Everything you need to know about Universal Credit

Around 7.9 million people in the UK receive some form of Universal Credit (UC), but what is it and how does it affect employers and HR teams?

As an employer, you aren’t entitled to know which of your employees receive Universal Credit—but there are some responsibilities you need to be aware of if you’re a PAYE employer. Failing to understand UC obligations could lead to compliance issues, payroll errors, or challenges in supporting employees effectively. It can also affect workplace morale and retention if employees feel unsupported or misunderstood.

In this guide, we’ll take a close look at UC and the ways it can impact your business and employees.

What is Universal Credit?

Universal Credit is a payment provided by the state for people who are on low incomes, can’t currently work, or are in between jobs. Designed to support people living in the UK, it can be put towards daily expenses such as household bills, travel, or food. It can also help with childcare and rent, and other essential costs.

As of June 2025, there are 7.9 million people in the UK who receive Universal Credit. Of these, 2.7 million, or 34%, are employed. This means, for employers, payroll managers and HR teams, some of your staff may be receiving Universal Credit, which is something to be generally mindful of.

How does Universal Credit work?

Individuals are eligible for Universal Credit if they meet specific criteria. For example, they must be an adult under the State Pension age, living in the UK, and earning below £16,000. If the person on Universal Credit is employed but has no other criteria, the amount of UC they receive will be determined by their income. For example, once they earn £16,000 or more, they will no longer be eligible for Universal Credit.

Universal Credit eligibility

Understanding the Universal Credit eligibility criteria can help employers and HR teams perform their responsibilities and support employees who may be affected.

To be eligible for Universal Credit, people need to:

• Be a resident of the UK
• Be over 18 but under state pension age
• Earn less than £16,000 a year.

If an individual lives with a partner, they will both need to apply as their eligibility will depend on their joint income and savings. However, if one partner has reached pension age, it won’t prevent the other from applying for UC.

Under 18’s can apply for UC if they’re 16 or 17, and:

• Have a health condition or disability
• Are a carer, whether for a child or someone with a health condition or disability
• Have had a baby in the last 15 weeks, or are pregnant and are due in the next 11 weeks
• Do not have support from parents or the local authority
• Are nearing the end of their life.

Members of the armed forces, or those with disabilities or health conditions may also be able to apply for additional Universal Credit, depending on their circumstances.

Does Universal Credit limit how many hours an employee can work?

Universal Credit doesn’t limit how many hours an employee can work, nor does it stop them working. UC is designed to provide financial support when needed and to encourage people to work to support themselves.

The amount a person receives through Universal Credit is based on their earnings. For every pound earned above the £16,000 limit, their UC is reduced by 55p—this is known as the taper rate.

What are my responsibilities as an employer of UC employees?

As a rule, you don’t need to contact the Department of Work and Pensions about employees on Universal Credit. However, if you’re a Pay As You Earn (PAYE) employer, you are required to do the following:

• Provide HMRC with the employee’s PAYE information, also known as their FPS (Full Payment Submission), on or before their payday.
• If you pay your employee on a date that’s differs from the usual schedule, for example, because of a bank holiday, you should still enter the usual date on your FPS.

If you fail to do these things or submit information late, it could result in employees not receiving the Universal Credit they are entitled to.

How to support your employees on Universal Credit

Employees want to feel like they’re part of a team, and one of the best ways to support them is by understanding their personal circumstances and carrying out your responsibilities as an employer. If you’re a PAYE employer, put systems in place to ensure the correct information is shared in a timely and efficient manner.

With this in mind, BambooHR has the tools you need to ensure you communicate with your employees as effectively as possible, to help build strong workplace communities.

Learn more about how BambooHR can help your business with payroll.