Inside IR35 Contract - Paying Employer's NI

[Donshel]

Since April 2021 when private sector IR35 came in, I worked inside IR35 contracts through two different umbrella companies.

They are two of the bigger umbrellas in the UK umbrella market.

In both situations, Employer's NI was deducted from the amount that I invoiced (i.e. the daily rate agreed with my agency x days worked). The Employer's NI forms part of the "employment costs" deduction in my payslips.

According to https://www.gov.uk/guidance/working-...brella-company, "An umbrella company cannot by law deduct employer National Insurance contributions from your gross pay."

Has anyone else experienced this scenario? Am I misunderstanding things?

If these big umbrellas were doing something they shouldn't be doing, I'd be surprised that their aren't class action lawsuits at this point!

[WTFH]

Since April 2021 when private sector IR35 came in, I worked inside IR35 contracts through two different umbrella companies.

They are two of the bigger umbrellas in the UK umbrella market.

In both situations, Employer's NI was deducted from the amount that I invoiced (i.e. the daily rate agreed with my agency x days worked). The Employer's NI forms part of the "employment costs" deduction in my payslips.

According to https://www.gov.uk/guidance/working-...brella-company, "An umbrella company cannot by law deduct employer National Insurance contributions from your gross pay."

Has anyone else experienced this scenario? Am I misunderstanding things?

If these big umbrellas were doing something they shouldn't be doing, I'd be surprised that their aren't class action lawsuits at this point!

Welcome, Donshel.

You've missed the section above the sentence you've quoted, which explains the situation. Rather than going after the umbrella, who are allowed to make deductions. If you want to take a law suit out yourself, good luck. I suspect a solicitor will happily take fees from you, but fundamentally the issue you might have is in the wording between you and the agency, not you and your employer.

Assignment rate <> gross pay
Limited company rate <> gross pay
Contract rate (as defined and agreed between you and the umbrella) = gross pay

How you get paid
The client you work for pays the agency for your services.

The agency deducts a fee for placing you with the client and pays the rest of the money (sometimes known as the assignment rate or the limited company rate) to the umbrella company.

This rate is different to the rate you get paid from the umbrella company, because of the additional costs for the umbrella company, which include:

• administration costs (sometimes charged separately to you by the umbrella company)
• employer National Insurance contributions
• employer workplace pension contributions
• holiday pay
• other amounts to cover other specific costs, such as Apprenticeship Levy

The rate paid to the umbrella company by the agency will need to cover the costs of the employer National Insurance contributions. The umbrella company will use this money to pay employer contributions and not deduct the contributions from your gross pay.

What you get paid


The rate you get from the umbrella company is sometimes known as your contract rate and should be set out in your employment contract. It will often be an hourly rate at the National Minimum Wage plus another taxable amount often described as a bonus or additional pay. This is your gross pay (your pay before deductions).

[eek]

Since April 2021 when private sector IR35 came in, I worked inside IR35 contracts through two different umbrella companies.

They are two of the bigger umbrellas in the UK umbrella market.

In both situations, Employer's NI was deducted from the amount that I invoiced (i.e. the daily rate agreed with my agency x days worked). The Employer's NI forms part of the "employment costs" deduction in my payslips.

According to https://www.gov.uk/guidance/working-...brella-company, "An umbrella company cannot by law deduct employer National Insurance contributions from your gross pay."

Has anyone else experienced this scenario? Am I misunderstanding things?

If these big umbrellas were doing something they shouldn't be doing, I'd be surprised that their aren't class action lawsuits at this point!

As WTFH says your issue is a misunderstand of what the agency is paying the umbrella - it isn't your income it's the assignment fee from which the umbrella must deduct all employment costs.

If you didn't follow the document you linked to which WTFH has helpfully copied the appropriate piece over for you LITRG factsheet: working through an umbrella company has another explanation of what is going on.

Now if the agencies did not send you a key information document before you began work there is a (vague, slight) chance that an employment tribunal may agree that the deductions were illegal but I wouldn't be spending my money on such as case as every other similar case has been lost.

You could however try your luck with Umbrella Reclaim not that I think they've got a valid argument either - they original advertised using an example case where someone won £500 by default (which wasn't surprising as fighting a tribunal case costs £000s so it's often not worth the hassle) but they are the Group Class Action lawsuit you expected to find.

Interestingly Umbrella Reclaim have gone rather quiet so if any of the people who signed up can tell me how it's going on I would love to hear (mainly because everything is so time restricted most things will be time served / expired).

[psychocandy]

Since April 2021 when private sector IR35 came in, I worked inside IR35 contracts through two different umbrella companies.

They are two of the bigger umbrellas in the UK umbrella market.

In both situations, Employer's NI was deducted from the amount that I invoiced (i.e. the daily rate agreed with my agency x days worked). The Employer's NI forms part of the "employment costs" deduction in my payslips.

According to https://www.gov.uk/guidance/working-...brella-company, "An umbrella company cannot by law deduct employer National Insurance contributions from your gross pay."

Has anyone else experienced this scenario? Am I misunderstanding things?

If these big umbrellas were doing something they shouldn't be doing, I'd be surprised that their aren't class action lawsuits at this point!

Not sure if the umbrella is to blame here to be honest. Look at this way, they get say £2500 a week gross from the agency. They get say £25 for dealing with this.
Someone has to pay the employer NI. Its £300 on this. The umbrella are going to be £275 out of pocket here. Not happening.

Its always been like this. Is it right? Who knows? But its not the umbrellas problem.....

Imagine what would happen if the government said, ok you still get the gross from the agency but you've got to pay the employer NI. They'd go bust. (Or more likely whack the fees up to £325 a week or whatever)

[eek]

Not sure if the umbrella is to blame here to be honest. Look at this way, they get say £2500 a week gross from the agency. They get say £25 for dealing with this.
Someone has to pay the employer NI. Its £300 on this. The umbrella are going to be £275 out of pocket here. Not happening.

Its always been like this. Is it right? Who knows? But its not the umbrellas problem.....

Imagine what would happen if the government said, ok you still get the gross from the agency but you've got to pay the employer NI. They'd go bust. (Or more likely whack the fees up to £325 a week or whatever)

The issue comes down to a simple one - Agencies wish to advertise the maximum figure possible and most agents haven't got a clue what they are talking about when it comes to this.

The fix is to require Key Information Documents to be published alongside the job advert and sent on application rather than when the contract is sent out. That is one of the things I'm sure is being mentioned continually in the current HMRC / BEIS Umbrella consultation.

And it is worth emphasising this 90% of the problems in this industry boil down to agencies doing everything they can to maximise profits and pass their costs on to anyone else.

[some guy some where]

Inside ir35 = an agency worker (with less rights)

Your employed by the umbrella and if you look at your payslip there are no deductions for employers ni from your actual pay... Your pay is reduced by the deductions first before you are paid...

If you've not unstood it yet the whole umbrella/ir35 setup is a way of hiring temporary employees without giving out employment rights...

And yes that 1.5% addition to ni is really going to hurt as it will actually be 3% of your total income

[some guy some where]

In a slightly more sane world we wouldn't even need umbrellas and companies would just put people on payroll (like they do for other temps) but because of the risk of gaining employment rights there's this need for these extra levels of indirection...its a sad state of affairs especially as said rights are pretty much worthless anyway nowadays given the cost of tribunals etc etc.

In reality the reality the difference between inside ir35/a temp and an employee is 4 weeks notice...

[eek]

Inside ir35 = an agency worker (with less rights)

Your employed by the umbrella and if you look at your payslip there are no deductions for employers ni from your actual pay... Your pay is reduced by the deductions first before you are paid...

If you've not unstood it yet the whole umbrella/ir35 setup is a way of hiring temporary employees without giving out employment rights...

And yes that 1.5% addition to ni is really going to hurt as it will actually be 3% of your total income

It's 1.25% increase on both sides which comes to 2.5% of your income bar a few pennies - all the more reason to use an umbrella and maximise your salary sacrifice into a pension.

Oh and the reasons why agencies love umbrellas

1) less admin hassle
2) less risk
3) chance to make a profit out of it via kickbacks and other scams
4) ability to force umbrella workers to opt out of agency regulations so increasing the tie in between the worker and the agency (yep that's more potential profit for the agency).

[northernladuk]

In reality the reality the difference between inside ir35/a temp and an employee is 4 weeks notice...

Is it? You sure?

[curtis]

Bit late to this party but been off this site for a while..... Normally on the odd advert I've seen where there is a PAYE rate and a Umbrella/Ltd rate mentioned, the umbrella/ltd rate is higher as it includes an 'uplift' as my umbrella explained to me, which is to take into account the extra NI.