Turning down wage increase to maintain benefits

JimmyTheWig

Do you know, Pennywise, if you can get around all of those by putting the increase into a pension?

Spendless

This is certainly something I've heard of before and not just anecdotal. I worked with a lady who said she 'had to be careful' about payrises. She didn't work part-time either. She worked f-time as a tree surveyor for the forestry company I worked for, earning around 16-17k 4 or 5 years ago.

When she said it, I pointed out to her, she shouldn't be thinking that way as her kids were 16 and 14 at the time and her days of having top-up benefits due to children were numbered.

I admit it would be unusual for this mindset to affect a whole office, as there is usually a lot of varying circumstances. In the office I work for example, out of 5 of us, only myself and 1 other person have children.

zagfles

billbennett wrote: »

The only scenario I can think of where they would be worse off, is if pretty much every deduction under the sun was coming off...

20% income tax
12% NI
9% student loan
65% universal credit withdrawal

Meaning that for every £1 of pay rise, they'd have 6p less in their pocket.

No they wouldn't. The UC taper is on net pay after tax and NI, not gross pay, so you can't just add them.

For every extra £100, net pay after tax, NI would be £68, the UC taper applies to to the £68, so UC would be reduced by £44.20 so they'd be left with £14.80 of the £100 after decuction of tax, NI student loan & UC taper.

zagfles

JimmyTheWig wrote: »

I agree with zagfles (I often do, I find) that it is an unlikely sounding situation.

There are cases where it wouldn't be in their interest (e.g. earning between £50k and £60k with 5 or more children) to have extra money coming in, but as rogerblack says they can just pay the extra into a pension and be in the same position for now and better off when they retire.

Yes this is one of the rare scenarios where you can be worse off earning more - very large family earning between £50-60k. But yes you'd still be mad to turn down a payrise as you could just shove all the extra into a pension - pension contributions are deductible for tax, tax credits and the child ben cap.

There may be other cut-offs where this isn't an option, though I don't know. I'm thinking about things like free school meals (which also opens the door to other school related help), free prescriptions, etc.

Again possible but on a very narrow range. If you get WTC you can't get FSM regardless (in England anyway - I think Scotland has different rules), so the FSM issue is very unlikely - would have to be working too few hours for WTC and be earning just below £16190 with a potential payrise taking you just above.

The prescription/dentist issue is more likely as getting WTC doesn't disqualify you, but again it's a very narrow range - the threshold is £15276 so a payrise would need to take you from just below to just above.

Obviously if they are being asked to do more work / take on more responsibility for this extra money then I can see the point in turning it down if the only gain they'll see is when they retire in 30 years time.

Exactly. Even if any of the rare, minor cliff edges above did apply, they can be avoided by putting the extra into a pension. Anyone who turns down free extra money from their employer is an idiot, frankly.

zagfles

Pennywise wrote: »

It's not just tax, NIC and tax credits though, is it?

A slight wage rise may affect someone's right to council tax relief, free prescriptions, housing benefits, free school meals, school bus passes, etc.

HB and CTB are tapered on net pay ie after tax, NI and tax credits. So the taper rate can't be over 100%. The other minor cliff edges I've covered in my PP.

zagfles

Spendless wrote: »

This is certainly something I've heard of before and not just anecdotal. I worked with a lady who said she 'had to be careful' about payrises. She didn't work part-time either. She worked f-time as a tree surveyor for the forestry company I worked for, earning around 16-17k 4 or 5 years ago.

When she said it, I pointed out to her, she shouldn't be thinking that way as her kids were 16 and 14 at the time and her days of having top-up benefits due to children were numbered.

I admit it would be unusual for this mindset to affect a whole office, as there is usually a lot of varying circumstances. In the office I work for example, out of 5 of us, only myself and 1 other person have children.

The problem is most people don't understand how benefits and tax credits are calculated. They assume they'll be worse off because they make the same sort of mistake as above, eg add the tax credits taper (41%) to tax & NI (32%), which is right, but then they add the HB taper (65%) and possibly CTB taper (usually 20%) and it looks like they have a taper rate of 158% !! But they haven't. The HB/CTB tapers apply to net pay, so you can't just add them.

SkyeKnight

We've been in the situation where my husband's bonus from work actually cost us money! He'd got a new job with a just over £5k pay rise - but with a 0% pay rise for the next year. He got a bonus right at the end of the tax year from his boss who was trying to be nice - no time to put it in a pension.

He lost 12% NI, 20% tax and 41% tax credits that year, plus another 41% on the money the next year as his salary went down to it's normal level but was calculated based on the previous year. Total of 13% loss - we were joking saying it was lucky he hadn't been "rewarded" even more!

Obviously not the situation for a permanent pay rise, but perhaps a reason for not taking a bonus or overtime.

zagfles

SkyeKnight wrote: »

We've been in the situation where my husband's bonus from work actually cost us money! He'd got a new job with a just over £5k pay rise - but with a 0% pay rise for the next year. He got a bonus right at the end of the tax year from his boss who was trying to be nice - no time to put it in a pension.

He lost 12% NI, 20% tax and 41% tax credits that year, plus another 41% on the money the next year as his salary went down to it's normal level but was calculated based on the previous year. Total of 13% loss - we were joking saying it was lucky he hadn't been "rewarded" even more!

Obviously not the situation for a permanent pay rise, but perhaps a reason for not taking a bonus or overtime.

Yes this can happen with one off payments - but not just with a payrise. And even with one off payments it's a combination of several factors - a rise this year plus a bonus which takes you over the tax credits disregard, and a drop the following year within the disregard.

You can make gift aid contributions and "backdate" them to the previous tax year for tax purposes - so I imagine this would apply for tax credits too - so even if you're paid a unexpected bonus on 5 April and can't get in into a pension in time, gift aid could work!

PasturesNew

If I worked there I'd have dobbed them in to the Govt.... I'd see it as theft from me, as somebody who (as a single worker) wouldn't be getting any juicy benefits. Theft on two counts:
- theft from the benefits pot, paid for by "us"
- theft from my own pay packet if I were also to be denied a pay increase because they wanted to milk the system.

That'd get right up my nose and I'd be straight on the blower!

rogerblack

PasturesNew wrote: »

If I worked there I'd have dobbed them in to the Govt.... I'd see it as theft from me, as somebody who (as a single worker) wouldn't be getting any juicy benefits.

Heaven forbid someone accuse the MP in question of making the whole thing up.

AIUI there is no freedom of information act route to this information though.