Direct Earnings Attachments – what do they mean for SME’s?

As an employer, you can be asked to deduct money from an employees pay, if they have been overpaid benefits by the Department for Work and Pensions (DWP). This is called a Direct Earnings Attachment (DEA).

The first you’ll be aware of this is if you are contacted by the DWP Debt Management team (from the Department for Work and Pensions) who ask you to make deductions directly from your employee’s earnings by operating a Director Earnings Attachment (DEA). DWP Debt Management have been allowed by law to do this since March 2012, in England, Scotland and Wales, and they do not need to go through the Civil Courts to do this.

Local Authorities can also recover monies by issuing a Direct Earnings Attachment under the legislation, for example to recover Housing Benefit overpayments.

A DEA is ordered is the DWP is unable to recover money from individuals who are not in receipt of a benefit and who have not voluntarily agreed to repay the debt. Therefore the money will be recovered by deducting money from a debtor’s pay. (There are other deduction orders that we won’t cover here, such as a Deduction from Earnings Order, and Council tax Attachment of Earnings Order – all can be received for the same employee at the same time as a DEA. Generally a Deduction of Earnings Order from the Child Maintenance Group (CMG) will take priority over a DEA).

How do you receive a DEA for an employee?

DWP Debt Management will send you a formal notice for each affected employee asking you to implement a DEA. This notice will have basic instructions on how to do this and will include the employee’s National Insurance Number which you need to quote on any correspondence or payments you make.

What legal responsibilities does the employer have?

• To calculate a deduction based on the net earnings* for each pay date.
• Apply a fixed amount calculated by DWP if you are asked to do so.
• Employees must be left with at least 60% of their net wage (called Protected Earnings) so if the DEA deduction (along with any other deduction order) would take them below this amount you must adjust the amount of the order so they are left with 60% of their net earnings, which may mean you cannot deduct any DEA amount for that pay period. If that is the case you need to check if a deduction applies for the next and every subsequent pay period and also contact the DWP to inform them of this.
• Pay the amounts deducted to the DWP by the 19th day of the month following the month in which the deduction is made (.e.g if an Employer deducts money from an employee on 30th September they must send it to the DWP Debt Management by 19th October). Payment can be made by BACS, cheque or card.</
• Keep a record of each employee for who a DEA deduction has been made (with the amount of each deduction).
• To calculate a DEA deduction every pay day until the DWP tell you to stop; the employee leaves; the employee dies or the amount to recover is no longer outstanding or the amount to recover changes and you are advised by the DWP of this.
• * Net earnings means after the deduction of Income Tax, Class 1 NIC and any Pension contributions. Earnings means wages, salary, fees, bonuses, commission, overtime pay, SSP, payment in lieu of notice. Statutory Maternity/Adoption/Paternity/Shared Parental Pay and Statutory Redundancy payments do not count as earnings; neither do pensions, benefits or allowances paid by the DWP, local authority or HMRC; or sums paid to reimburse expenses incurred during employment.

Employers must also:

• Notify the DWP within 10 days of the date of the DEA notice if the employee does not work for you or the date from which they cease to work for you
• Notify the employee in writing of the amount of the deduction taken including any amount taken for your administration costs, and how the deduction amount was calculated (this can be done on their payslip although the employee should know that deductions will be made well in advance of the first deduction).
• Employers can deduct up to £1.00 from their employee’s earnings towards their administration costs every pay period in which a DEA deduction is made.
• If an employee believes the amount of money they owe is wrong Employers should ask them to contract DWP Debt Management by the telephone number that is at the top of the letter they received about the Direct Earnings Attachment.
• If an employee believe the amount of money an Employer has calculated is too much then Employers must first check their calculation. If it is correct they must explain this to the employee.

Micro businesses that existed before 8th April 2013 are exempt from doing this until they employ 10 or more people for the majority of a 6 month period. As soon as you have over 10 employees, for a majority of a 6 month period, the exemption ends 6 months from the date that you first had 10 or more employees.

What responsibilities to DWP Debt Management have?

• To contact the employer if they fail to make the payment in time.
• Refund monies directly to the employee where the debt has been reduced to zero or directly to the employer where no DEA payment should have been made. They will not return monies to an Employer where the DEA Payment was applicable but was calculated at the incorrect rate.

More detailed Guidance from the DWP (with examples) is provided here -and they have a Employer helpline which is 0345 600 0685.

In July 2019 Council Tax Attachment of Earnings Order were introduced on a trial basis with 29 Council areas in England and Wales – you can read more details here.