Contractor's Tools
IR35 News
Recruiter FAQs

Are you switching from Limited Company to Umbrella Employment? Click here to calculate your take home pay >>

We have created an information hub to support our Orange Genie Accountancy clients, our Umbrella Employees and agencies where the Covid-19 rules and legislation are explained for recruiters, contractors and the self-employed. Click here to find out more>>

Recruiter’s Questions about Employers National Insurance

Umbrella Company

IR35 reform has been with us since April 2021 and this has caused some contractors to move into umbrella company employment.  As a result, many are seeing employer’s national insurance in their pay calculations for the first time. Since April 2021 we have received an increased number of questions about employer’s NI from our agency partners, so in this article we’re going to clear up some of the more common ones.

Everything you need to know about umbrella employment: Download our FREE guide>>

What is Employer’s National Insurance?

Employers have to pay Employer’s National Insurance to HMRC in respect of their employees’ pay. At the time of writing, the rate stands at 13.8% of relevant earnings.

Employer’s NI is due on all salary payments made to your contractors, whether or not they are employed by an umbrella company.

Background information

The majority of questions we receive about employer’s NI stem from a misunderstanding about the rates paid for the contractor’s work:

The assignment/umbrella rate: this is the rate you as a recruiter pay the umbrella company. It includes the contractor’s pay and the umbrella company’s margin and costs, including the Employer’s NI they have to pay.

The contractor’s pay: this is the amount paid to the contractor by the umbrella company, made up of the assignment rate, less the umbrella’s margin and costs.

There may also be an Agency PAYE rate:

This is the rate paid to contractors who are not employed by an umbrella company, and are instead paid directly by the recruiter through their payroll.

Where both are available, the PAYE rate is usually lower than the umbrella rate, to reflect the fact that the agency will be paying Employer’s National Insurance on the PAYE rate. The contractor will typically be paid the same, though they receive fewer rights, protections and benefits than umbrella company employees.

Why do contractors have to pay Employer’s National Insurance?

The answer here is that they don’t. Employer’s NI is paid by the contractor’s employer, which in this case would be their umbrella company. The umbrella covers the costs of employment, including Employer’s NI, from the income they receive for their employee’s work (the assignment/umbrella rate).

Confusion arises when the contractor is given the assignment/umbrella rate as the amount they will be paid. When this happens, it looks to the contractor like they are paying the umbrella’s margin and costs -which would be extremely unfair if it were true.

However, recent legislation means every contractor must receive a Key Information Document (KID) outlining how their pay is calculated before they accept an assignment, so this kind of confusion and disappointment should now be very rare, as long as everyone is complying with the law.

Why doesn’t the umbrella company pay employer’s NI?

Again, the answer here is that they do. However, they have to cover the cost, along with all the other costs of employment, from the assignment rate paid to them for their employee’s work.  

Why does Employer’s NI appear on the contractor’s pay documents?

A compliant and responsible umbrella company will want to be as transparent as possible, and that means giving the contractor all relevant information about how their pay is calculated.  

The exact layout and details will vary from one umbrella to another, but typically the contractor’s pay documents will include two calculations :

  • One to explain how the contractor’s pay was calculated from the assignment rate the umbrella received
  • A standard payslip showing their gross to net pay including statutory deductions.

Employer’s NI will show as one of the umbrella company’s employment costs in the first calculation document. If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com.

 

Request a Call Back

 

edge promo