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.