Volatile pay the norm for UK workers

Eighty per cent of workers experience fluctuating pay packets, with low-paid workers most at risk, according to research from the Resolution Foundation

The think tank’s Irregular payments report examined anonymised month-to-month data from seven million Lloyds Banking Group bank accounts. It found that while some fluctuations in pay can be positive for workers, they can also arise from unwanted changes in hours and shift patterns. Volatile pay is defined by notable changes in pay from month to month that are down to more than pay rises, promotions or bonuses.

Around two in five workers (40%) experience ‘persistent volatility’, with significant changes in monthly pay at least six times a year. The average notable upward change in pay in 2016/17 was 22%, while the average monthly decrease was -20%. This average fall in monthly pay is more than a typical monthly grocery bill (£250).

The report found that almost 80% of low-paid workers (earning around £10,000) experienced pay volatility, compared to just 66% of higher-paid workers (earning around £35,000). And while 25% of higher-paid workers only ever experience upward changes in their monthly pay, pay is more likely to go both up and down for low earners.

The Resolution Foundation said that pay volatility can put pressure on households’ ability to pay regular bills or build up their savings. It noted that 40% of low-to-middle income families are unable to save more than £10 a month.

The extent of pay volatility among low earners also highlighted the importance of a strong welfare safety net to support families when household earnings drop, the report stated. It said 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 awards to respond faster to changes in earnings.

However, the report noted that these monthly assessments can risk compounding the problems of income volatility for the 40% 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% pay rise for the purposes of Universal Credit, resulting in a big change in monthly benefit payments.

The Resolution Foundation said 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 that experience volatile pay. It added that employers can also take action to avoid pay volatility by reducing the use of zero- and short-hours contracts, and providing more notice of working hours.

Daniel Tomlinson, a research and policy analyst at the Resolution Foundation, said that the research disproved the assumption that those in work make sufficient income.

“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,” he said. “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.”

Tomlinson said that both employers and the government should focus on reducing fluctuating 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," he said.

“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.”