happens, please contact us for further information on the number shown on the letter you have received from us. However, even when an exemption applies you may still make deductions by way of a DEA from salary if this is agreed by both you and your employee.

9 Protected Earnings Where we ask you to operate a DEA you must consider what is known as the Protected Earnings amount which is an amount equal to 60% of an employee's net earnings. This means that for each pay period where a DEA calculation is applicable, you must additionally ensure (after adding this amount to the total amount of other orders that may be already in place) that your employee is left with at least 60% of their net wage. In cases where the addition of the DEA would push the overall amount of deductions to over 40%, the DEA deduction must be adjusted to an amount that will leave the employee with 60% of their net earnings. Therefore, in the circumstance where (even before the consideration of a DEA), because of other orders that are already in place, the employees net wage is already below 60% of their overall and initial net wage (some other orders do not apply the protected earnings consideration), you should not deduct any DEA amount calculated for that pay period This means that in some cases no DEA deduction can be taken. Net Earnings You must take the amount for the DEA directly from your employee's net earnings. (Net earnings are the amounts the employee earns after taking off income tax, National Insurance and all contributions to a pension, including Additional Voluntary Contributions, Free Standing Additional Voluntary Contributions and Stakeholder Pension Contributions). The definition of earnings for a DEA The table below lists: What counts as earnings, and What does not count as earnings Table 1 What counts as earnings Wages Salary Fees Bonuses Commission Overtime pay

10 Occupational Pensions, if paid with wages or salary Compensation payments Statutory Sick Pay Payment in Lieu of notice Most other payments on top of wages Table 2 What does not count as earnings Statutory Maternity Pay Statutory Adoption Pay Ordinary Statutory Paternity Pay Additional Statutory Paternity Pay Any pension, benefit, allowance or credit paid by DWP, a local authority or HMRC A guaranteed minimum pension under the Pensions Scheme Act 1993 (b) Amounts paid by a public department of the Government of Northern Ireland or anywhere outside the United Kingdom Sums paid to reimburse expenses wholly and necessarily incurred in the course of the employment Pay or allowances as a member of Her Majesty s forces, other than pay or allowances payable to them by you as a special member of a reserve force Statutory Redundancy Payments Only those earnings in Table 1 are to be used to calculate a DEA. If the only earnings your employee receives are those in Table 2 you cannot calculate a DEA deduction; similarly, if any of the earnings in Table 2 are paid as part of the earnings, they are not to be included as part of the employee s net earnings.

11 You must continue to calculate a DEA deduction every pay day until either: the employee leaves your employment or we tell you to stop or the total amount we have asked you to recover reaches However in this circumstance you must contact us and we will confirm that deductions can cease as other debts may have been received following our DEA notice to you. How do I calculate a DEA amount manually? 1. work out the employee s net earnings 2. depending on the frequency of their pay use table A, B or C (Appendix 1) to find the deduction percentage rate for the employee s net earnings 3. use the percentage figure against the appropriate net earnings bandwidth to calculate the DEA amount Other Orders & Priorities After calculating the DEA amount, you must consider other orders and their priorities before deducting a DEA amount from the employee s salary. The DEA can be imposed without a court order, but if your employee has any other deduction orders against them there are rules that tell you which money you should take first. If your employee has one or more of the following in place, or they are received after a DEA notice has been received, these will take priority over a DEA: England & Wales Deduction from Earnings Order (DEO) from Child Maintenance Group (CMG) Attachment of Earnings Order (AEO) for Maintenance or Fines Council Tax Attachment of Earnings Order (CTAEO)

12 Scotland Deduction of Earnings Order (DEO) from CMG Conjoined Arrestment Order (CAO) Earnings Arrestment (EA) Current Maintenance Arrestment (CMA) Student Loans A student loan is not an order but it does have priority over a DEA. This applies in both England & Wales and Scotland. Once these priority orders have been taken into account in your calculation a DEA will then take priority in relation to other orders or notices such as Housing Benefit DEAs, in date order (in Scotland this will be the date they were received). First DEA deduction (pay day) The DEA notice issued to you has effect from the next pay day which falls on or after 22 days after the date on the notice letter. Example, notice issued on 2 nd September 2013; therefore the first pay date would be on or after the 24 th September. We will ask you to make payments to us in line with your payroll, so if your employee is paid weekly or monthly, you should pay us at the same time. However if an employee is paid weekly you must still calculate and deduct the payment weekly, but you can pay us the deductions for these weeks on a monthly basis if you prefer. It is your responsibility to ensure you take the right amount from your employee s earnings each week or month and pay it to us. When you calculate the DEA deduction amount, you must:

13 ensure that your employee has enough net earnings in the pay period for you to calculate a deduction (see table A, B or C in Appendix 1) check the that the correct percentage rate has been applied against those net earnings check that the total of all deductions does not leave the employee with less than the protected earnings proportion, which is 60% of their total net earnings during the calculating period to which the deduction relates Important - Please read the following section carefully. The local authority are responsible for: o contacting you if you fail to provide the correct payment information o returning monies directly to an employee when the amount of the debt owed has been over recovered o returning monies to an employer where in the circumstances: o a payment has been made to us in error as the earnings for that pay period were under the earnings threshold and no DEA deduction should therefore have been made o a payment has been made to us in error but because other deductions were already 40% or greater of net earnings for that pay period and no DEA deduction should therefore have been made In this both cases you should: o contact us on the number provided in our letters for information on how these monies can be returned to you. Shepway District Council under no circumstances are able to; o return monies to an employer, where: o we receive a payment greater than the one which should have been sent and the earnings for that pay period are within the earnings threshold limit.

14 In this case you should o adjust deductions accordingly from the next payment o return monies to employers, where: o a payment meant for us is sent to another department In this case you should: o still make a payment to us as soon as possible o make contact with the other department in order to recover the money you incorrectly paid. Administrative costs For each pay period where a calculation results in a DEA deduction, you may take up to 1 from your employee s earnings towards administrative costs. You can take this even if it reduces the employee's income below the 60% protected earnings proportion. Please note that the administration charge of 1.00 is only applied when a deduction is actually made, and cannot be deducted for any pay period when no deduction is made. Making payments to the Local Authority On receipt of a notice to operate a DEA, and where deductions are applicable, you must: make regular payments to us until the balance of has been fully repaid or you are informed by us to stop pay the amount you take from your employee's wages to the Shepway District Council as soon as possible. Ideally this will be at the same time as you make the deduction(s) from your employee s salary.

15 Methods of payment 1. By Online Banking / ACT (Automated Credit Transfer) Shepway District Council preferred method of receiving payments by online banking /ACT. Bank details are: Sort code: Account Number: Reference: This will be the invoice number on the correspondence we send to you 2. By telephone If you telephone the office on the number shown on the notice letter, you can arrange to pay by debit card (Visa Debit, Debit MasterCard, Maestro, Solo and Visa Electron). Please have your bank, building society or card details to hand along with your letter when you ring. Please do not send cash through the post.

16 Questions & Answers How do I calculate a DEA when my employee is not paid daily, weekly or monthly? Where earnings from the employer are payable at regular intervals of a whole number of days, weeks or months, the DEA calculation is arrived at by calculating what would be his daily, weekly or monthly net earnings by dividing the net earnings payable to him by that whole number (of days, weeks or months, as the case may be), ascertaining the percentage specified in Table A (if the whole number is of weeks) or of Table B (if the whole number is of months) or Table C (if the whole number is of weeks) calculating the sum which equals the appropriate percentage of the notional net earnings for any of those weeks or months and multiplying that sum by the whole number of weeks or months, as appropriate. How do I calculate a DEA when there is an advance of Holiday Pay? Where the amount to be paid to the employee on any pay-day includes an advance in respect of future pay, the total DEA deductions shall be calculated as follows: add the earnings for the current pay period and that of the holiday pay and divide by the total number of pay periods using this figure to calculate a single period deduction

17 multiply that single deduction amount by the total number of pay periods to obtain the total DEA deduction amount How do I calculate a DEA when my employee has more than one job? If the jobs are identified as separate jobs, and they are paid separately, they are to be calculated separately, even if the employee is employed on the same primary contract. If the jobs are identified as separate jobs, and they are paid on the same day for the same period, the wages can be added together and calculated as one deduction. How do I calculate a DEA when my employee receives an additional payment? If the employee receives an additional payment, i.e. a bonus or lump sum, this is to be added on to the income for the week or month it was paid if both payments are made on the same payday. If a bonus is paid outside the tax period, the bonus will be added to the payment made on the following pay day. How do I calculate a DEA when my employee receives a regular and an irregular salary? If the employee receives regular and irregular payments and even where they are paid on the same pay date, they should be calculated separately. This may mean calculations could be based on weekly earnings for one payment and monthly earnings for the other. How do I calculate a DEA when the employee is paying back a company loan? The net earnings used for the purposes of calculating the deduction cannot be reduced by any loan unless that loan was an advance of pay.

18 What if my employee does not earn enough for me to make the deduction? If the weekly or monthly earnings are below the threshold (see Appendix 1) you cannot calculate a DEA deduction. You must continue to check if a DEA deduction is applicable each pay period until either we tell you to stop or your employee leaves your employment. I have received a letter from the Local Authority to apply a fixed rate amount but the employees earnings have changed? If you receive a further notice informing you to apply a fixed rate amount, apply that rate from the next available pay day, regardless of the amount of the earnings, and continue to apply this rate for future pay periods until DWP contact you to either apply a different rate or stop deductions altogether. What if the employee thinks the amount they owe is wrong? If your employee thinks that the amount of money they owe is wrong, you should advise them to contact us on the telephone number at the top of the letter they received about the Direct Earnings Attachment. What if the employee thinks the amount of the deduction is too much? If they think that the amount you have calculated is too much, you should first check that the amount you have calculated following the instructions in this guide is correct. If it is correct, you should explain to the employee that you have made the deduction as instructed to do so. If they feel that this is too much for them to manage, you should advise them to contact us on the telephone number at the top of the letter they received about the Direct Earnings Attachment.

19 What happens once I am operating a Direct Earnings Attachment? Once you have started operating a DEA, you must continue to make payments to us until the balance has been repaid or we tell you stop. We shall contact you to confirm when deductions are to cease. If there is a change in circumstances which means that you can no longer operate the DEA, you must notify us in writing within 10 days. I send payments to other departments at Shepway District Council (for example the Council Tax section). Can I use either of their accounts to send DEA deduction payments? No. Only use the account details provided in this guide. The departments work separately and collect the payments for different reasons. Please use the correct reference given.,

20 Appendix 1 TABLE A: DEDUCTIONS FROM WEEKLY EARNINGS AMOUNT OF NET EARNINGS (Net earnings are gross pay, less tax, National Insurance and pension contributions) Not exceeding 100 DEDUCTION (PERCENTAGE OF NET EARNINGS) Nil Exceeding 100 but not exceeding Exceeding 160 but not exceeding Exceeding 220 but not exceeding Exceeding 270 but not exceeding Exceeding 375 but not exceeding Exceeding TABLE B: DEDUCTIONS FROM MONTHLY EARNINGS AMOUNT OF NET EARNINGS (Net earnings are gross pay, less tax, National Insurance and all pension contributions) Not exceeding 430 DEDUCTION (PER CENT. OF NET EARNINGS) Nil Exceeding 430 but not exceeding Exceeding 690 but not exceeding Exceeding 950 but not exceeding 1,160 7 Exceeding 1,160 but not exceeding 1, Exceeding 1,615 but not exceeding 2, Exceeding 2, Version TABLE C: DEDUCTIONS FROM DAILY EARNINGS AMOUNT OF NET EARNINGS (Net earnings are gross pay, less tax, National Insurance and pension contributions) Not exceeding 15 DEDUCTION (PERCENTAGE OF NET EARNINGS) Nil Exceeding 15 but not exceeding 23 3

21 Exceeding 23 but not exceeding 32 5 Exceeding 32 but not exceeding 39 7 Exceeding 39 but not exceeding Exceeding 54 but not exceeding Exceeding 75 20