Reply to: Help understanding Employers NI and salary breakdown.

[Madmax86]

Just make sure you know whether the umbrella is doing a salary sacrifice arrangement if that is how you are basing the calculations, the industry is flooded with different variants as to how to take the pension.

Hmmm that is an interesting point.

So with my current payslips including the one outlined in my original post, there is the pension contribution at £293.52 with employer's salary sacrifice saving of £26.24.

However, I have asked them on another occasion for an illustration of what it would look like if they paid £1,000 into my SIPP (If I opted out of the current workplace auto-enrolled pension) and this illustration has the £1,000 contribution but no salary sacrifice saving.

I haven't yet questioned them on this but is this what you are referring to?

[lucyclarityumbrella]

Tell me about it - think I have 6 variations at the moment ignoring the ones who do short cuts

I am genuinely not surprised!

[eek]

Just make sure you know whether the umbrella is doing a salary sacrifice arrangement if that is how you are basing the calculations, the industry is flooded with different variants as to how to take the pension.

Tell me about it - think I have 6 variations at the moment ignoring the ones who do short cuts

[lucyclarityumbrella]

I have also done a version where I define the pension as a hard number, not a % and that also works well, specially for scenarios investing a fixed amount into a SIPP.

Just make sure you know whether the umbrella is doing a salary sacrifice arrangement if that is how you are basing the calculations, the industry is flooded with different variants as to how to take the pension.

[lucyclarityumbrella]

I like to simply call the calculation umbrella payroll voodoo! Much simpler explanation!

[Madmax86]

That’s it. But you need to remember that if you increase e.g. your pension from 3.3% to 4%, then you need to change 1.17903 to 1.18603.

…and I’m not going to say that the figures are 100% accurate, but they may give you a reasonable approximation.

Yes definitely.

I have also done a version where I define the pension as a hard number, not a % and that also works well, specially for scenarios investing a fixed amount into a SIPP.

Thanks a lot for your help.

[WTFH]

I got to my answer below by doing this (in simple layman's terms)...

Having already established the following figures...

a = 1.17903
b = -64.65


I then did (£10,400 - b)/a = £8,875.64.

Is that a dumbed down way of writing your method above?

I already have my answer, the above is just for my comprehension and as you know, every day's a school day!

That’s it. But you need to remember that if you increase e.g. your pension from 3.3% to 4%, then you need to change 1.17903 to 1.18603.

…and I’m not going to say that the figures are 100% accurate, but they may give you a reasonable approximation.

[Madmax86]

Sorry, my mistake in typing too many zeros late last night in one of the values (I'd put the right number of zeros in earlier), also think of the first x as "1x":
x + 0.005x + 0.00296x + 0.03307x + 0.138x ... add all the numbers up and you get 1.179x

This is amazing thank you for clarifying. That did the job, this will be really useful going forwards.


I just have one question regarding the way you write your formulas. I'm not too familiar with mathematical equations which is why I struggled understanding your mathematical arguments.

10400 = 1.17903x - 64.65
1.17903x = 10464.65
x = 8875.64

I got to my answer below by doing this (in simple layman's terms)...

Having already established the following figures...

a = 1.17903
b = -64.65


I then did (£10,400 - b)/a = £8,875.64.

Is that a dumbed down way of writing your method above?

I already have my answer, the above is just for my comprehension and as you know, every day's a school day!

[WTFH]

Adding up those numbers gives me 0.149267. It doesn't explain how you get to 1.179. You have also used 'x' at the start but we do not yet know the value of 'x'. Hence my confusion.

Sorry, my mistake in typing too many zeros late last night in one of the values (I'd put the right number of zeros in earlier), also think of the first x as "1x":
x + 0.005x + 0.00296x + 0.03307x + 0.138x ... add all the numbers up and you get 1.179x

x is your take home salary, it is based on the rate the umbrella gets as per the formula. If your rate goes up, x goes up. You asked how they calculated your salary, they calculated your salary by putting your rate into a spread sheet, along with how much salary sacrifice you want (as a percentage) and how much pension (as a percentage), and it turns round and says x = £8875.64

As for switching from x to *, no I didn't, I just "expanded the argument" (mathematical term).
0.138(x-758.33) is the same as writing (0.138*x + 0.138*-785.33) or (0.138x -64.65)

[Madmax86]

Just add up the numbers. It’s really basic maths.
x + 0.005x + 0.00296x + 0.003307x + 0.138x = what?

Adding up those numbers gives me 0.149267. It doesn't explain how you get to 1.179. You have also used 'x' at the start but we do not yet know the value of 'x'. Hence my confusion.

(0.138 * -758.33) + 40 = what?

Ok I now see how you got to 64.65 as you have now changed the formula to use the Asterix instead of the 'x' which you used previously. You have been using 'x' to denote the salary, so you can hopefully see why I was confused.

Bottom line is, no the umbrella isn’t screwing you over, no, it’s not a chicken and egg conundrum, and maybe just accept that they know what they are doing.

Nowhere on this thread have I alluded to the umbrella screwing me over or not trusting them. The reasons for wanting to know this information is so I can create my own calculations so that I can adjust certain information (e.g pension contributions) without having to ask them every time for an illustration.

[WTFH]

Thanks a lot for this WTFH this is very helpful indeed.

I was with you for the bulk of it but do do you mind elaborating on how you got to the '1.179x' and '64.65' numbers above?

Just add up the numbers. It’s really basic maths.
x + 0.005x + 0.00296x + 0.03307x + 0.138x = what?
(0.138 * -758.33) + 40 = what?

Now, these figures only work based on the information you have supplied, i.e. I’ve back calculated the percentages for each figure. If you increase your pension or salary sacrifice, etc, then the calculation would have to be changed appropriately.
Bottom line is, no the umbrella isn’t screwing you over, no, it’s not a chicken and egg conundrum, and maybe just accept that they know what they are doing.

[Madmax86]

10400 = 1.179x - 64.65
1.179x = 10464.65
x = 8875.87

Thanks a lot for this WTFH this is very helpful indeed.

I was with you for the bulk of it but do do you mind elaborating on how you got to the '1.179x' and '64.65' numbers above?

[WTFH]

It ends up something like:
If x = salary
0.005x = apprenticeship levy
0.003x = salary sacrifice (approx)
0.033x = pension (approx)
0.138(x-758.33) = Employer NI

That means:
10400 = x + 0.005x + 0.003x + 0.033x + 0.138(x-758.33) + 40

Solving that equation gives you your salary and all deductions.

(roughly)

10400 = 1.179x - 64.65
1.179x = 10464.65
x = 8875.87

That's approx because it depends exactly what the salary sacrifice is and the pension, but I've taken the numbers you've written down and approximated them as a percentage.

I needed to go to 4 decimal places is percentage!

If x = salary
0.00500x = apprenticeship levy
0.00296x = salary sacrifice (approx)
0.03307x = pension (approx)
0.138(x-758.33) = Employer NI

That means:
10400 = x + 0.005x + 0.00296x + 0.03307x + 0.138(x-758.33) + 40

10400 = 1.17903x - 64.65
1.17903x = 10464.65
x = 8875.64

[northernladuk]

Wasn't there a company set up that would audit your payslip for you in light of all the problems with Umbrellas?

Ah.. it was https://saferec.co.uk/

Trying to sort numbers on here rarely works.

[WTFH]

It seems like a chicken and egg situation.

It's just a rather drawn out equation. The umbrella will put the 10,400 into one field, and it will spit out all the others. You're not dealing with two independent variables. They are related.
If y = 0.138(x-758.33)
Then x + y is the same as x + (0.138(x-758.33))

So, all you do is build up a big formula for each part of the breakdown and it works it all out. Part of the "trick" of it is not to say what is "umbrella costs" etc, but just look at each value and define it.

It ends up something like:
If x = salary
0.005x = apprenticeship levy
0.003x = salary sacrifice (approx)
0.033x = pension (approx)
0.138(x-758.33) = Employer NI

That means:
10400 = x + 0.005x + 0.003x + 0.033x + 0.138(x-758.33) + 40

Solving that equation gives you your salary and all deductions.

(roughly)

10400 = 1.179x - 64.65
1.179x = 10464.65
x = 8875.87

That's approx because it depends exactly what the salary sacrifice is and the pension, but I've taken the numbers you've written down and approximated them as a percentage.