Our newsletter of 20 August 2004 gave details of the new Debt Arrangement Scheme (DAS) in Scotland that will enable employees to require their employers to make deductions from their wages towards settlement of their debts. Following detailed discussions between the Institute of Payroll and Pensions Management (IPPM) and the Scottish Justice Department, further details of the scheme have been issued that fill in many of the missing gaps.

The following notes provide a general summary of the scheme as it will apply from 30 November 2004 onwards. In some cases, the details are subject to further confirmation when the full DAS Regulations are made.

The parties
There are five parties to the debt arrangement scheme, namely

• the debtor, an employee who has personal debts and has agreed a debt payment programme with a money adviser
  
  
• the DAS administrator, responsible for the approval of debt payment programmes and the recall of existing Earnings Arrestments
  
  
• the money adviser, who provides debt management advice to the debtor and produces the payment mandate that the debtor gives to the employee
  
  
• the employer, to whom the debtor presents a payment mandate and who makes deductions from the debtor's earnings
  
  
• the payment distributor, to whom the employer pays over the deductions from the debtor's earnings and who distributes the proceeds to the creditors.

The payment mandate
The mandate is the document that is prepared by the money adviser and delivered by the debtor to the employer. The content of the mandate is defined in the legislation and is known as "Form 6". The form contains

• a unique reference for the mandate
  
  
• the amount that the employer must deduct from the debtor's earnings each pay period
  
  
• the name, address, NI number and payroll number of the debtor
  
  
• the name and address of the employer
  
  
• the name and address of the money adviser
  
  
• the name and address of the payment distributor
  
  
• the total amount of the debt.

The form also provides written authorisation from the debtor for the employer to make the deductions from wages.

If the employer has any queries about the mandate, the money adviser should be contacted.

If the debtor has two jobs with the same employer, the money adviser will inform the employer which of the jobs the mandate applies to. A mandate could be issued for each job.

It is unlikely that two concurrent mandates could be issued by a money adviser. If it did occur, the most recent mandate should be applied, i.e. the one with the most recent date or, if the date were the same, the one that was received last.

Making the deductions from wages
The employer must deduct the amount specified in the mandate from the employee's net earnings on each payday. A reducing balance should be maintained so that the employer knows when the deductions must cease.

The employer may also, in addition to the DAS deduction, deduct a 50p administration charge in respect of each deduction, the same amount that may be deducted for Earnings Arrestments. Employers are encouraged to itemise the deductions on the debtor's payslips.

There is no formal definition of "arrestable earnings", as there is for Earnings Arrestments. The DAS is voluntary and, as a result, debtors are agreeing to deductions from any of their earnings. This would include contractual earnings, bonuses, expenses and statutory payments. However the Scottish Justice Department has confirmed that redundancy payments and advances of wages (other than advance holiday pay) are not treated as earnings.

The amount of the deduction has been determined by the money adviser and takes into consideration the debtor's pay frequency and all other deductions that are normally taken from the debtor's earnings, e.g. student loan deductions, other agreed deductions (e.g. between the employer and the debtor), pension contributions and statutory deductions.

As DAS deductions have a statutory basis, it may be assumed that they take priority over other deductions that the debtor has agreed with the employer, e.g. loan repayments. However, the Regulations are not clear on the subject.

DAS deductions may also be taken from any tax credit payments that are paid to the debtor by the employer. This is lawful as it is the debtor that is authorising the deduction and it is being made on the debtor's behalf. (This advice was later changed, click here)

As a result, there should be sufficient net earnings on each payday for the DAS deduction to be taken in full. However, if the deduction amount is more than the remaining net earnings, all of the remaining earnings should be taken, after allowing for the 50p fee. There are no "protected earnings".

If the debtor takes unpaid leave, the DAS is suspended until the debtor starts to receive payments again. There is no requirement for the employer to notify anyone of this situation but it would be sensible to inform the money adviser.

In the case of weekly-paid employees who receive advance holiday pay, the DAS deduction should be taken from each week's payment. For example, if the debtor receives normal wages plus two week's holiday pay, three deductions are taken.

If a payment mandate is given to the employer by a new employee and, because of starting mid-period, that employee's earnings for the first period are paid with the earnings for the second period, only a single deduction is made.

If an Earnings Arrestment is in force
When a debt payment programme is approved, any Earnings Arrestments or Conjoined Arrestment Orders in force for the debtor are recalled. The money adviser is responsible for informing the employer in writing that the orders have been recalled. The employer is not required to notify any third party.

Consequently, starting in the pay period when the first DAS deduction is made, no further deductions under Scottish orders should be made. Note, however, that this does not apply to Deductions from Earnings Orders issued by the Child Support Agency.

If an Earnings Arrestment is received while a DAS mandate is in force, it should be returned to the issuer. It should not be applied.

If a non-Scottish court order is in force
If a debtor is entitled to give the employer a payment mandate and there is a Deduction from Earnings order (issued by the Child Support Agency) or an English Attachment of Earnings order in force for the debtor, the order should be operated before the DAS mandate is operated.

Stopping the deductions from wages
The employer must continue to make deductions until

• the money adviser instructs the employer in writing to stop making deductions,
  
  
• the debtor instructs the employer in writing to stop making deductions (because the debtor intends to continue making the payments in some other way), or
  
  
• the balance of the debt has been repaid.

Once an instruction has been given to stop deductions, the mandate has ceased and deductions can only resume if a new mandate is issued.

If, having received instruction to stop deductions, the employer makes a further deduction because it was too late to stop it, the employer is not required to make a refund. The payment distributor will make the refund.

Making payments to the payment distributor
The employer must send the amount of each deduction to the payment distributor as soon as it is reasonably practical to do so. There is no provision for saving up weekly payments and making them monthly; the amount deducted must be paid over after each payday.

In practice, the money adviser will agree a date by which payment must be made with the employer. If the payment distributor does not receive payment by the agreed date, the money adviser will be informed.

Options for making the payments include BACS, standing orders and cheques, but not cash.

Compliance
If the employer fails without good cause to make a payment due under a mandate, the employer becomes personally liable for that payment without being able to recover the amount from the employee. However, there is no liability if it cannot be shown that the employer ever received the mandate.

If an employer is approached by the payment distributor and is unable to provide good reason for not having made a payment, court action will be commenced to enforce the payment.

Non-Scottish employers
A debtor who is entitled to use the Debt Arrangement Scheme may serve a payment mandate on the employer if the employer falls within Scottish jurisdiction. This would require the employer to have a place of business in Scotland, even if the employer's head office or payroll department were located elsewhere. A non-Scottish employer without a place of business in Scotland but with employees who live in Scotland, who receives a payment mandate and does not wish to apply it, should seek legal advice.

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...back to 15 October 2004

Sources:
www.hmso.gov.uk/legislation/scotland/ssi2004/draft/20042640.htm
www.ippm.org (IPPM members only, in the Quick Bytes section)