Paying Early at Christmas – New Guidance

A Man in a Santa Hat

It is quite common for companies to pay their staff earlier at Christmas time. This is nice for employees, but it can have a nasty side-effect on workers who receive Universal Credit payments. HMRC has issued some new guidance, aimed at preventing this problem.

So what problem is HMRC trying to solve? Well, Universal Credit is built on the assumption that someone’s earnings should fall neatly into a series of one month periods, called ‘assessment periods’. Different people have different assessment periods and they don’t always line up with the date their wages are paid. Most people, who are paid monthly, will find that one pay date falls into each assessment period and everything works out fairly well. But when it goes wrong, an assessment can include two pay dates or no pay dates at all. Both of these anomalies cause the person’s Universal Credit payments to change unexpectedly. As a result, the worker may be permanently deprived of hundreds of pounds of Universal Credit that they were expecting.

There are many circumstances which can trigger timing problems with Universal Credit. One example is if an employer, who pays monthly, moves the December pay date to before Christmas. This causes problems for some employees, for example, those with an assessment period ending on 24th December, as this would contain two pay dates. As a result, the DWP would count it as double their actual salary and this would significantly reduce their next Universal Credit payment, due around New Year’s Eve. Their next assessment period would then contain no pay dates, so the Universal Credit payment, due around the end of January, would also be adjusted. Depending on the employee’s situation, this may be higher than usual, but it wouldn’t necessarily cancel out what was lost in the previous month. This second payment could also be lower than usual, due to the benefit cap rules.

HMRC has issued some new guidance on page 4 of the October Employer Bulletin. This new part of the guidance states the following:

“If you do pay early over the Christmas period, please report your normal (or contractual) payday as the payment date on your Full Payment Submission (FPS) and ensure that the FPS is submitted on or before this date.

“For example: if you pay on Friday 20 December 2019 but the normal/contractual payment date is Tuesday 31 December 2019, please report the payment date on the FPS as 31 December and ensure the submission is sent on or before 31 December.

“Doing this will help to protect your employees’ eligibility for Universal Credit, as reporting the payday as the payment date may affect current and future entitlements.”

The guidance may need some further clarification in the case where the employment contract specifies the earlier December pay day.

When the DWP’s Universal Credit calculations cause problems, the department has a choice of changing its calculations, or asking HMRC to provide data that better fits its assumptions. The latter appears to have happened with Christmas payments, as HMRC has asked employers to report a payment date that was convenient to the DWP, rather than the date that the actual payment occurred. If you are an employer, I suggest you follow this guidance carefully to prevent unnecessary hardship for employees.

Steven Tucker

By Steven Tucker - Co-founder

Steven is one of the founders of The Payroll Site. He writes about things affecting small businesses, especially those things connected with payroll. He's also a Maths graduate and a Chartered IT Professional and has a few views about technology, maths and the misuse of both.