Why Is Employer’s NI Included in The Payment Rate?
The “IQN Pay Rate” is the “Overall Cost” or the “Overall Budget” set by Shell for your Contract assignment with them.
This is shown on the Assignment Schedule that forms part of the Contract with your Limited Company as the “Payment Rate”.
As such, this “Payment Rate” needs to cover the cost of all of the Statutory emoluments, including the Employer’s National Insurance.
Currently, your Limited Company is the “Employer” and this liability already exists within the current “Payment Rate”; it is not a new requirement.
However, what might not exist is the need to channel the whole value of the “Payment Rate” – which is the “IQN Pay Rate” – through a compliant Payroll mechanism.
It may be that you currently channel a proportion of the “Payment Rate” through other mechanisms such as a Pension Fund or Directors Dividends, which of course is currently compliant.
This could then result in a relatively small portion of the “Payment Rate” being channelled through a Payroll mechanism, dramatically reducing the cost of the Statutory payments to be made.
This is where the real difference lies moving forward with the changes in the IR35 Legislation, which is now stipulating that the whole Fee needs to be channelled through a compliant PAYE system.
Other Statutory emoluments include the Employee’s National Insurance as well as the Employer’s National Insurance and both NIC’s will still need to be deducted prior to net payments being made.
In addition to this, we have to deduct the Income Tax for each Assignment at source as well, and this can vary from 20% through to 50% depending upon the “Payment Rate” that is applied.
The “Payment Rate” that is currently paid to your Limited Company represents the “Company Income” and this should not be viewed as being your own “Personal Income”.
The “Employer” is currently your own Limited Company and the cost of the paying the “Employer’s National Insurance” is currently the responsibility of your Limited Company.
The Employer’s National Insurance needs to be paid whether you work through an Umbrella Company or whether you work through your own Limited Company.
You can see from the example “Key Information Document” that is attached to this email how the breakdown for this needs to look.
Effectively, we will need to re-negotiate your Terms and ensure that these are correctly imported into your new Contract.
New Contracts need to be in place for all Services conducted on or after 6th April 2020 in order for us to be compliant.
We hope that this helps but if we can explain any of this further, please let me know.