National Insurance Increase

Following on from the speculation over the last few days the government has announced a 1.25% percentage point rise in National Insurance from 22/23.

There will also be a 1.25% tax increase on share dividends.

From 23/24 tax year the National Insurance increase will become a separate levy and the National Insurance rates will revert to the current level.

Currently employees National Insurance is 12% and employers is 13.8%. To help explain how National Insurance is calculated based on the current rates we have two separate blog posts,

How Is National Insurance Calculated? Part 1: Employees NI

How Is National Insurance Calculated? Part 2: Employers NI

Is National Insurance about to be increased?

There have been many stories in the press over the past few days regarding the potential increase to National Insurance to help fund social care in the UK. The potential increase is reported to be 1% and there are calls from within the Conservatives to increase this to 2%.

For information regarding the current rules on employees National Insurance and how this is calculated please check out our blog post.

The Coronavirus Job Retention Scheme – September 21

The Coronavirus Job Retention Scheme (CJRS) is finishing on the 30th September 21. The final date the September claim can be made is 14th October 21.

The scheme has previously been extended several times, but so far there is no news to suggest this will happen again so it’s important to prepare for the closure of the scheme.

For September the amount the employer can claim back is 60% up to £1,875, though the employer must at a minimum top the employees pay up to 80%.

September
Claimable amount60% up to £1,875
Employer NI and pension contributionsYes
Mandatory employer top up20% up to £625
Employee receives80% up to £2,500/mth

How Is National Insurance Calculated?

Part 2: Employers NI

Following on from part 1 where we looked at employees National Insurance, this week we are going to explain what employers National Insurance is and how it’s calculated. We are specifically going to be looking at employers Class 1 National Insurance.

What is employers Class 1 National Insurance?

Employers NI is a direct cost to the business and an important part in understanding the costs associated with having employees.

Employers pay Class 1 National Insurance based on their employees’ earnings and NI category letter. Employers NI is calculated on a pay-by-pay period basis unless the employee is a director in which case there are two calculation methods which will be discussed later in this post.

What is the employer Class 1 National Insurance Rate?

The employers NI rate for 2021/22 is 13.8%.

Is National Insurance calculated on all earnings?

Employers NI is nearly always due if you have employees, though there are some exceptions. If an employee has the category letter H, M or Z and earns below £4,189/mth no employers NI is due.

The table below from HMRC shows the NI rates based on category letter and earnings.

Category letter£120 to £170 (£520 to £737 a month)£170.01 to £967 (737.01 to £4,189 a month)Over £967 a week (£4,189 a month)
A0%13.8%13.8%
B0%13.8%13.8%
C0%13.8%13.8%
H0%0%13.8%
J0%13.8%13.8%
M0%0%13.8%
Z0%0%13.8%
Source: HMRC

Employers NI isn’t payable until an employee earns above the secondary threshold (£737/mth). The table below shows the relevant employer NI thresholds.

2021/22 monthly thresholds
Secondary Threshold (ST)£737
Upper Secondary Threshold (UST)£4,189
Apprentice Upper Secondary Threshold (AUST) £4,189

How to calculate employers National Insurance

Now we’ve had a chance to explain what employers NI is, it’s time to look at some examples:

Example 1

The employee is paid gross £1,500/mth,

1,500 – 737 = 763

13.8% of 763 = £105.29 employers NI due

Example 2

The employee is paid gross £3,000/mth,

3,000 – 737 = 2,263

13.8% of 2,263 = £312.29 employers NI due

Example 3

The employee is paid gross £600/mth,

As the employee is earning below the Secondary Threshold (£737/mth) no employers NI is due.

Example 4

The employee is paid £1,000/mth and is aged 18,

Even though the employee is earning over the Secondary Threshold they are under 21 which means no employers NI is payable. The employee would have the NI category letter M in this instance.

NI Employment Allowance

Companies which are eligible to claim the NI Employment Allowance can reduce the annual employers Class 1 National Insurance by up to £4,000.

If you are claiming the NI Employment Allowance you will still see the employers NI on the P32, though it should also show the amount of employers NI being waived.

If you don’t claim the full £4,000 within the tax year you can’t carry over the remaining amount to future tax years.

Eligibility criteria:

  • You need to be a business or charity
  • You employers Class 1 NI liabilities for the previous tax year was under £100,000
  • The company needs to be within the de minimis state aid threshold if applicable
  • You can’t claim if the only person earning above the Class 1 NI secondary threshold is a director
  • If you are a connected company, there are numerous eligibility criteria which can be found here.

You can claim Employment Allowance for the previous 4 tax years going back to 2017/18. You need to be mindful that the eligibility criteria and total claimable amounts can be different in previous tax years.

Employers NI for directors

There are two methods of calculation for directors:

  • Standard, National Insurance is calculated on a year-to-date basis. Employers NI isn’t calculated until the earnings breach the annual Secondary Threshold (£8,840).
  • Alternative, National Insurance is calculated on the pay for that period. When the last payroll of the tax year is processed there needs to be a re-calculation of NI for the entire tax year and any underpayment needs to be made along with the month 12 taxes.

Summary

Understanding employers Class 1 National Insurance and how it’s calculated will not only help you further understand the reports produced each pay period but also help caluclate the cost of employment.

If you have any questions please get in touch!

How Is National Insurance Calculated?

Part 1: Employees NI

When I started writing a blog post on National Insurance (NI) I initially addressed both employees and employers NI together. The further I got into the subject the more I realised employees and employers NI would work better split into two posts. This week we are going to look at employees NI, with part 2 coming next week when we look at employers NI.

What is the purpose of employees NI?

Before we look at how employees NI is calculated it’s worth understanding the purposes of NI.

What is National Insurance used for:

  • Basic State Pension
  • Additional State Pension
  • New State Pension
  • Contribution-based Jobseeker’s Allowance
  • Contribution-based Employment and Support Allowance
  • Maternity Allowance
  • Bereavement Support Payment

Who pays National Insurance?

If you are aged between 16 and SPA (State Pension age) you must pay NI if you are either:

  • An employee earning above £184/wk or £797/mth
  • Self-employed and making a profit of £6,515 or more a year

Even if you don’t pay employees NI because you don’t earn enough, if you do earn between £520 and £797/mth your contributions are treated as having been paid to protect your NI. This is because your earnings are within the Lower Earnings Level (LEL).

How much NI do you pay?

The amount of employees NI payable depends on your earnings and NI category letter. The majority of people will be category A, but this won’t always be the case. Below is a table which shows the different categories and percentages dependent on earnings.

Category letter£120 to £184 (£520 to £797 a month)£184.01 to £967 (£797.01 to £4,189 a month)Over £967 a week (£4,189 a month)
A0%12%2%
B0%5.85%2%
CN/AN/AN/A
H0%12%2%
J0%2%2%
M0%12%2%
Z0%2%2%
Source: HMRC

The National Insurance category you belong to will be displayed on your payslip. The table below outlines the different categories.  

Category letterEmployee group
AAll employees apart from those in groups B, C, J, H, M and Z in this table
BMarried women and widows entitled to pay reduced National Insurance
CEmployees over the State Pension age
JEmployees who can defer National Insurance because they’re already paying it in another job
HApprentice under 25
MEmployees under 21
ZEmployees under 21 who can defer National Insurance because they’re already paying it in another job
Source: HMRC

Your earnings in the pay period will be the final part in determining how much NI you pay. The table below outlines the different monthly thresholds. HMRC also has a weekly thresholds table.

21/22 Employee NI Monthly Thresholds

Earnings per month2021/2022 tax year
Lower Earnings Limit (LEL)
Employees do not pay National Insurance
but get the benefits of paying
£520
Primary Threshold (PT)
Employees start paying National Insurance
£797
Upper Accrual Point (UAP)
Employees with a contracted-out pension pay
a lower rate of National Insurance up to this point
N/A
Upper Earnings Limit (UEL)
All employees pay a lower rate of National Insurance
above this point
£4,189
Source: HMRC

Employee NI Calculation Examples

Using everything we have learnt so far it’s now time to work through a few examples. As category A is the most common NI category, I have used this for all three examples below. The same figures below would be applicable for category letters H & M as well due to the percentage rates being the same.

Example 1

Employee earning £1,000/mth

Using the monthly thresholds table above, earnings between £797/mth (Primary Threshold) – £4,189/mth (Upper Earnings Limit) are calculated at 12%, so the calculation is,

1,000 – 797 = £203 NI’able pay

12% of 203 = £24.36 employees NI

Example 2

Employee earning £4,500/mth

An employee earning £4,500/mth is spanning several NI thresholds, LEL to UEL. When we do the calculations, we need to determine the amount of earnings in each band.

LEL 0 – 797 = £797 @ 0% = £0 NI

PT – UEL 797 – 4,189 = £3,392 @ 12% = £407.04

UEL and above £4,189 to £4,500 = £311 @ 2% = 6.22

Total employees NI = £413.26

Example 3

Employee earning £600/mth

No employees NI would be due. This is because the employee is below the Primary Threshold of £797/mth. Nevertheless, as the employee is earning between £520 and £797/mth this falls within the Lower Earnings Limit which means the employee contributions are treated as having been paid to protect their NI.

What happens if you have more than one job?

As NI is calculated on a job-by-job basis, each job will be handled separately for NI purposes. This is different to income tax which is based on all earnings.

How is NI calculated if you are a director?

There are two methods of calculation for directors:

  • Standard, National Insurance is calculated on a year-to-date basis. The director doesn’t start paying NI until they breach the annual Primary Threshold (£9,568).
  • Alternative, National Insurance is calculated on pay for that period. When the last payroll of the tax year is processed there needs to be a calculation of NI for the tax year to see if more NI is due, which then needs deducting from the director’s final payment.

Summary

I hope this post has provided you with the tools to calculate your own NI, and more importantly to understand how the employees NI on your payslip is achieved each pay period.

Next week we will post the second part of the two part series on National Insurance, How Is National Insurance Calculated Part 2: Employers NI

What Are Keeping In Touch (KIT) Days?

KIT days allow an employee to work up to 10 working days during their maternity or adoption leave. If you are on shared parental leave you can work up to 20 days, these are called SPLIT days. The 20 SPLIT days are in addition to the 10 KIT days.

KIT days can be used to help ease you back into work after maternity leave, or to keep in touch whilst on maternity leave.

When can I take KIT days?

You can take KIT days at any point during your maternity leave as long as it’s not within the first two weeks of giving birth.

Are KIT days compulsory?

No, KIT days are not compulsory. You would need to agree with your employer if and when you are going to take KIT days. Your employer can’t force you to take KIT days.

What Happens if I don’t work a full day when taking a KIT day?

It doesn’t matter if you have only worked an hour, that will still be classed as a whole KIT day.

If, however you are just nipping in to work to show your new baby to colleagues, this doesn’t count towards a KIT day.

Keeping in touch with work.

Your employer does have the right to contact you while you are on maternity leave. Your employer should tell you:

  • If jobs are being advertised
  • If there are any promotion opportunities
  • If they are planning reorganisation or redundancies

You can also discuss if there is anything else you would like to be notified of whilst on maternity leave.

Can I have more than 1 KIT day at a time?

Yes you can. It’s up to you and your employer how many KIT days you work in a row, or if you work them all as stand alone days.

What happens if I work more than 10 KIT days?

Whilst on maternity leave if you work after you have taken your 10 KIT days you would lose the 1 weeks SMP for the week in your Maternity Pay Period in which you have done the work. Your maternity leave would then come to an end.

HMRC give the example,

If a week in your Maternity Pay Period contains the last KIT day and you do a further days work in the same week for the employer paying you SMP, you will lose SMP for that week.”

How much will I be paid for your KIT day?

HMRC guidance does not state how much your employer should pay you for KIT days, though you must at least receive you the SMP/SAP/ShPP due for the week.

Even though your employer can offset your contractual pay against your SMP you must be paid the National Minimum Wage (NMW) as a minimum.

The 21/22 SMP rate is:

  • 90% of your average weekly earnings (before tax) for the first 6 weeks
  • £151.97 or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks

Just like normal wages, SMP is taxable and NI’able.

What happens if I have more than one employment?

If you receive SMP in more than one job you are entitled up to 10 KIT days in each employment you receive SMP.

What kind of work can I do during a KIT day?

You should agree with your employer what work you will carry out during your KIT day(s).

KIT days are often used as a good way to have a phased return to work. Or to trial working on a part time basis if that is what you wish to do once your maternity leave finishes.

Does my employer have to keep my job open?

Your employer must keep your job open if you return within 26 weeks of your maternity, adoption or shared parental leave. If you do take more than 26 weeks leave, you will still have the right to your job, or a similar job.  A similar job means the same or better terms as your current employment contract. If you unreasonably refuse to take the similar job your employer can take this as your resignation.

If you are interested in our payroll and workplace pension services please get in touch!

How Much Does Outsourcing Payroll Cost?

At Alderley Payroll Services we believe in transparency when it comes to pricing our payroll services. As well as our downloadable pricing guide, we also have a sample pricing guide and the option of contacting us for help with quotes.

All payroll services also include workplace pension administration.

Pricing Guide

We have an easy-to-use downloadable pricing guide. Once downloaded all you need to do is enter the number of employees in the yellow box and you will get an instant price per pay period, along with the price per payslip.

Sample Pricing Guide

Payslips/pay periodpayslip priceTotal cost incl. pension admin/pay period
1£3.90£3.90*
10£3.90£39.00
20£3.61£72.20
30£3.38£101.50
40£3.17£126.90
50£3.05£152.30
60£2.87£172.20
70£2.74£192.10
80£2.65£212.00
90£2.58£231.90
100£2.52£251.80
150£2.01£300.80
200£1.75£349.80
250£1.52£379.30

* Annual fee of £30.00 + VAT applies if the total number of payslips processed in the whole tax year is fewer than 25.

Contact Us

Don’t hesitate to get in touch if you would like us to help with pricing or any other payroll and workplace pension questions you may have.

For a more detailed guide on our services please head over to our Payroll Services page.

How To Assess Workers for Auto Enrolment

How To Assess Workers for Auto Enrolment

Yep, it’s another blog post on auto enrolment and workplace pensions as it’s a tricky subject! This time we will look at the assessment process, which includes identifying workers, the difference between a jobholder and an entitled worker, then finally the different pensionable statuses and what action is required of each.

Each pay period all workers must be assessed as part the employer’s workplace pension duties. The category or status the worker falls under will determine what action, if any needs to be taken. Before we start with the assessment process though we first need to identify the ‘workers’.

What is a ‘worker’?

HMRC say a person is generally classed as a ‘worker’ if:

  • They have a contract.
  • Their reward is for money or a benefit in kind.
  • They only have a limited right to send someone else to work (subcontract).
  • They have to turn up for work even if they don’t want to.
  • Their employer has to have work for them to do as long as the contract or arrangement lasts.
  • They aren’t doing the work as part of their own limited company in arrangement where the ‘employer’ I actually a customer or client.

Once the employer has identified if they have a worker(s), they then need to understand if the worker is a jobholder or an entitled worker.

What is a jobholder?

A jobholder is aged between 16 and 74, usually works in the UK under contract and has qualifying earnings payable by the employer in the pay period being assessed. Jobholders can fall under one of two categories,

Eligible employees:

  • Aged between 22 and SPA.
  • Earn over £10,000/pa.
  • Employee must be automatically enrolled.
  • The employer must provide a qualifying workplace pension scheme.
  • The employer must also contribute at least the current minimum contribution.

Non-eligible employees:

  • Aged between 16 and 21 or between State Pension age (SPA) and 74, earns over £10,000 per annum, OR aged between 16 and 74, earns between £6,240 – £10,000 per annum.
  • Employee not automatically enrolled.
  • Employee can request to join a pension scheme.
  • If employee requests to join a scheme the employer must provide a qualifying workplace pension scheme.
  • The employer must also contribute at least the current minimum contribution.

What is an entitled worker?

Entitled workers are aged between 16 and 74, are usually working in the UK under contract and do not have qualifying earnings.

Entitled employees:

  • Aged between 16 and 74.
  • Earn less than £6,240 per annum.
  • Employee not automatically enrolled.
  • Employee can request to join a pension scheme.
  • If the employee wants to join a scheme the employer must provide a pension scheme though this doesn’t need to be a qualifying workplace pension scheme.
  • Employer doesn’t need to contribute to pension scheme if employee requests to join a scheme.

Assessment

With the information above you are now ready to assess your workers. You need to ensure you include the correct pay when making the assessment.

Pay types that must be included in assessment:

  • Salary
  • Bonus
  • Commission
  • Overtime
  • SSP
  • SMP
  • Paternity pay
  • Statutory adoption pay

Further Information

If a worker becomes eligible and then enrolled, even if they earn below the threshold to be eligible in any future pay periods, they continue to be eligible and enrolled within the scheme. If a jobholder or entitled worker is non-eligible or entitled, depending on their age and earnings, their pensionable status can change between pay periods.

If you have any questions about this article, or the payroll and workplace pension services we provide please get in touch.

Changes to the Coronavirus Job Retention Scheme for August & September

From 1st August 21 there are further changes being introduced to the Coronavirus Job Retention Scheme.

From August the employer can claim back 60% of the employees’ wages, down from 70% in July. The employer must top up the remaining 20% to ensure employees continue to receive 80% of their wages. Employers can still top up to 100% if they so wish.

 AugustSeptember
Claimable amount60% up to £1,87560% up to £1,875
Employer NI and pension contributionsYesYes
Mandatory employer top up20% up to £62520% up to £625
Employee receives80% up to £2,500/mth80% up to £2,500/mth

The Coronavirus Job Retention Scheme finishes on the 30th September 2021.