Legality of client/umbrella passing on employers NI rise

[mharris]

So several weeks back Nasa Umbrella sent out an email explaining about the rise in national insurance, and how the increase would be passed on to the contractor - no surprise there.

Now I understand that with a new contract, it is implicit that the rates are agreed upon inclusive of the "employment costs" and the remainder makes up your personal gross income. However, the imminent rise to Secondary Class1 (employers) NI represents a new/additional employer liability. This got me thinking.. Is it lawful for this new liability to be passed on to the employee such that it is deducted from the previously agreed gross income?

I've had a good look through the umbrella paperwork and contract. I cannot see anywhere that states that the deducted employment costs are variable and subject to the current government policy. Only that I should refer to my "personalised pay illustration" - which obviously details the NI rates at the time (June 2021).

Just to clarify, I'm not questioning the Class 1 employee NI rise - which I acknowledge I have to pay. Or the fact that the employer NI is deducted at all from the rates agreed at the start of a contract. This question only applies where a new/additional employer liability is being deduced from a previously agreed rate.

[eek]

The advice for weeks has been that new Key Information Documents need to be sent out to show what will be paid after April 6th - but this is a right faff for agencies and umbrellas given it needs to be done the same time everything else is being done.

Beyond that - I don't think there is any valid compliant. The original Key Information Document shows that Employer NI is deducted from the umbrella income / assignment fee so the fact the rate has changed is irrelevant.

[WTFH]

So several weeks back Nasa Umbrella sent out an email explaining about the rise in national insurance, and how the increase would be passed on to the contractor - no surprise there.

Now I understand that with a new contract, it is implicit that the rates are agreed upon inclusive of the "employment costs" and the remainder makes up your personal gross income. However, the imminent rise to Secondary Class1 (employers) NI represents a new/additional employer liability. This got me thinking.. Is it lawful for this new liability to be passed on to the employee such that it is deducted from the previously agreed gross income?

I've had a good look through the umbrella paperwork and contract. I cannot see anywhere that states that the deducted employment costs are variable and subject to the current government policy. Only that I should refer to my "personalised pay illustration" - which obviously details the NI rates at the time (June 2021).

Just to clarify, I'm not questioning the Class 1 employee NI rise - which I acknowledge I have to pay. Or the fact that the employer NI is deducted at all from the rates agreed at the start of a contract. This question only applies where a new/additional employer liability is being deduced from a previously agreed rate.

You're the one that says this is a new/additional liability. It's not. It's a change to the existing one, and it is not a change being instigated by the umbrella.

[northernladuk]

The advice for weeks has been that new Key Information Documents need to be sent out to show what will be paid after April 6th - but this is a right faff for agencies and umbrellas given it needs to be done the same time everything else is being done.

Beyond that - I don't think there is any valid compliant. The original Key Information Document shows that Employer NI is deducted from the umbrella income / assignment fee so the fact the rate has changed is irrelevant.

Never had the situation so I've no idea but a friend mentioned this to me the other week. Wasn't there some noise about how the rate should be advertised/offered? So there is the rate gross which the NI comes off or they can advertise the rate after NI deducted. Do I remember one was the correct way and one wasn't? I think this is where the OP is getting confused and I'd like to know the answer out of interest as well.

[DolanContractorGroup]

So several weeks back Nasa Umbrella sent out an email explaining about the rise in national insurance, and how the increase would be passed on to the contractor - no surprise there.

Now I understand that with a new contract, it is implicit that the rates are agreed upon inclusive of the "employment costs" and the remainder makes up your personal gross income. However, the imminent rise to Secondary Class1 (employers) NI represents a new/additional employer liability. This got me thinking.. Is it lawful for this new liability to be passed on to the employee such that it is deducted from the previously agreed gross income?

I've had a good look through the umbrella paperwork and contract. I cannot see anywhere that states that the deducted employment costs are variable and subject to the current government policy. Only that I should refer to my "personalised pay illustration" - which obviously details the NI rates at the time (June 2021).

Just to clarify, I'm not questioning the Class 1 employee NI rise - which I acknowledge I have to pay. Or the fact that the employer NI is deducted at all from the rates agreed at the start of a contract. This question only applies where a new/additional employer liability is being deduced from a previously agreed rate.

Hi mharris,

You wouldn't see any mention of the employment costs in your employment contract, as that will only say what the umbrella has to pay you. "Employment costs" do not form part of your pay so wouldn't be referred to in there.

The Ee'rs NI rise is being adopted in the same way as the Apprenticeship Levy was a few years before. The one good thing that I've seen this time though, which wasn't prevalent when the App Levy came in, is that some agencies and clients have proactively asked umbrellas for a new gross rate to account for the 1.25% increase. Not common, but still good to see.

Thanks


Zeeshan

[eek]

Hi mharris,

You wouldn't see any mention of the employment costs in your employment contract, as that will only say what the umbrella has to pay you. "Employment costs" do not form part of your pay so wouldn't be referred to in there.

The Ee'rs NI rise is being adopted in the same way as the Apprenticeship Levy was a few years before. The one good thing that I've seen this time though, which wasn't prevalent when the App Levy came in, is that some agencies and clients have proactively asked umbrellas for a new gross rate to account for the 1.25% increase. Not common, but still good to see.

Thanks


Zeeshan

Technically all umbrella workers legally need to have new Key Information documents for tomorrow onwards.

That isn't going to happen for a whole set of reasons up to and including needing to hack their payroll software to generate them (KIDs can only be generated against current data so can only be generated using the 2021/22 figures until tomorrow).

[DolanContractorGroup]

Technically all umbrella workers legally need to have new Key Information documents for tomorrow onwards.

That isn't going to happen for a whole set of reasons up to and including needing to hack their payroll software to generate them (KIDs can only be generated against current data so can only be generated using the 2021/22 figures until tomorrow).

There's a little bit of debate on whether new KIDs have to be issued this year. Current government guidance says that a new KID needs to be issued when there are new deductions, so they definitely have to be issued next year when the 'Health and Social Care levy' will be separately shown on payslips, but the imminent national insurance increases are not new deductions, merely a change of the current level.

Nonetheless, we have issued new KIDs to reflect the NICs increase whenever requested.

Paragraph 15
Key information documents do not have to be revised every time an agency worker begins a new assignment. Revised key information documents only have to be issued when the facts that are reflected in the document change: this could be the introduction of a new deduction, a change in pay intervals or frequency, or a change of the intermediary or umbrella company paying the agency worker. A change in assignment pay in itself may not necessitate a new key information document, but it would be considered best practice for employment businesses to ensure that key information documents are kept as up to date and as accurate as possible.

Thanks

Zeeshan

[mharris]

You're the one that says this is a new/additional liability. It's not. It's a change to the existing one, and it is not a change being instigated by the umbrella.

So this is the wording from HMRC that I am questioning.. See section 7 in this link: Off-payroll working: HMRC

Secondary Class 1 (employers’) NICs
Because the fee payer has a liability to pay secondary Class 1 NICs, they are likely to wish to renegotiate the fee with the intermediary to reduce the rate for the job. They cannot lawfully deduct the secondary NICs from a fee that has been agreed, but could, depending on the contractual terms, negotiate a lower fee.

Note: That link is in relation to the move from PSCs to Off-payroll, and not about the current NI rise. So may not be directly relevant, but it does illustrate HMRC's stance on it.

Using the terminology of that paragraph: The liability that the fee payer has to cover has increased (whether this is new or additional is just arguing semantics). The fact that the contractor's gross income is being reduced to account for the secondary NIC suggests that they are, in fact, deducting it from the agreed fee.

So this makes me question what exactly defines the 'fee' that was agreed to initially. Seems like it is an entirely variable amount according to whatever the current employer tax obligations are.

Putting this another way.. Under a 'normal' employment scenario, it would not be lawful for a change in employer tax liability to affect the employee's gross income. I'm a deemed employee, working under an employment contract, inside IR35. What is special about my situation that makes it lawful to deduct this increase on this occasion?

[DolanContractorGroup]

So this is the wording from HMRC that I am questioning.. See section 7 in this link: Off-payroll working: HMRC



Note: That link is in relation to the move from PSCs to Off-payroll, and not about the current NI rise. So may not be directly relevant, but it does illustrate HMRC's stance on it.

Using the terminology of that paragraph: The liability that the fee payer has to cover has increased (whether this is new or additional is just arguing semantics). The fact that the contractor's gross income is being reduced to account for the secondary NIC suggests that they are, in fact, deducting it from the agreed fee.

So this makes me question what exactly defines the 'fee' that was agreed to initially. Seems like it is an entirely variable amount according to whatever the current employer tax obligations are.

Putting this another way.. Under a 'normal' employment scenario, it would not be lawful for a change in employer tax liability to affect the employee's gross income. I'm a deemed employee, working under an employment contract, inside IR35. What is special about my situation that makes it lawful to deduct this increase on this occasion?

Hi mharris

As you've mentioned, those rules deal with PSCs being paid by a fee-payer (generally the recruitment agency). There is no 'fee payer' or PSC in the umbrella supply chain (worker > umbrella > agency > client), and the off-payroll working rules don't impose a fee payer into supply chain either, so these rules wouldn't apply.


Kind regards

Zeeshan

[mharris]

Hi mharris

As you've mentioned, those rules deal with PSCs being paid by a fee-payer (generally the recruitment agency). There is no 'fee payer' or PSC in the umbrella supply chain (worker > umbrella > agency > client), and the off-payroll working rules don't impose a fee payer into supply chain either, so these rules wouldn't apply.


Kind regards

Zeeshan

Thanks Zeeshan, and what about the last part of my post? This really is the essence of my question..

Putting this another way.. Under a 'normal' employment scenario, it would not be lawful for a change in employer tax liability to affect the employee's gross income. I'm a deemed employee, working under an employment contract, inside IR35. What is special about my situation that makes it lawful to deduct this increase on this occasion?