Hi

I have a client who is currently working 17.5 hours a week and who is earning £178 a week before tax. He is claiming Working Tax Credit of £78.00 a week, he is able to claim this benefit because he is receiving DLA.

The employer of the client has said that they want to cut his hours by thirty per cent to 12.25 hours a week. This will mean that he will lose his Working Tax Credit because he will be working less than 16 hours a week. He will not be eligible for Council Tax Benefit or Housing Benefit because he lives with his parents.

Could the client arrange with his employer to take a wage cut but not reduce the hours. Would this cause any problems? Is this legal?

Thanks

Don't know about legality with regards to Tax Credits, but there are so many other things wrong with this - his employer can't cut his hours without the client agreeing to it - it would effectively be changing his contract of employment and both sides have to agree to that. And as to offering to take a pay cut - the trade unionist in me is shouting no! That would have so many implications for his work in the future and for any colleagues doing the same job.

Is he in the union? If not, tell him to join!

On the legality issue alone, I can’t see any reason why it would be unlawful for the parties jointly to terminate the contract and enter into a new one but any contract must comply to the unfair terms in contracts regs and parties can’t contract out of or override a party’s statutory rights, i.e. the minimum wage regs.

However, the move might fall foul of reg 15 of the Tax Credits (Definition and Calculation of Income) Regs 2002 (notional income following deprivation) if the result led to an increase in his tax credit.

Thanks for your help Nevip

The client will be earning above the minimum wage even with the proposed cut.

Would the deprivation legislation be a problem as his total wage packet is going to be cut anyway? It is just a question of whether his hourly rate is cut or his hours.

Thanks for your help ali l. The client has few employment rights, as he has only worked for his employer for about ten months.

ali l

The client is not a member of a trade union. The workplace is not unionised. I am aware though that trade unions do have some rights in non-unionised workplaces.

I'm not too hot on tax credits rules, but on a benefits basis this would look a lot like some sort of avoidance.
But if the only way the employer can afford to keep him on is to cut his wages, and this is an alternative...? I don't know. Does the employer actually need him for 16 hours? Do disability discrimination issues apply here (you say he is on DLA and he's only doing 16 hours), in which case the fact that he has only been there 10 months is irrelevant. Are there any other employees having their hours cut?

Oh, what a can of worms.

Wed 06-Aug-08 04:24 PM by iut044

Thanks for you help ariadne2

The client works for a charity who has had its funding cut. The employer certainly needs the client for 16 hours a week, the organisation has a long waiting list. The client does not feel there are any disability discrimination issues. All the employees are having there hours cut by the same percentage

Thanks

So whatever happens, his wages are going to be reduced. Yes, in theory he would have to agree to the reduction but in practice as he has worked there only 10 months and feels disability issues don't come into it, there would seem to be little he could do if his refusal to agree resulted in dismissal.

So there is a choice - reduce to 12.5 hrs & lose WTC or cut the hourly rate and keep WTC. If he does the latter I don't think (but others will correct me if I'm wrong) that he actually needs to tell TCO anything at this stage. When he gets the next annual renewal he has to report his wages for 08-09 (which would be less than previously notified) & the fact that his hours have reduced to 16. Is there any reason why TCO should query this or investigate it? - such changes must go on all the time for a variety of reasons.

The trouble with this argument is, of course, that TCO don't live on the same planet as the rest of us, so I suppose we can't attempt to second guess what they may or may not do. However, if - as indicated - the employer could demonstrate the reasons for the change and that similar reductions applied to other workers, it should be obvious that it was not being done in order to get more benefit. It might even be the case that other workers at the charity might be affected in the same way as far as their TC entitlement is concerned.

Thanks for your help Derek

You say that such changes must happen all the time. I thought wage CUTS were extremey unusual although pay freezes were fairly common. No other workers are going to have their wage rates cut although they are going to have their hours cut. No other workers at the charity are claiming Working Tax Credits.

What I meant was that people's work situation changes - e.g. they may voluntarily reduce their hours and therefore their gross pay; they may move to another job in the same firm with lower pay &/or less hours. Sorry this wasn't clear.

I'm not aware that TCO look at hourly pay rates (although it would be logical if their computer calculated whether the pay declared for the hours declared would mean pay below the statutory minimum rate) - but, as with many things to do with TCs, there seems no way of being certain about it.

However, I do find it difficult to see why they should query a reduction in gross pay which arises from a cut in the hourly rate - even if they do realise that it is due to a cut. After all they are not aware of the circumstances & it could be due to a change in job responsibilities.

Thanks again for your help Derek

There would be no change in Job Title in this situation. Would they infer from the job title being the same that the duties had not changed?

Difficult to say - I suppose it depends how closely they look into it (if they do at all - after all, they have millions(?) of renewals to process).

I do know from a recent case that if the renewal is done by sending in the form it gets scanned in & there is something (don't know what) in the computer program that can result in some renewals being logged as not completely processed and going on to a work list for some clerical action. I was told that if the renewal is done over the phone the helpline operative can normally resolve any queries during the call but there again, I suspect that whether the operative raises a query will depend on what the computer is telling him/her to do.

You could try ringing the intermediaries helpline and putting the problem to them on an anonymous basis (i.e. not identifying the client) to see what they say.

it seems that your client cannot afford to work for less than 16 hours a week. his employer needs to cut its wage bill and i gather is proposing to cut employees hours by a third, no doubt trying to make the best of a bad situation as fairly as possible.
the proposed solution for your client is that instead he takes a pay cut, by working the same hours for less money. if this took his hourly rate below minimum wage his employer would be breaching mimimum wage legislation, but in this case, that does not apply.

none of the other employees claim working tax credit, and presumably some of them are full time not part time. i doubt that he would fall foul of tax credits regs by agreeing a pay cut, providing the proposal came from his employer not himself - subsidising employers does not seem to be a major concern of the tax credit scheme or government, and it is the trade unions and workers themselves to whom this is mainly a concern. your client presumably wishes to continue in his job for reasons of his own circumstances, but it is most concerning to see wages driven down in this way, particularly when it involves a question of the extent to which your client's vulnerability as a disabled worker is significant. the proposed 'solution' will see his rate of pay cut from £10.17 an hour to £7.11 an hour. it's an enormous pay cut.

i cannot think of one social policy affecting your client's circumstances where this is a stated intended outcome, but we see he is bearing the brunt.

if the proposal comes from your client, imo reg 15 (deprivation) would clearly apply to him, and he should not be advised to do it, (voluntarily negotiate a pay cut in order to qualify for WTC) even though there is every chance HMRC might not pick up on it.

he might benefit from employment law advice.

Fri 08-Aug-08 05:22 PM by iut044

Thanks for your help JJ.

This is the clients proposal. Initially the employer just announced that the hours were being cut by 30% not realising that it would impact to this extent on the clients Working Tax Credits. It was the client who suggested the cut to the hourly rate. The employer then said they would be willing to go along with the plan if it was legal.

presumably the employer is still consulting on their proposals and there is room for a re-think and further negotiation? your client's plan would place him at financial risk, and is unadvisable.

his basic problem remains that the cut in hours makes the job unviable in his circumstances. he only has 1.5 hours to play around with, otherwise he faces the pay cut, and loss of WTC. his employer might have more flexibility over the other 3.75 hours, and some incentive to retain a valuable worker they might otherwise lose.

i hope that things can be resolved satisfactorily for your client...

Thanks for everybodys help

A colleague of my client has left her job, so the employer has agreed to only reduce the hours of my client to 16 and to not cut his wage rate.

Good outcome - sometimes the sun does shine on the righteous..