How do umbrellas calculate employers NI?

[ladymuck]

"payroll magic"

...

Have fun,
DJ

Looks good, no idea if it's accurate but if I were umbrella'd, I would chuck some numbers in to see how it works out.

[hobnob]

"payroll magic"

Nice work, although there are a couple of small wrinkles.

e = s + n + a
n = (s - x)r
a = sL

You need to include the umbrella's margin. However, you could incorporate that into e, since it's a flat rate rather than a percentage. E.g.
e = (daily rate x 5) - margin
That way, you don't need to modify the rest of the formulae.

If you haven't opted out of pension contributions then they'll automatically kick in after a couple of months, and your gross salary will go down accordingly. The pension bit can get quite complicated. My last umbrella calculated pension earnings as:
MAX(MIN(gross salary, UEL)-LEL)
The employer/employee contributions were then percentages of those earnings.
However, I think you're better off doing salary sacrifice for pension contributions, so it's easier to ignore that for now.

use MONTHLY figures for NICs

That will depend on how often you're paid by the umbrella. I've been with 3 umbrellas that all paid weekly (to match my timesheets) so the employer/employee NICs were based on weekly thresholds rather than monthly.

Taking one of my old payslips from FY 2019/2020 (without pension contributions):

e = £1382.50 ** (5 x £280) - £17.50
x = £170.00 ** secondary threshold
r = 0.138 ** employer's NI = 13.8% above ST
L = 0.005 ** apprenticeship levy = 0.5% of gross salary

s = (£1382.50 + (£170 x 0.138)) / (1 + 0.005 + 0.138) = £1230.06

The actual figure on my payslip was £1229.58, so your formula is pretty close. I'm guessing that the difference is down to rounding off to the nearest penny at various stages during the process.

[eek]

Nice work, although there are a couple of small wrinkles.



You need to include the umbrella's margin. However, you could incorporate that into e, since it's a flat rate rather than a percentage. E.g.
e = (daily rate x 5) - margin
That way, you don't need to modify the rest of the formulae.

If you haven't opted out of pension contributions then they'll automatically kick in after a couple of months, and your gross salary will go down accordingly. The pension bit can get quite complicated. My last umbrella calculated pension earnings as:
MAX(MIN(gross salary, UEL)-LEL)
The employer/employee contributions were then percentages of those earnings.
However, I think you're better off doing salary sacrifice for pension contributions, so it's easier to ignore that for now.



That will depend on how often you're paid by the umbrella. I've been with 3 umbrellas that all paid weekly (to match my timesheets) so the employer/employee NICs were based on weekly thresholds rather than monthly.

Taking one of my old payslips from FY 2019/2020 (without pension contributions):

e = £1382.50 ** (5 x £280) - £17.50
x = £170.00 ** secondary threshold
r = 0.138 ** employer's NI = 13.8% above ST
L = 0.005 ** apprenticeship levy = 0.5% of gross salary

s = (£1382.50 + (£170 x 0.138)) / (1 + 0.005 + 0.138) = £1230.06

The actual figure on my payslip was £1229.58, so your formula is pretty close. I'm guessing that the difference is down to rounding off to the nearest penny at various stages during the process.

that would be because the weekly starting point for employer ni was £166 in 2019/20 rather than £170

[hobnob]

that would be because the weekly starting point for employer ni was £166 in 2019/20 rather than £170

Yup, that would do it Well spotted!

s = (£1382.50 + (£166 x 0.138)) / (1 + 0.005 + 0.138) = £1229.58

So, that's exactly the same as the umbrella's figures.

[DocJ]

Yes, I forgot that I had deducted gross expenses (umbrella margin and pension contributions by salary sacrifice to SIPP or workplace pension) - sorry, but well spotted!

g = gross expenses, so

s = (e - g + xr) / (1 + r + L)

[ensignia]

It's very rare that I ever get consistently the same amount net. It's sometimes up a few quid, down a few quid and I haven't really looked into why.

And yes, for any smart arses who might want to comment, it's for the same amount of working days...

[eek]

It's very rare that I ever get consistently the same amount net. It's sometimes up a few quid, down a few quid and I haven't really looked into why.

And yes, for any smart arses who might want to comment, it's for the same amount of working days...

Ni should be the same but income tax will differ due to how the calculations works - ni is fixed weekly / monthly, income tax is annual and based on what has already been paid and the No of weeks left in tax year.

[lucyclarityumbrella]

You have way too much time on your hands to sit and do this , oh no wait eek gets too much pleasure out of this kind of calculation

[eek]

You have way too much time on your hands to sit and do this , oh no wait eek gets too much pleasure out of this kind of calculation

I wrote a pile of code - now all I do is put some figures in (invoice amount, tax code, amount paid so far and period) and it spits out a figure

[ensignia]

Ni should be the same but income tax will differ due to how the calculations works - ni is fixed weekly / monthly, income tax is annual and based on what has already been paid and the No of weeks left in tax year.

Cheers. I really hate the PAYE model for contractors, and not just because of the deductions.