Assessment of earned income for employees
The rules on assessment of earned income under universal credit are set out in the Universal Credit Regulations 2013 (SI.No.376/2013).
NB: See below for equivalent legislation in Northern Ireland.
Work allowances |
Regulation 22 of SI.No.376/2013 |
Provides the rules and rates of work allowances and for a percentage of earned income in excess of any applicable allowance to be deducted from the maximum universal credit award. |
|---|---|---|
Definitions |
Regulations 52 and 53 of SI.No.376/2013 |
Define earned income and other terms relating to earned income. |
Calculation of earned income |
Regulation 54 of SI.No.376/2013 |
Sets out how earned income in an assessment period should be calculated. |
Surplus earnings |
Regulation 54A of SI.No.376/2013 as amended by SI.No.345/2015 |
Provides for the carrying forward of earnings above a set threshold where those earnings have led to an award of universal credit ending. NB - regulation 5 of SI.No.345/2015 amends the threshold for surplus earnings from £300 to £2,500 for a ‘temporary de minimis period’ which can be extended by the Secretary of State by way of a determination - the most recent determination was made on 22 February 2024 extending the £2,500 threshold to 31 March 2025 and is published in the Guidance to the Welfare Reform Act 2012 Regulations. |
What counts as employed earnings |
Regulation 55 of SI.No.376/2013 |
Sets out the benefits that count as earnings (such as statutory sick pay and statutory maternity pay) and for deductions to be made from earnings for payments including tax and Class 1 national insurance contributions. |
Assumed earnings where an employee is on strike |
Regulation 56 of SI.No.376/2013 |
Sets out provisions regarding assumed earnings for an employee who is involved in a trade dispute. |
Notional earnings |
Regulation 60 of SI.No.376/2013 |
Provides for notional earnings to be taken into account where a claimant has deprived themselves of income for the purposes of securing or increasing entitlement to universal credit. |
Real time information from HMRC |
Regulation 61 of SI.No.376/2013 |
Provides for information on earnings to be provided by HMRC through real time information and sets out the circumstances in which other sources of information should be used. Amended by SI.No.1138/2020 to provide for reallocating a calendar monthly payment of earnings to a different universal credit assessment period where it is necessary to maintain a regular payment cycle. |
In Northern Ireland, SR.No.216/2016 makes provisions that are largely equivalent to that in Great Britain and SR.No.226/2020 makes provisions largely equivalent to SI.No.1138/2020.
Further explanation of the legislation is set out in guidance. Please note, however, guidance is not binding and cannot override the legislation.
Advice for decision making |
Provides guidance on earned income and employed earnings. |
|
|---|---|---|
DWP guidance on gov.uk |
Provides examples of how different payment cycles can affect universal credit payments. |
|
DWP guidance from parliament.uk |
Surplus, fluctuating and irregular earnings plus payment cycles |
Sets out guidance on surplus earnings (including where a claimant separates from their partner), fluctuating earnings, irregular earnings, late, missing and incorrect payments, earnings that are not paid monthly or paid on a different date than normal, and decreased earnings. |
DWP guidance from parliament.uk |
Sets out guidance on self-reported earnings, earnings reported late or not received, and earnings from a suspended award. |
|
DWP guidance from parliament.uk |
Sets out guidance on earned income, employed earnings, benefits treated as earnings, income treated as earnings, and income not treated as earnings |
|
DWP guidance from parliament.uk |
Sets out guidance on calculating earning, work allowances and the taper rate. |
Case law provides further interpretation of the legislation and establishes legal precedent.
Upper Tribunal |
Universal credit earned income assessment rules are not irrational or unlawful in the case of a claimant who is paid on a fortnightly basis |
|
|---|---|---|
Upper Tribunal |
Legal effect of Court of Appeal’s declaration in Johnson that universal credit earnings assessment rules were irrational and unlawful can apply to periods before the Court’s decision |
|
Upper Tribunal |
Tax refund received through PAYE counts as earned income for universal credit / claimant is ‘in paid work’ where contract of employment continues through unpaid sick leave |
|
NI Commissioners |
Earnings received in an assessment period are to be taken into account when assessing universal credit for that period even where they relate to an earlier period and were paid late |
|
High Court |
High Court of Northern Ireland rules that treatment of maternity allowance as unearned income for the purposes of universal credit is not unlawful |
|
Court of Appeal |
Court of Appeal rules that universal credit benefit cap earnings assessment is not irrational and unlawful in the case of a four-weekly paid claimant. |
|
Court of Appeal |
Court of Appeal refuses permission to appeal against High Court decision that treatment of maternity allowance as unearned income for the purposes of universal credit is not unlawful |
|
Upper Tribunal |
Consideration of the treatment of late paid earnings when real time information relating to them is reported on time / the return of a deposit paid by employee on their uniform is not classed as earnings. |
|
NI Commissioners |
Northern Ireland Social Security Commissioner rules that a tribunal was correct to treat pay in lieu of notice as employed earnings for universal credit purposes rather than as a termination of employment payment that could be excluded from the calculation of earnings |
|
High Court |
High Court rules that treatment of maternity allowance as unearned income for the purposes of universal credit is not unlawful |
|
High Court |
High Court rules that the assessment of earnings under universal credit benefit cap rules is irrational and unlawful because it subjected a working mother to the cap solely because she was paid on a four-weekly basis rather than calendar monthly. |
|
Court of Appeal |
Court of Appeal rules that the Secretary of State for Work and Pensions acted irrationally and unlawfully by failing to adapt earned income assessment rules to account for their impact on certain monthly paid claimants. |
|
High Court |
High Court rules that DWP’s method of assessing earned income under universal credit is unlawful. |
|
Upper Tribunal |
Secretary of State concedes that where an employer fails to notify earnings on time, a universal credit award may be adjusted to make appropriate amendments. |
|
Upper Tribunal |
Wages received during an assessment period count as income for universal credit even if the job has ended. |