Universal credit and employee pay
Tax credits and benefits
If you are employed and you claim universal credit (UC) you should be aware of how pay information is used for UC purposes and how this may affect the payments you receive.
How does UC take into account employee pay?
UC is a monthly payment and the amount of UC you are entitled to is based on your personal circumstances and also your 'net pay' in an assessment period. Your assessment period generally begins on the day you make the claim and ends one calendar month later. The next assessment period begins on the following day. For example, if Sarah made a claim on 25 May then her first assessment period runs from 25 May to 24 June, then 25 June to 24 July, and so on.
For most employees 'net pay' is the same as 'take home' pay (so pay after deductions for tax and national insurance, and pension contributions if they are due).
The Department for Work and Pensions (DWP) pay UC and they obtain details from HM Revenue and Customs (HMRC) of your net pay in an assessment period where possible. The information is taken from the ‘RTI’ (Real Time Information) return that your employer must submit to HMRC each time you are paid. This contains relevant details about your earnings so that your net pay can be calculated.
If your employer is not a ‘Real Time Information Employer’ – which means they are not required to send information about your wages to HMRC, then DWP will require you to provide information about your wages to them directly. This will usually be via your UC online account or by phoning the UC helpline.
How does DWP allocate wages into assessment periods for UC?
If your employer sends information about your wages to HMRC, then the general rule is that DWP use the date they receive the wages information from HMRC to determine which assessment period the wages fall into. In practice, this is likely to be determined by a combination of the date and time your employer submits the RTI information to HMRC and the date they enter in the payment date box on their RTI submission. If no information is received from HMRC in any assessment period, the amount of employed earnings is treated as nil.
DWP will usually receive the details of the net pay from HMRC on the actual date of payment provided the employer sends the RTI submission to HMRC before 9pm on that day and enters the actual date of payment in the payment date box (box 43) in the RTI submission. DWP will then use that information to calculate the award for the assessment period.
For example, if Sarah’s contractual pay day is 16th of the month and her assessment period is from 25 May to 24 June, when she is paid on 16 June, provided her employer sends their RTI submission showing the payment date as the 16 June to HMRC before 9pm that day, DWP will receive her pay information on 16 June and use that when they calculate her UC for her May/June assessment period.
Adjustments can sometimes be made to the net pay figure reported by your employer to arrive at the ‘employed earnings’ figure required for UC purposes. This is explained in more detail on our sister website for advisers Revenuebenefits.
If you are paid weekly, then you should be aware that some assessment periods are likely to have 4 weeks net pay in them and some will have 5 weeks net pay in them. This means that your monthly UC payment will vary from time to time according to whether there are 4 or 5 wage payments in the assessment period. You may need to take care to budget for these peaks and troughs in the payment cycle, so you know what to expect each time your UC is due. The same thing may happen if you are paid fortnightly, in some assessment periods you will have 3 payments taken into account. Similarly, if you are paid 4-weekly, there will occasionally be an assessment period into which 2 wage payments fall.
There is further information about this on GOV.UK which can help you understand when you might see changes to your UC award as a result of your pay frequency.
If you are paid monthly, then one month’s net pay should fall into each assessment period, and your UC payments should not vary significantly from month to month if your net pay remains broadly the same. However, there are some situations where this might not be the case which are explained below.
In certain situations, DWP do not use the RTI information reported by your employer Broadly, this can happen where:
- DWP think that your employer is unlikely to report accurate or timely information to HMRC
- DWP think that the payment reported to HMRC is incorrect, or doesn’t include the information needed for UC purposes
- DWP don’t receive any information about your wages in an assessment period and they think that is because of a failure to report information (for example failure of a computer system run by HMRC or your employer)
In these cases, DWP must decide the amount of earnings to take into account in your assessment period. They can ask you for information or evidence to help them decide. We explain more detail about these three exceptions on our website for advisers Revenuebenefits.
There are also rules that allow DWP to re-allocate payments reported from HMRC to a different assessment period. We explain more about this below.
What if I am paid on a different day to my usual pay day – how does that affect my UC?
Sometimes there might be unavoidable variations to your pay date, for example, you work for a small company and there is no-one to process the payroll on time due to sickness (in which case you may get paid late), if your payroll department decides to process the workforce pay earlier than usual just in case they have to be away from work on the normal pay day, or maybe your employer has had to furlough payroll staff and so the processing of wages has become more irregular.
Suppose Sarah has an assessment period of 25th of one month to 24th of the next and is monthly paid, usually on 28th of the month. She received her usual net pay on her normal payday of 28 April but then her employer had to temporarily close the business in May as work completely dried up. Because of the business closure, the May wages were paid on 15 May, the last day of normal working. Therefore, Sarah received two wage payments (on 25 April and 15 May) in the same assessment period (25 April to 24 May) instead of the usual one month’s pay.
These ‘double payments’ often do not come to light until a UC award has been substantially reduced as a consequence of two wage payments falling into one assessment period, and so are not so easy to plan for.
They can also happen where an employer pays early because the usual pay date falls on a weekend or bank holiday, or where there may be an extended break such as Christmas or Easter.
There is guidance from HMRC for employers who need to pay either early or late which advises the employer to enter the normal contractual pay day in their RTI submission to HMRC, irrespective of whether that was actually the date they paid the wages. If employers follow this guidance, then this should ensure that two sets of wages do not fall into the same assessment period when wages are paid early. Unfortunately, this guidance does not seem to be very well known among many employers and so often the actual date the wages are paid is often used by the employer in their RTI submission, potentially giving rise to the ‘two wages in one assessment period’ issue.
In Sarah’s case, if her employer followed the HMRC guidance then their May RTI submission would show a normal payday date of 28 May even though it was actually paid to Sarah on 15 May. DWP would then allocate it to the assessment period based on the date of 28 May and so it will go into the next assessment period, 25 May to 24 June, and so not disturb Sarah’s regular UC payments.
However, the HMRC guidance does not resolve the problem if wages are paid late, unless the RTI submission is made before the normal payday by the employer. So, this means that unfortunately, if an employer pays late AND doesn’t file the RTI submission until the wages are paid, the allocation of two wage payments to one assessment period cannot initially be avoided, even if HMRC’s guidance is followed. However, see below for information about how to ask for payments to be re-allocated.
Therefore, if you receive pay earlier or later than your normal pay date and it is near to the end of your UC assessment period you need to be aware that this might impact on your next UC payment. If this does happen, it is worth bearing in mind that although it looks to DWP that you have had two sets of pay in one assessment period, it may well also be the case that it will look as though you have had none in the next assessment period (if you are paid on your normal contractual pay day in the following month) and you should then get a higher UC award as no pay will be taken into account in that assessment period. Depending on your circumstances, you may be better or worse off overall where this happens.
How can I challenge a decision to include two (or more) wage payments in one assessment period?
If two (or more) wage payments have been taken into account in one assessment period, what you can do about it depends on the reason why it has happened. We give a brief summary of the different situations on this page, but the rules are complex and our website for advisers Revenuebenefits has more detail about the rules and how to challenge DWP decisions.
Some people will always have uneven UC payments because of their pay frequency. If you are paid weekly, fortnightly or four-weekly, you may see fluctuations to your UC award. For example, if you are paid four-weekly, there will be one assessment period each year where two payments of earnings will be taken into account. You will need to try and budget for this potential change. The GOV.UK website has some information which explains when this might happen.
Your employer has reported your pay information late to HMRC
If your employer reports your pay information late to HMRC, it will be passed over to DWP late and may mean it is taken into account in a later assessment period than the one you actually received it in. Where this happens, you can contact DWP to ask them to re-allocate the payment to the assessment period in which you actually received it. You should contact DWP via your online UC account or by phoning the UC helpline as soon as you realise there is an issue.
Your earnings have been reported in the wrong assessment period
If DWP think that your earnings have been reported in the wrong assessment period for any reason then they can re-allocate the payment to the assessment period in which you actually received it. Where this happens, you can contact DWP to ask them to re-allocate the payment to the assessment period in which you actually received it. You should contact DWP via your online UC account or by phoning the UC helpline as soon as you realise there is an issue.
You are paid monthly and more than one payment is taken into account in one assessment period
If you are paid monthly, and your employer pays you early because your usual pay day falls on a weekend, bank holiday or at Christmas this may cause two pays to be taken into account in one assessment period and possibly none in the following period. Where this happens, you can contact DWP to ask them to re-allocate one of the payments to a different assessment period. You should contact DWP via your online UC account or by phoning the UC helpline as soon as you realise there is an issue.
Jason has an assessment period that runs from 28 of one month to the 27 of the following month. Jason’s employer pays him on the 28 of each month. However, in August, the 28th falls on a bank holiday and so his employer pays him on the 26 August instead. The employer reports the 26th as the payment date on their submission to HMRC. This means that in his assessment period from 28 July to 27 August, Jason will have his payment from the 28 July taken into account plus his payment from 26 August taken into account. In his next assessment period, from 28th August to 27th September, Jason will have no wages taken into account.
Jason can ask DWP to treat the payment received on 26th August to be treated as earnings in the next assessment period from 28 August to 28 September.
This re-allocation does not happen automatically, you must ask DWP to re-allocate the payments. You may want to speak to a welfare rights adviser to help you understand if it is beneficial for you to ask for re-allocation of payments over the longer term.
Can I change my assessment period?
We are often asked if UC claimants can change their assessment period to avoid the problem of two pays in one assessment period. The answer is no, once your assessment period is set it cannot be changed.
I have been paid on time but my UC award still seems to be wrong – why could that be?
If you are paid on time (for example your usual pay date is the 28th of each month and you receive your wages on the 28th) but still think the wrong amount of earnings has been taken into account in an assessment period, this is likely to be because either
a) the employer sent in their RTI return late (or after 9pm on that date) or
b) there is a discrepancy between the figures reported and what was actually paid.
In the first instance, you should contact the UC Service Centre either online or on 0800 328 5644 to dispute your UC calculation. This should then establish whether your situation falls under (a) or (b) above.
If your situation falls under (a) above, then the universal credit regulations allow you to ask for the payment to be re-allocated to a different assessment period. We explain how to do that above.
If your situation falls under (b) above, if you can provide proof of when/what you were actually paid, e.g. payslips or bank statements, you must let DWP know. If necessary, you should ask for your case to be escalated. This should hopefully result in someone from DWP or HMRC looking in detail at your situation and your RTI pay and tax records and potentially contacting the employer to clarify issues on the earnings reported, if necessary.
Our understanding is that this escalation route is outside the formal appeal process so you may want to ask for a formal decision to be issued with appeal rights and request a Mandatory Reconsideration at the same time to ensure you are within the relevant time limits to challenge the UC decision officially. If you are not satisfied with the outcome, of the Mandatory Reconsideration, you can then an appeal to an independent Tribunal. You may need to speak to a welfare rights adviser, such as Citizens Advice, for help with this.