Potentially going PAYE (short term) - rate breakdown

[DaveB]

And be aware that since the changes in 2017 the rules on Employers NI have been clarified by HMRC.

[ChevyChase]

And be aware that since the changes in 2017 the rules on Employers NI have been clarified by HMRC.

So agency (I'll name them - Reed - avoid if you can, they've done dick for myself or any of my contractor colleagues when it's come to finding work for any of us - we've sorted our own work out, then contacted them to sort the paperwork out, and they're not easy to deal with (look elsewhere on this forum)) - are taking over PAYE for a lot of people in the same boat.

People are having their contracts cancelled on day X and being offered a lower rate the next day Y - which is calculating your day rate less mentioned in that article:

Holiday pay at 12.07%
Employer’s NI at 13.8%
Apprenticeship levy at 0.5% (where applicable)
Contributions into a pension scheme

- so the question is - is that definitely illegal? I suspect because A) notice has been served to terminate the contract and B) Gross PAYE rate has been advertised as lower - effectively a new contract - then it's legal (but underhand).

[Manic]

Sadly entirely expected and inline with how the bank's are managing the new rules.

[eek]

So agency (I'll name them - Reed - avoid if you can, they've done dick for myself or any of my contractor colleagues when it's come to finding work for any of us - we've sorted our own work out, then contacted them to sort the paperwork out, and they're not easy to deal with (look elsewhere on this forum)) - are taking over PAYE for a lot of people in the same boat.

People are having their contracts cancelled on day X and being offered a lower rate the next day Y - which is calculating your day rate less mentioned in that article:

Holiday pay at 12.07%
Employer’s NI at 13.8%
Apprenticeship levy at 0.5% (where applicable)
Contributions into a pension scheme

- so the question is - is that definitely illegal? I suspect because A) notice has been served to terminate the contract and B) Gross PAYE rate has been advertised as lower - effectively a new contract - then it's legal (but underhand).

Nope - it's perfectly legal, legally correct (they are advertising the daily rate you will receive as an "employee") and a lot more honest than most agencies (who would advertise the contract at £500 a day and let you find out about those deductions on your first pay day).

I'm actually very happy Reed are doing things this way as it means we can point at other companies and directly ask what does your £x a day inside IR35 mean.

[DaveB]

Nope - it's perfectly legal, legally correct (they are advertising the daily rate you will receive as an "employee") and a lot more honest than most agencies (who would advertise the contract at £500 a day and let you find out about those deductions on your first pay day).

I'm actually very happy Reed are doing things this way as it means we can point at other companies and directly ask what does your £x a day inside IR35 mean.

It all depends on whats happening the background.

If the rate to the end client stays the same then they are effectively deducting the Employers NI from the contractors rate, which is illegal. What should be happening is that the rate to the client is uplifted to cover the NI and apprentice levy. This is what HMRC expects to happen. See the article I linked above.

[ComplianceLady]

There's a requirement from April for all Agencies to issue KIDS - essentially a breakdown of pay for each engagement type, this will make it much clearer as there's a different rate to quote for outside IR35, inside IR35, PAYE & Umbrella even though the overall cost to the client and agency margin is the same. That's because, as has been mentioned, you cannot include certain statutory deductions in some of the quoted rates but you can in others. So it's really critical to understand what engagement type you're being offered.

[eek]

It all depends on whats happening the background.

If the rate to the end client stays the same then they are effectively deducting the Employers NI from the contractors rate, which is illegal. What should be happening is that the rate to the client is uplifted to cover the NI and apprentice levy. This is what HMRC expects to happen. See the article I linked above.

It's not illegal as I said before what Reed is doing is how things really should be - the rate for the contract via a limited company was £500 a day i.e. the budgeted rate - but that rate doesn't exist anymore as the end client will not employ people that way.

The new rate for an "agency worker/ employee" is £380 a day - which is what the OP is being offered. That is the budgeted amount (£500) less all employer deductions.

yes this is annoying for people who were working there under the old rules (as they can see what is happening) but if you are a new starter everything is 100% correct - the role is advertised at £380 a day, the worker is being offered £380 a day and all employer deductions are being deducted before the worker sees the paperwork.

And as ComplianceLady states above hopefully things will get easier as adverts will be clearer and show things such as:-

Inside IR35 contract - Umbrella £500, PAYE £380

[DaveB]

It's not illegal as I said before what Reed is doing is how things really should be - the rate for the contract via a limited company was £500 a day i.e. the budgeted rate - but that rate doesn't exist anymore as the end client will not employ people that way.

The new rate for an "agency worker/ employee" is £380 a day - which is what the OP is being offered. That is the budgeted amount (£500) less all employer deductions.

yes this is annoying for people who were working there under the old rules (as they can see what is happening) but if you are a new starter everything is 100% correct - the role is advertised at £380 a day, the worker is being offered £380 a day and all employer deductions are being deducted before the worker sees the paperwork.

For new starters that's correct, but the OP's position is that they were previously contracted outside IR35 and have now been pushed to a new contract as an employee, at a rate that has been reduced through the deduction of Employers NI, while the same rate is charged to the end client. That's the bit that shouldn't be happening. Yes they can refuse to sign and walk away but if they did this to an employee they would be in front of a tribunal before they knew what hit them. If we are going to be treated like employees for tax purposes then we should be pushing back on sharp practice like this. If you are an IPSE member with legal support then I'd be calling them and having a discussion about how to challenge it in the same way that a permie would get their union involved.

[eek]

For new starters that's correct, but the OP's position is that they were previously contracted outside IR35 and have now been pushed to a new contract as an employee, at a rate that has been reduced through the deduction of Employers NI, while the same rate is charged to the end client. That's the bit that shouldn't be happening. Yes they can refuse to sign and walk away but if they did this to an employee they would be in front of a tribunal before they knew what hit them. If we are going to be treated like employees for tax purposes then we should be pushing back on sharp practice like this. If you are an IPSE member with legal support then I'd be calling them and having a discussion about how to challenge it in the same way that a permie would get their union involved.

Why shouldn't it happen?

There was a contract - that contract is terminated / withdrawn / finished and a new contract is offered at a lower rate.

The only time your example is valid is if a contract rolls on into April unchanged and employer taxes are deducted from the payments but few (large) agencies will be that stupid.

As to your other point - I've just checked with my brother (HR director with a masters in employment law) and it's perfectly possible for employees to be offered take it or leave it offers with pay cuts. Companies would usually offer an adjustment window for those affected but they don't need to - people that are leaving would need to get redundancy payments though.

[malvolio]

Why shouldn't it happen?

There was a contract - that contract is terminated / withdrawn / finished and a new contract is offered at a lower rate.

The only time your example is valid is if a contract rolls on into April unchanged and employer taxes are deducted from the payments but few (large) agencies will be that stupid.

As to your other point - I've just checked with my brother (HR director with a masters in employment law) and it's perfectly possible for employees to be offered take it or leave it offers with pay cuts. Companies would usually offer an adjustment window for those affected but they don't need to - people that are leaving would need to get redundancy payments though.

That's your first mistake. This is not an HR issue at all, it's (supposed to be) about hiring expert resources from a supplier. Because HR have got involved, and because HR only see people as employers or employees, and because HR are obsessed with rights and protections that suppliers simply aren't interested in or have any need for, they are of no use at all in sorting out this mess.