Reply to: NI on Inside Contracts?

[Chris Bryce]

All umbrella companies have to provide a KID (Key Information Document) that outlines the exact calculations for your net income, including all deductions.
It's very straightforward. The umbrella companies I've used have calculators that you can use as well.

In law*, it's the recruitment agency/employment business which is obligated to provide a candidate with a KID and the Employment Agency Standards Inspectorate can and do take umbrage with those agencies which don't. Frequently the KIDs (or at least the data thereon) are supplied to the agency by the umbrella.

If the recruiter you're speaking to doesn't know whether the rate is inclusive or exclusive of ErNICs (and other stuff), simply say give me a KID from umbrellas x,y and z on your preferred supplier list. They are legally obliged to do so.

Furthermore most umbrellas (and certainly all FCSA umbrellas) will give you an illustration document - sometimes straight from their website and sometimes on request - which will give you a fairly good indication of the actual assignment rate->take home calculation.


*At time of writing

[willendure]

I've never seen one that "contributes" their share of NI for free. It's always from the assignment rate.

Thanks for validating this. It is my default assumption - but of course I can easily change that on my spreadsheet on a case by case basis if it turns out to be different.

[Dorkeaux]

All umbrella companies have to provide a KID (Key Information Document) that outlines the exact calculations for your net income, including all deductions.
It's very straightforward. The umbrella companies I've used have calculators that you can use as well.

I've never seen one that "contributes" their share of NI for free. It's always from the assignment rate.

Regarding whether working for an umbrella company is "real" contracting or not, it looks the same to the client exept less percieved risk to them.
They look at us as contingent workers for the most part, regardless of inside or outside IR35.

It's only contractors that really obsess over the fine points of mutuality of obligation. None of the clients I've dealt with gave a stuff.

[WTFH]

True. But you can make a spreadsheet that gets you close enough, and then adjust the figures as you find out more precise details about a role.

To make it easier for yourself, start out with the spreadsheet you currently have that details daily rate hitting your company, and how much goes into your personal bank account each month, not forgetting personal tax, etc, and any other directors/“employees” you pay for the work you do.
Take a look at that spreadsheet for an actual year (not a theoretical “I can work x days”), and don’t forget all the things you claim as being legitimate business expenses that you might have to give up.
Once you’ve done that, then work out your burn rate. (Based on the number of posts you make on the State of the Market thread, you must have a good idea on that)

[ladymuck]

Really? You don't think the £500/day headline rate in a job ad will be the 'assignment rate' lady muck describes, which will include employers NICs? It could be either way and the few times I have talked to agents about inside roles they seemed not to know, or maybe were just playing dumb. I just think its likely the rate inclusive of emp NICs is generally what goes on an ad, since thats the better looking number.

I wouldn't assume the rate you see advertised is only subject to PAYE/EeNIC. The agent should know and, if they don't, ask to talk to someone who does. This is vital financial information that makes a huge difference to the take home rate.

[Protagoras]

True. But you can make a spreadsheet that gets you close enough, and then adjust the figures as you find out more precise details about a role.

Some things are easy to cost, for example holidays - umbrellas seem to use an accrual rate of about 13%.

Sick pay and healthcare can be proxied by taking the cost of insurance for the same cover into account, but this very quickly looks problematic since sickness insurance covering short absences is expensive. Similarly, training can be counted.

It's when you want to recover all these costs against a 9 month contract, the impact on the day rate can be considerable, and it's not as if for an non-outside engagement that these can be deduced from gross. This then leads to a level of subjectiveness about the probability of needing insurance.

[malvolio]

True. But you can make a spreadsheet that gets you close enough, and then adjust the figures as you find out more precise details about a role.

But why assume you have all the information? The agent could massage the numbers to improve their margin, for example, since that affects their own income.

The only time you will be certain is when you get your first payslip.

[willendure]

I totally agree. You simply can't do a straight, meaningful comparison between day rate contracts and salaried employee, the list of variables is longer than most people realise, and the "calculators" make far too many assumptions to be of much use. Even the source of the funding is different, salaries come from revenue, contractors from programme budgets.

All you can do is find out the net to you from the gig and decide if that is affordable, taking into account stuff like zero expenses...

True. But you can make a spreadsheet that gets you close enough, and then adjust the figures as you find out more precise details about a role.

[willendure]

Yeah, with inside IR35 it usually means the agency/umbrella will factor in employer’s NI before you see the quoted day rate. So if you’re told £500/day, that’s the gross you’ll be taxed on as an employee, you won’t then have to pay the employer’s NI out of it, that’s already priced in. What you’ll feel is just normal PAYE and employee NI. Comparing to perm jobs, yeah you’re right to add in the pension contribution difference and also remember you don’t get things like holiday/sick pay included, so the perm package can look smaller on paper but be worth more in practice.

Really? You don't think the £500/day headline rate in a job ad will be the 'assignment rate' lady muck describes, which will include employers NICs? It could be either way and the few times I have talked to agents about inside roles they seemed not to know, or maybe were just playing dumb. I just think its likely the rate inclusive of emp NICs is generally what goes on an ad, since thats the better looking number.

[Protagoras]

To get a gross salary of £500/day would give an 'employer' a cost of about £646/day, the difference accounting for Employer NI and Apprenticeship Levy.

Given the significant difference, as ladymuck says, need to identify whether the quoted rate is or is not an 'assignment rate'.

[Assumes same pension etc as per my above example]

[Stevep42]

Yeah, with inside IR35 it usually means the agency/umbrella will factor in employer’s NI before you see the quoted day rate. So if you’re told £500/day, that’s the gross you’ll be taxed on as an employee, you won’t then have to pay the employer’s NI out of it, that’s already priced in. What you’ll feel is just normal PAYE and employee NI. Comparing to perm jobs, yeah you’re right to add in the pension contribution difference and also remember you don’t get things like holiday/sick pay included, so the perm package can look smaller on paper but be worth more in practice.

[Protagoras]

In fairness, working on an 'inside' basis isn't really contracting, it's just better paid office temping, despite the tendency to describe umbrella workers 'contractors'.

Temps were always agency PAYE, so the matter of Employer's NI never arose. It only became a focus because the Government closed down the proper contracting industry for individuals and the 'umbrella' sector came into being.

[sadkingbilly]

Shock Horror! - mr knowall doesn't know how basic contracting works!
quelle surprise.

[malvolio]

The employer always pays Employer NI and if you work an 'inside' engagement the employer will be an Agent or Umbrella Company.

Unless otherwise stated, I'd assume that Employer's NI and Apprenticeship Levy will be deducted from the day rate. For example, £500/day for 20 days gives the following on an Umbrella basis

Gross Contract Income	£10,000.00
% Pension	3%
Apprenticeship Levy	£ 39.43
Employer NI	£ 1,674.83
Employee NI	£ 620.96
Umbrella Margin	£ 100.00
Gross Salary Income	£ 7,885.75
Total Pension	£ 300.00

Probably no one would want to opt out of a 3% pension contribution, but this comes out of the fee income. It's an 'employer' contribution in name only.

It's remarkably difficult to compare contract and perm rates where there are other employment benefits e.g.sick pay, training, private healthcare.

What is clear is that when working via an Umbrella Company, salary sacrifice to pension avoids NI charges and is attractive where one's pension fund needs a top up. Of course, depending on age, there's risk that the 25% tax free pension lump sum may become unavailable.

Finally, yes, to compare pension contributions on an even basis you need to consider the total of employer and employee contributions.

I totally agree. You simply can't do a straight, meaningful comparison between day rate contracts and salaried employee, the list of variables is longer than most people realise, and the "calculators" make far too many assumptions to be of much use. Even the source of the funding is different, salaries come from revenue, contractors from programme budgets.

All you can do is find out the net to you from the gig and decide if that is affordable, taking into account stuff like zero expenses...

[Protagoras]

The employer always pays Employer NI and if you work an 'inside' engagement the employer will be an Agent or Umbrella Company.

Unless otherwise stated, I'd assume that Employer's NI and Apprenticeship Levy will be deducted from the day rate. For example, £500/day for 20 days gives the following on an Umbrella basis

Gross Contract Income	£10,000.00
% Pension	3%
Apprenticeship Levy	£ 39.43
Employer NI	£ 1,674.83
Employee NI	£ 620.96
Umbrella Margin	£ 100.00
Gross Salary Income	£ 7,885.75
Total Pension	£ 300.00

Probably no one would want to opt out of a 3% pension contribution, but this comes out of the fee income. It's an 'employer' contribution in name only.

It's remarkably difficult to compare contract and perm rates where there are other employment benefits e.g.sick pay, training, private healthcare.

What is clear is that when working via an Umbrella Company, salary sacrifice to pension avoids NI charges and is attractive where one's pension fund needs a top up. Of course, depending on age, there's risk that the 25% tax free pension lump sum may become unavailable.

Finally, yes, to compare pension contributions on an even basis you need to consider the total of employer and employee contributions.