Diana Bruce - April 2012
Senior Policy Liaison Officer for the Chartered Institute of Payroll Professionals
Changes to Child Maintenance DEOs
From October 2012, the Child Maintenance and Enforcement Commission is introducing a new Deduction of Earnings Order where the protected earnings are a percentage of fixed pay as opposed to a set amount under the existing system. Employers will be required to submit a different schedule of payments and there will also be a new payment method.
Background
Most of us have probably heard of the CSA (Child Support Agency) and know that they obtain child maintenance payments from some parents who live apart from their child or children. The Child Maintenance and Enforcement Commission (CMEC or the Commission as they are commonly known) is the Non-Departmental Public Body which has overall responsibility for the child maintenance system in Great Britain. Their primary objective is to maximise the number of effective child maintenance arrangements in place, whether arranged collaboratively between parents, through the courts or through the statutory schemes.
Existing schemes
There are currently two existing statutory child maintenance schemes; the 1993 and the 2003 schemes. The Commission will allow and support employers to continue to process DEOs which have been issued under the existing schemes alongside DEOs issued under the new scheme whilst following the new payment procedure. When the new scheme is introduced CSA clients on both the existing schemes will then be actively supported either to apply to the new scheme or to make a family-based arrangement. Until the 'gross income' scheme is introduced, the CSA will continue to calculate the level of maintenance payable and will collect and enforce payments.
When the new system starts, there will be a clear dividing line between the employer stopping an existing DEO and starting a new one for an individual. It will not be continuous so there should be no pay period where both old and new DEOs are paid at the same time.
It is expected that by 2015 there will only be one single system of child maintenance in place.
Definition of earnings
The current definition of 'earnings' and 'net earnings' for the purposes of a DEO is unchanged so deductions under a DEO can only be made from wages, fees, bonus, commission, overtime pay or any payments on top of wages, private or occupational pensions, compensation payments, Statutory Sick Pay, contractual (not statutory) sick pay, maternity, paternity, adoption and redundancy pay.
Protected Earnings and Normal Deduction Rates
The Protected Earnings Proportion (PEP) on new scheme DEOs will be expressed as a percentage instead of an amount and this percentage will be 60% of a non-resident parent's (NRP) net earnings. The Normal Deduction Rate (NDR) will continue to be expressed as an amount to be deducted, with equivalent values for employees paid weekly, two weekly or four weekly. The NDR will no longer be specified as an amount aligned to the actual pay frequency of the employee. The employer will have to select the amount which aligns with the employee's pay frequency and if the employee is paid other than monthly, weekly, two weekly or four weekly, the employer will need to inform the Commission so that the DEO can be discharged.
Payroll software
The new scheme is to be implemented in conjunction with the payroll software developer community, and as such various communications have already been published to ensure that software is ready and capable of managing the changes later this year. The Commission requested the appropriate changes were to be implemented in the software for financial year 2012/13, although the functionality will not be required until later in the 2012 calendar year. Some software developers only update their products annually for the start of each new tax year so it was important that the updates be in place for April 2012 as the new scheme will be in operation in October, before the start of the 2013/14 tax year. If a developer wishes to implement the changes earlier, then the CSA have confirmed that they are happy to accept the new report format.
Schedule report
Part of the Commission's liaison with payroll software developers was to request that the report formats for DEOs be standardised to enable them to upload the reports via a new employer self-service website, using both XML and CSV formats. This will automate the processing of a significant percentage of submissions which will benefit both employers and the Commission because a reduced level of contact will be required to clarify the information received. Following the introduction of this report format there are a number of key differences from the current employer DEO schedule reporting, namely; an 'Employer Reference Number', an 'Employee Child Maintenance Reference Number' and an optional 'Reason' code.
Employer Reference Number - all employers will be allocated a unique non varying 12 digit number, which will be used by the Commission to identify the specific employer. The number will be communicated to employers as part of their introduction to the new scheme and should be stated when making payments e.g. written on cheques or entered in the reference field 10 for Bank Automated Clearing System (BACS) payments. This number will be used by the Commission to allocate funds to the relevant Employer Account as part of payment processing. The number will always start with either a '50' for an employer or '51' for an agent, accountant or payroll bureau.
Employee Reference Number - the Commission will be also be introducing a unique reference number for each employee who is subject to a DEO under the new scheme. The format of this reference number will also be 12 numeric digits.
Reason Code - the law provides a number of reasons for employers not to take the full amount due in a particular period for a DEO, so where these circumstances apply the summary report should include a reason where the amount deducted from the net earnings of an employee is less than the normal deduction rate amount.
A new postal address will be introduced for those who prefer to send payment schedule reports on paper rather than electronically. Employers will need to start sending their payment schedule reports to this address when they get their first DEO under the new scheme. Notifications sent to employers will clearly indicate whether a DEO has been issued in relation to a case on the 1993, 2003 or new scheme.
For further information on the report format, a full schema and example file formats, visit www.childmaintenance.org/payrollsoftware/index.html.
Flexible implementation
The Commission requested that payroll software developers create the capability for employers to apply a Protected Earnings Rate (under the 1993 scheme) and a Protected Earnings Proportion (under the 2003 scheme) expressed as an amount, and also a Protected Earnings Proportion (for the new scheme) expressed as a percentage. Employers will have to have software which is capable of switching between applying Protected Earnings expressed as an amount and a percentage (and vice versa), both at a company (global setting) and at an individual DEO level. This is to enable the maximum flexibility for employers to implement these changes, minimising any potential period where manual processing may need to take place.
Summary payment schedules
Employers have a legal obligation to ensure that monies payable under DEOs reach the Commission by 19th of the following calendar month. In order to enable the effective processing of these monies the Commission is asking employers to provide a matching payment schedule report, which clearly displays the amount that has been paid for each employee and the dates that this relates to, displayed as Date From and Date To. To allow for the processing of the schedules to take place, the schedules are to be submitted from the 6th of each month to the following 5th of the month. The report should cover all employees with a DEO irrespective of their payroll frequency. The change to show the amount to be deducted as a monthly amount and also the equivalent weekly, two weekly and four weekly amounts will avoid employers having to send DEOs back when the frequency does not match. Only one of these amounts needs to be recorded, i.e. the amount aligned to the employee's pay frequency.
New bank account
An employer will need to make payments to a new bank account when they have received their first DEO under the new child maintenance scheme. At this point all payments under DEOs should be made to this new bank account. Until an employer has received a DEO under the new scheme all payments should continue to be made to the current CSA bank account. The Commission will ensure that DEOs made under the new scheme are very clearly identified and they will be publishing details of the new bank account later this year.
Once an employer has been issued with their first new scheme DEO, the new bank account will not accept payment via Detailed Automatic Credit Transfer (DACT) which is one of the methods previously used. Payments via Banks Automated Clearing System (BACS) and Cheque will continue to be accepted but DACT can only still be used by employers who continue to make payments to the existing bank account with no new scheme DEOs.