Changes to Deduction from Earnings Order calculation and reportsFriday, July 15th, 2011
The new “Child Maintenance Service”, starting in 2012, will require changes to employers’ reporting of DEOs and a change to the DEO calculation.
The Child Maintenance and Enforcement Commission (CMEC) is responsible for the child maintenance system in Great Britain. It has two delivery bodies:
- Child Maintenance Options, providing the information and support service, and
- the Child Support Agency (CSA), administering the existing statutory schemes.
In Northern Ireland, the equivalent to CMEC is the Child Maintenance and Enforcement Division (CMED). The changes described below for CMEC apply equally to CMED.
As well as providing the means to support parents in making their own family-based arrangements, CMEC is currently developing a new statutory service which is due to be launched in 2012. This new statutory “Child Maintenance Service”, which will replace the CSA scheme introduced in 2006, is known as the “gross income” scheme and will make use of the latest tax year information from HMRC in order to reduce considerably the time needed to calculate child maintenance. Each maintenance award will be fixed for a year unless income varies by more than 25%.
When the new scheme is introduced, any maintenance arrears owed by an employee will be ring-fenced as a separate debt owed to the CSA and an additional DEO will be issued in order to collect the residual arrears. This arrangement is known as the “Residual Body Scheme”.
To support the changes from 2012, CMEC has asked software developers to
- make changes to the current Deduction from Earnings (DEO) payment schedules that are produced by their payroll systems so that CMEC’s records can be updated more efficiently,
- change the way DEOs are described on payslips, and
- make changes to the way in which DEOs are calculated.
The changes should appear in payroll system update releases from April 2012 onwards.
The address to which reports are sent and the bank account into which payments are made monthly will also change when the new scheme begins.
Changes to payment schedules and payslips
Some of the key changes to the reporting requirements are:
- the report schedule will be produced monthly, irrespective of the employee’s pay frequency
- a “reason code” to explain why the full amount has not been deducted, e.g. leaving the employment, statutory payments
- introduction of an Employer Reference Number (12-digit number starting ‘50’ for employers and ‘51’ for agents)
- introduction of an Employee Reference Number (12-digit number) for each DEO for ongoing child maintenance payments and arrears under the Child Maintenance Service, and for each DEO for the collection of arrears due to the CSA Residual Body Scheme
- changes to the text shown on payslips, to show “CMS DEO” for DEOs for ongoing maintenance payments and arrears under the Child Maintenance Service, and “RB DEO” for DEOs for outstanding CSA arrears under the Residual Body Scheme.
Changes to the DEO calculation
There will also be a significant change to the way in which the DEO is calculated for each employee. The Protected Earnings Proportion or Protected Earnings Rate is currently expressed as a fixed monetary value below which a deduction may not be taken. It is calculated from the net earnings information provided by the non-resident parent or the employer.
Starting from a date to be confirmed in 2012, the calculation will be based on gross income information provided annually by HMRC, and CMEC will no longer hold each employee’s net pay figures or pay frequency. The Protected Earnings Proportion will, at that time, be expressed as 60% of the employee’s net earnings. The 60% figure will be calculated by the employer and protected each time a deduction is made.
The Normal Deduction Rate will, at the same time, be set as a monthly amount, with equivalent values for pay frequencies of 1, 2 or 4 weeks. The employer will have to apply the appropriate rate for each employee’s pay frequency.
It has not yet been decided whether the change to Protected Earnings from a fixed value to a percentage will be made from a single date during 2012/13 or phased in over a period. To allow for the change to be made in stages, software developers have been asked to provide the facility to implement the change for all employees or for individual employees. If an employee has two or more concurrent DEOs, the calculation for all of them will be changed at the same time.
Until the timetable for implementing the change is agreed, all employers must continue to apply the Protected Earnings Proportion/Rate as a monetary amount.