A reader, Mr G, asked:
I’ve had a lot of overtime recently covering for someone at work who was very ill. This has come in handy as it coincided with my wife’s maternity leave and the extra expense of a child. Will my IVA expect me to pay them the overtime money after my annual review in a couple of months?
Overtime and IVAs
As with many questions about Individual Voluntary Arrangements (IVAs), the answer depends on the term of the particular IVA. IVAs can be very “individual”!
But almost all IVAs treat overtime in the same way, with a clause like this (from the 2016 Standard IVA Protocol):
Where the individual is employed, the consumer must report any overtime, bonus, commission or similar to the supervisor if not included in the original surplus calculation, where the sum exceeds 10% of the consumer’s normal take home pay. Disclosure to the supervisor will be made within 14 days of receipt and 50% of the amount (over and above the 10%) shall be paid to the supervisor within 14 days of the disclosure.
So if you get more than 10% extra take-home pay in a month, you will normally have to pay half of the extra amount into your IVA. And you should report this extra money to your IVA firm every month, within 14 days of getting paid.
The calculations are normally done for each month separately. So if you only have one or two months with a lot of overtime, you may get less than 10% of your annual wages extra, but as you were over the 10% for those months, some money will have to be paid to your IVA.
Mr G hasn’t been telling his IVA firm every month
Mr G clearly hasn’t told his IVA firm about the extra overtime he is getting. This is a breach of his IVA, but it often happens.
Most good IVA firms explain what to do about overtime clearly at the start of an IVA. But at that point, people are often very stressed and they don’t always listen to details about what they need to do during the IVA or read the information they are sent.
Mr G needs to tell his IVA firm right away about the overtime, not wait until his annual review. If he does owe more money (which in his case he may not, see below) then he may have to make larger payments to make this up or the term of his IVA may need to be extended with the agreement of his creditors.
But what about the new baby costs?
Mr G should also have told his IVA firm about his wife’s pregnancy!
His IVA contributions will have been worked out assuming that he pays a proportion of the household expenses – now his wife is on maternity leave she will probably be bringing home a lot less so he will need to pay more. And the expenses may well have gone up, not just for the obvious baby stuff such as nappies and a buggy, but also more indirect costs such as extra heating. And she may also be getting Child Benefit and Child Tax Credit.
If Mr G hadn’t had this extra overtime, he would probably have struggled to make his IVA payments. I’ve looked at this situation in detail in Pregnant and can’t afford your IVA? and the possible solutions there – payment break, reducing IVA payments – will need to be considered by his IVA firm.
A lot will depend on what happens when his wife goes back to work as they may then have high childcare costs to manage. If his overtime doesn’t continue, there may need to be a variation to his IVA agreed by his creditors.
So this is complicated. His overtime has got him through a few difficult months without needing a payment break so far. But the sooner Mr G talks to his IVA firm the better:
- he can’t assume that the baby costs and extra overtime will cancel each other out;
- at the moment he is breaking the terms of his IVA.
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Michael Peoples says
There are ways to deal with unpaid overtime so your advice is spot on. The IP firm should be able to help but I think a variation would be in order. Mr G could do a new I&E and ask creditors to forgive the overtime given the specific needs the money was used for. Most creditors are sympathetic and this would mean he would not have to repay the money by extending the IVA for example. It would also rectify any potential breach and keep his IVA in order.
Janet Mayo says
Hi Sara, If Mr G was my client I would recommend that he talks to us, making the disclosure required by his arrangement terms as soon as possible. We would review the household income and expenditure to ensure that given their increased costs the payment is still affordable. It is feasible that the increased income is necessary to cover their increased costs, or the reduction in his wife’s income, and therefore, as a household, there has not been an increase household income. I agree that we need to do the maths to be sure. I would also discuss with the client how they will manage the change in circumstances going forward. Ie what they plan to do when his wife’s maternity leave comes to an end, so we can plan with them what they can afford to pay and how this can be managed within the terms of their arrangement.
We always make it clear to clients at the start of the arrangement that if their income increases it is likely that they will need to pay more. Even a stressed client can understand that principle. We get regular calls from clients informing us when their situation has improved. We also tell them what the figure is for their income plus 10% at the start of the arrangement so they have a figure in mind and there are no unexpected surprises when we do a review.
Tony says
I couldn’t let this pass without comment. Janet, you sound caring and considerate to this man’s plight and then you, (unintentionally I trust), become condescending. No! a stressed client may not “understand that principle.” They may not hear it to grasp it, it may not “sink in.” Never assume that someone who is severely stressed has fully processed your words. They may nod in agreement, or even utter agreement, giving rise to the belief that it has sunk in and in most cases that will be true, but, there will be exceptions. Stress and the feeling of helplessness do horrible things to the brain and the ability to rationally process events, especially if the person is in your office, your territory and well outside their comfort zone. They are in a very vulnerable position.