Sharp Practice? Inside weekly pension cap approved vs worked hours

[Jon Bull]

Long time listener, first time caller.

I ran a Ltd and many outside IR35 contracts for over 10 years, until a few years ago where I wound it all up for personal reasons.

Fast forward, I am now working on an inside IR35 contract. It's a 1 year contract and started a few months ago.

The employer is obliged legally to pay me pension and I pay some too (I don't opt out). I submit and get paid weekly timesheets. Let's pretend the day rate is £500.

As I'm on a weekly payroll, my pension contributions are capped weekly. So for 5 days a week, I'd get a payslip for £2500 minus tax and then an additional capped pension contribution from the employer. To make things simple, let's pretend that capped pension amount is say £25 a week, because the employer only has to pay pension on the first £500 or so of weekly earnings. This is legal and above board from what I can tell.

So far, so normal. Now the fun part.

My employer pays my timesheets obviously when they are approved. This means if I worked for e.g. 3 weeks before all the corresponding timesheets were approved, I would then get one "weekly" payslip but actually containing 3 weeks money i.e. 3 x £2500 = £7500 (minus tax).

However, the weekly pension cap is still applied on the total of that "weekly" payslip. i.e. against the full £7500. So I only get one payment of £25 for that 3 week payslip even though if instead I had 3 separate payslips, I would have received the "full" amount i.e. 3 x £25 = £75.

This discrepancy means the amount of my pension pay is at the whim of when the client approves my timesheets, rather than the actual period worked. Obviously the incentive for me is to get regular weekly approvals like clockwork (as it always is anyway) but now there is small incentive for the client to do the opposite and approve as few as possible.

In practice, the sums of money are not large and I am obviously well paid but I still believe this is unfair and possibly illegal because it disadvantages me financially in a manner I cannot mitigate nor control.

I've attempted to approach the client payroll over this (large corporate) and there is no sense to be had with them. I only get blanket responses such as, "we pay everything we have to" and "your payroll is correct" and they won't directly address the issue (rather unsurprisingly). They have hundreds of contractors on similar arrangements.

I'm very interested to hear opinions on this. Is this just something I have to suck up or is this fishy and worth pushing further, as I suspect?

[hobnob]

When you say "the employer", are you talking about the umbrella company?

If the client is taking 3 weeks to approve your timesheets, that's an issue for them, and you should be able to ask what's taking so long. (My timesheets normally get approved the following working day.)

If the umbrella company is merging multiple weeks together, you'll need to talk to them rather than the client.

Edit: Assuming that you are using an umbrella, I'd also advise you to look at salary sacrifice rather than auto-enrollment, then you can choose how much to put in (up to the annual limit) rather than going with the fixed percentages.

[Jon Bull]

Thanks for your reply.

When you say "the employer", are you talking about the umbrella company?

To clarify, as I wasn't very clear originally - I (personally) have a contract for services as temporary worker with a third-party company, whom effectively are a payroll umbrella. They then bill the end client whom my day-to-day work activities are for. I am paid by this third-party and issued payslips by them, contingent upon what I have worked and when the end client has approved those timesheets. I do not get paid a fixed salary. I am on PAYE with this third-party.

If the client is taking 3 weeks to approve your timesheets, that's an issue for them

Well, I don't think it's an issue for the end client, per se. Whether it takes one week or three to pay me doesn't bother them too much, although obviously yes, that's more a concern for me. However, this is somewhat tangential to my original query. I think all contractors have practically had periods where their timesheets are not always approved regularly for each and every week of an assignment - even if that's just a one-off incident or missed week on a contract. The main problem I have is that this seems to affect what I am paid, not just when - and it's that part I am very interested in.

If the umbrella company is merging multiple weeks together, you'll need to talk to them rather than the client.

I'm back to the brick wall unfortunately there. My efforts to resolve this with the client get pointed to the umbrella payroll who essentially just tell me "you're getting paid correctly" without provided adequate explanation of this particular practice and we go around in circles. Hence, why I am interested if others have experienced this scenario with pension contributions and rolling multiple weeks together, or not.

Edit: Assuming that you are using an umbrella, I'd also advise you to look at salary sacrifice rather than auto-enrollment

Yes, that'd be nice but unfortunately the payroll company isn't willing to do this, as I've asked them when the contract commenced - this is surprising to me as I thought they'd save NICs on it.

[eek]

Yes, that'd be nice but unfortunately the payroll company isn't willing to do this, as I've asked them when the contract commenced - this is surprising to me as I thought they'd save NICs on it.

Well they would but ideally they would be contributing the employer NI saved into your pension pot.

As for the rest of your complaint there are limits as to how much needs to be paid into a pension pot and they can be applied on a weekly basis. And because you are being paid irregularly you are continually bumping up against that limit.

It's wrong but I doubt there is much you can do that would fix it.