Employer's Pension Contributions and NI Employer's Pension Contributions and NI
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  1. #1

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    Default Employer's Pension Contributions and NI

    I've been contracting for a few months with Parasol and have just discovered that they pass on employer's NI on what are described as 'employer's pension contributions'.

    My understanding was that employee's pension contributions are subject to both forms of NI, but that employer's were not.

    The apparent reason for the charge is that the Parasol pension scheme 'works like a salary sacrifice scheme but is not technically a salary sacrifice scheme'.

    Can anyone shed any light on what the set-up of the scheme might be, or is this really just a 'hidden fee' by Parasol?

  2. #2

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    Quote Originally Posted by rotcartnoc View Post
    I've been contracting for a few months with Parasol and have just discovered that they pass on employer's NI on what are described as 'employer's pension contributions'.
    Not sure that that makes any sense

    What leads you to believe that the NI is pension? Is this all bulked under one cost as employment costs maybe?

  3. #3

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    I am guessing that a £300 "employer" contribution (for instance) into the pension scheme doesn not reduce the Employer's NI payable by the employee.

    i.e. the £300 is not deducted from the Gross Invoice Value prior to calculating the Employer's NI.

    That sound right OP?

  4. #4

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    Yes, they are deducting the employer's NI before deducting the pension contribution, rather than from the gross invoice value. They even provided the breakdown of costs showing this, and told me that this is what they are doing.

    Still don't understand how this works however...

  5. #5

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    OK so what they are doing is probably entirely in line with their employment contract (you get National Minimum Wage plus statutory obligations then discretionary commission / bonus) out of the money they invoice for your work.

    As a normal employee if you use a salary sacrifice for pension the employer saves on the Employer NI so their treatment is in line with that but really it's just extra cash for their coffers - you make the saving on Income Tax and Employee's NI and they save on the Employer's NI.

    As an individual you're probably one voice among thousands - for the best chance of a result my advice would be to mention it to your consultant / agency and how you think it's out of order because you're losing "£x" per month. Many umbrella companies react to agency demands a lot quicker than they do contractor demands.

    Actually just threatening to go to the agency may be enough as they may not even be aware of the practice of retaining the NIC.

    If they still won't help you out I'm assuming contractorumbrella don't operate the same policy so it could be time to jump ship.

  6. #6

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    Quote Originally Posted by rotcartnoc View Post
    Yes, they are deducting the employer's NI before deducting the pension contribution, rather than from the gross invoice value.
    The Salary Sacrifice element should reduce the NI & Tax take, if you want to send me their breakdown I can take a look and see if they are calculating this via salary sacrifice?

  7. #7

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    Default Umbrella Company Employer Pension Contributions

    Quote Originally Posted by rotcartnoc View Post
    Yes, they are deducting the employer's NI before deducting the pension contribution, rather than from the gross invoice value. They even provided the breakdown of costs showing this, and told me that this is what they are doing.

    Still don't understand how this works however...
    After my Umbrella (Crystal then Atlantic) announced they were changing pension provider and it would be no longer be possible to control the employer pension contribution when contributing a fixed amount on each payslip I've started looking for another that still offers this approach. (They used to provide either a 99%Er/1%Ee split or more recently 100%Er/0%Ee). But I'm finding it really difficult to find one that does do this.

    After many weeks trying to get this information out of Parasol they finally said that all contributions would be ~100% Ee. Not sure if that quite chimes with your experience and the certainly didn't tell me they would be keeping the employer NI rebate...

    Edit:

    There's an additional wrinkle I'd not appreciated when I first posted. Some umbrella companies appear to use salary-exchange for pension deductions (Atlantic and Crystal do not) and when this is the case the ER/EE split appears to be irrelevant as far as tax reduction is concerned as both contributions reduce the ER NI. Danbro appears to be one of these, Contractor Umbrella is another, I can't get a straight answer out of Parasol. All appear to allow one to increase the EE contribution but not the ER one.

    However an income assessment for a means-tested bursary for my son appears to be reduced by ER pension contributions but not EE ones so the EE/ER split is still relevant for me. I've yet to find an umbrella company however that works the way Crystal and Atlantic have been doing until recently with a 100%ER/0%EE (or 99%ER/1%EE) split.
    Last edited by simes1; 23rd May 2018 at 20:16. Reason: More information

  8. #8

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    Quote Originally Posted by simes1 View Post
    There's an additional wrinkle I'd not appreciated when I first posted. Some umbrella companies appear to use salary-exchange for pension deductions (Atlantic and Crystal do not) and when this is the case the ER/EE split appears to be irrelevant as far as tax reduction is concerned as both contributions reduce the ER NI. Danbro appears to be one of these, Contractor Umbrella is another, I can't get a straight answer out of Parasol. All appear to allow one to increase the EE contribution but not the ER one.
    So this all hinges on whether the pension is operated as salary sacrifice or not, if it is then the pension contribution percentages are irrelevant. Auto Enrolment for us is 3% equal split between EEs and ERs, however if additional contributions are made, then this is noted as an additional EEs contribution. So however the total pension amount is made up it should via salary sacrifice come off before NI, so makes no difference as to whether it is allocated to EEs or ERs.
    HTHs

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