Direct Earnings Attachments are the most common type of court order that employers will have to deal with through the payroll. But they can still trip you up – what do you need to know?
What is a DEA?
The Department for Work & Pensions (DWP) and local authorities both have legislative permission via the Welfare Reform Act 2012 and the Social Security (Overpayments and Recovery) Regulations 2013 (Part 6) to issue Direct Earnings Attachments (DEAs) for employees in England, Scotland and Wales in respect of overpayments of state benefits. DEAs are not issued for employees based in Northern Ireland. A DEA will be issued if an employee is no longer in receipt of a state benefit that can be reduced to meet an overpayment and has not voluntarily agreed with the DWP to repay the amount due. The legislation allows DEAs to be issued to employers without going through the courts. The majority of state benefits are administered by the DWP, but local authorities administer housing benefit which is why they are able to enforce recovery of it through a DEA.
Pro advice. It’s important to understand that the two types of order are distinct, as payments for local authority DEAs must be made direct to the issuing authority, not to the DWP. You are not responsible for handling queries from employees about the amount that is outstanding, nor the recovery provisions. These are matters between the individual and the DWP/local authority.
Pro advice. If you have any queries contact the DEA helpline on 0800 916 0614.
How are employers told?
Employers are issued with a DEA 2 notice that informs them:
- to deduct either an amount from net earnings referencing a table of values, or a fixed amount
- to make payments of the deductions by the 19th of the month following the month of the deduction
- that they must include the employee’s NI number on all correspondence, as this acts as the debtor’s account ID
- that they must keep records of the employees from whom deductions have been made and the amount of each deduction
- that they must tell the DWP within ten days of receiving the notice if the individual named on the notice does not work for them
- that they must tell the DWP within ten days of the date of leaving of an employee for whom a DEA is in payment.
Trap. Failure to comply with a DEA can mean a fine of up to £1,000 for the employer.
Pro advice. You cannot ask the DWP to direct a DEA 2 to your payroll agent; it is your responsibility to make sure it is forwarded on promptly.
Higher and standard rate DEAs
There are two deduction percentages for DEAs that are applied to net earnings: standard rate or higher rate and you will be informed which applies. Local authorities are only able to issue standard rate DEAs. The rate can vary between standard and higher during the life of the DEA and you will be informed by the DWP if you need to switch percentages.
Setting up the DEA
The DEA must be in place on the first payday on or after 22 days following the date on the order. For example, a DEA 2 is issued on 2 September 2021. The employer must implement the DEA for the first payday on or after 24 September 2021, so if the employee is monthly paid on the last working day of the month, the first deduction will be taken from the salary paid on 30 September 2021. The employer may deduct £1 from the employee’s earnings towards their administrative costs for operating the order, this is regardless of the employee’s pay frequency, so a weekly paid employee will pay significantly more in admin fees than a monthly paid employee.
Pro advice. You are prohibited from deducting the £1 administration fee if that would reduce the employee’s pay for national minimum wage purposes below the appropriate rate for their age. Conversely, the £1 administration fee can reduce the employee’s pay below the protected earnings limit specified on the order.
The DEA deduction must be shown on the employee’s payslip. Ideally you should inform an employee before the first deduction is made that you have received a DEA.
What earnings can be considered?
The vast majority of pay elements count as “net earnings” that can be used to meet a DEA after the deduction of tax, NI and pension contributions. This would include (but this is not an exhaustive list):
- wages/salary/fees
- bonuses
- commission
- overtime
- occupational pensions, if paid alongside wages or salary
- compensation payments
- statutory sick pay (but not other statutory payments that are government funded, such as statutory maternity pay)
- payment in lieu of notice (but not statutory redundancy pay).
Protected earnings. Before the deduction is made you must consider the “protected earnings amount” which is 60% of an employee’s net earnings. This is the amount that the legislation requires that the employee retains to meet their household expenses before repayment of the DEA.
Pro advice. The employee must be left with 60% of net earnings after all court order deductions. So, if the DEA would reduce earnings below that, then the deduction is limited to an amount that ensures the 60% rule is not breached, regardless of whether this is a percentage-based DEA or a fixed amount.
Pro advice. If no deduction can be made because of the 60% rule, the DWP/local authority must be informed of the reason for no deduction and net earnings must be assessed each pay period to see if any deduction can be taken in the future.
Pro advice. Your payroll software knows the priority order to apply in respect to DEAs and other live court orders or student loan deductions for the same employee.
The rounding rules
Where a percentage rate deduction DEA results in a fraction of a penny, rounding rules apply. Deductions are calculated to three decimal places:
- if the third decimal place is five or lower the deduction is rounded down to the nearest penny. For example, a deduction of £10.045 would be rounded down to £10.04
- if the third decimal place is six or higher the deduction is rounded up to the nearest penny. For example, £170.278 would be rounded up to £170.28.
Making payments
If you only have one payment to make to an employee you can simply do a Bacs transfer using the sort code and account details quoted in the DEA 2 . Make sure you quote the employee’s NI number in the reference field. You can also make a payment by credit card by calling the DEA helpline number. If you have multiple employees with DWP DEAs you can make one consolidated payment, but then you must send a payment schedule to: Freepost DWP DEA DM. The payment schedule must contain the following information:
- the full name for each employee the payment relates to
- the NI number for each employee the payment relates to
- the amount attributable for each employee and the reason for any zero deduction
- the total payment amount (this should agree to the payment you made by Bacs)
- an employer contact name and telephone number.
When to stop deductions?
Deductions must continue until:
- the DWP advises you to stop; this could be by telephone but will be followed up in writing
- the employee leaves employment
- the date of the employee’s death and in respect of any salary payments made after this date
- the amount notified in the order as outstanding has been fully paid.
You’ll be issued with a DEA 2 notice informing you of the amount to deduct. If you only have one payment to make you can simply do a Bacs transfer using the sort code and account details quoted. DEA 2s must be actioned within 22 days of receipt or you risk a £1,000 fine.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.