Volatile pay is norm not exception, says Resolution Foundation

By agency reporter
October 16, 2018

Three in four workers experience fluctuating pay packets, with low paid workers most exposed to big downward changes in their monthly take-home pay, according to groundbreaking new research published by the Resolution Foundation.

Irregular payments examines anonymised month to month data from seven million Lloyds Banking Group bank accounts to reveal for the first time that pay volatility is the norm, not the exception, across Britain’s workforce. It calls on firms and the government to do more to mitigate its effect and support families’ financial resilience, by reducing zero-hours contracts use and reforming Universal Credit.

Fluctuations in monthly pay can be good news, for example following a promotion, but can also arise from unwanted changes in hours or shift patterns. Volatile pay is defined as having notable changes in pay from month to month that are down to more than just pay rises, promotions or bonuses. Around two in five workers experience ‘persistent volatility’, with significant changes in monthly pay at least six times a year.

Irregular payments, part-funded by the Nuffield Foundation, finds that these monthly fluctuations are often very significant. The average notable upward change in pay in 2016-17 was 22 per cent, while the average monthly decrease was -20 per cent. This average fall in monthly pay is more than a typical monthly grocery bill (£250).

The report finds that more than four in five low-paid workers (earning around £10,000) experience pay volatility, compared to just two in three higher paid workers (earning around £35,000). And while a quarter of higher paid workers only ever experience upward changes in their monthly pay, pay volatility is more likely to go both up and down for low earners.

The Resolution Foundation says that pay volatility can put pressure on households’ ability to pay regular bills or build up their savings. It notes that two in five low-to-middle income families are unable to save more than £10 a month.

The extent of pay volatility among low earners also highlights the importance of a strong welfare safety net to support families when their earnings drop. The report says that Universal Credit (UC) should be better equipped to deal with volatility than the current system because its monthly income assessments and real-time information can allow benefits to respond faster to changes in earnings.

However, the report notes that these monthly assessments can risk compounding the problems of income volatility for the 40 per cent of new Universal Credit claimants who are paid more frequently than once a month. For example, two four-weekly pay cheques within a monthly assessment period are counted as a 100 per cent pay rise for the purposes of Universal Credit, resulting in a big change in monthly benefit payments.

While challenging technically, the Resolution Foundation says that allowing claimants to have more flexibility over their assessment periods would mean the new system could do more to smooth incomes for those families who experience volatile pay.

It adds that employers can also take action to reduce workers’ pay volatility by reducing the use of zero- and short-hours contracts, and providing more notice of working hours.

Daniel Tomlinson, Research and Policy Analyst at the Resolution Foundation, said: “Much of Britain, from our bills to our welfare state, is built around a steady monthly pay cheque. But our research shows this is not the reality of working life for many of us. Around three in four workers experience big upward and downward changes in their monthly take-home pay. This volatility is a particular challenge for low paid workers, who are less likely to have savings to fall back on when their pay packets shrink, and yet are more likely to have big falls in monthly pay.

“Government and employers should look to support workers by reducing pay volatility, and mitigating its impact on workers’ living standards. By providing more notice on shifts and avoiding unnecessary use of zero- and short-hours contracts, firms can lessen the effects of volatile pay on their employees. The government should also ensure Universal Credit is able to live up to its potential in softening the impact of volatile pay on family living standards.”

* Read the report Irregular Payments here

* Resolution Foundation https://www.resolutionfoundation.org/

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