It’s not easy doing good

The financial services sector comes in for a lot of bad press, and certainly at the top there are people paid obscene sums of money, and bonuses which would be difficult to justify by any criteria. But not all firms are alike, and many are concerned about the welfare of their lowest paid employees. However, it is not always easy to do the right thing, as the story of firm X shows.

Trying to be fair

Like many financial services companies, firm X has a substantial group of relatively low paid, customer service staff. Their job is, every day, to deal with the complex problems of their customers. They are the ones who deal with people experiencing bereavement, divorce and illness, who need to access their savings, close their accounts, and manage the assets of recently dead relatives. They can be in real distress: some are very angry, some despairing, and the brunt of their anger falls on the largely young people who answer the phone and try to help sort out their affairs.

It is an important, and highly stressful, job. But, as with most financial services firms, the salary gap between these employees and the highest paid is significant, even if in firm X, the ratio is smaller.

Firm X’s senior managers agreed that the highest paid people have been doing very well in the last few years, and that the annual pay award should be loaded towards the lowest paid staff. So they introduced a salary floor, and as a percentage, the annual pay award would be twice as much for the lowest paid as the highest.

But times are hard, so they wanted to do something more. They were already offering small benefits in kind, but they agreed to make a one off payment to lower paid staff.

But then they ran up against the rules of Universal Credit.

How Universal Credit works

Universal credit is designed to “make work pay”, by ensuring that people can continue to claim benefit when they are in work – if that work pays below a threshold. But the benefit is tapered. So if your earnings rise, the benefit payment is reduced by 55p for every additional £1 earned. And this is recalculated every month. So a £500 increase in one month, would reduce the benefit payment by £275. For some people this would mean losing entitlement to benefit altogether. The following month, when their earnings returned to normal, they would have to apply for Universal Credit again, with a possible delay in payment. The result could be disastrous, especially for people with families to support.

How can the firm be generous?

The firm had no way of knowing how many people might be in this situation. They had no right to ask, and every individual’s circumstances are different, because the rate of Universal Credit is adjusted to reflect factors like caring responsibilities, housing costs and disability. With no idea how many people might be affected, it was too risky to implement the decision.

Expert advice confirmed that if they adopted alternatives like paying in vouchers or paying for childcare the sum would still be taxable, and HMRC would automatically adjust the Universal Credit payments. They could offer to make the payment and agree to pay the tax on it, but it would still affect the benefit payments.

The only practicable option would be to put the money into pensions. That would not be taxable and would not affect the benefit payments. So the only way of helping was to say, ‘never mind how you are struggling now, you will be better off in 30 years’ time’.

Universal Credit was supposed to make life simpler and fairer. Sometimes it seems to achieve neither, and to stand in the way of employers who are concerned about treating their employees better.