Umbrella Companies & Employer’s National Insurance (NIERS)
For permanent employees, companies are liable for Employer’s NIC—National Insurance Contribution. The rules are not dissimilar for the umbrella companies, hence it is mandatory for employers to comply with Employer’s NIC. Umbrella companies must modify the pay rates of employees according to the NIC.
This means that, during your negotiation with any client or agency, the NIC factor has to be taken into account so you can agree upon an appropriate pay rate. It is important to comprehend that if you compare yourself with a permanent employee that has the same rate on the contract as yourself, then you would lose out on money; such is the impact of the Employer’s NIC.
So how is it processed? Well, for your earnings of more than £162 for a week, the calculation of Employer’s NIC is processed at 13.8 percent. It is also uncapped; therefore it does not factor in the expenses or the margins which are retained by the umbrella company. As a consequence, it is the lowest boost which would be required for a permanent rate in order to get an identical net salary. For instance, as a permanent employee, if you wish to get a payment of £20.00 per hour, then your negotiation has to be finalized at almost £22.76.
Sometimes, you are faced with two scenarios: payment is offered via an umbrella company or payment is offered directly or explicitly from the payroll of an organization, which is usually at a lower rate than the former.
Bear in mind that the lower rates are processed if you choose to get a direct payment from an organization as they have to be compliant and liable for the Employer’s NIC. The reason behind the better rate for the first scenario is because the responsibility for the Employer’s NIC falls into the hands of an umbrella company. Considering the fact that these rates differ by more than 13.8 percent, picking an umbrella company is the wiser option due to your claim of some of the business expenses.
In case you have to be compliant with the IR35, the gap in the dissimilarity in the net income between an umbrella company and a limited company does not widen much. This is due to the same processing of NIC contributions and tax deductions for both entities. For more details, do contact us so we can guide you with the best recommendations.