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PAYE agency deducting Employers NIC from NET salary rather than GROSS

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    PAYE agency deducting Employers NIC from NET salary rather than GROSS

    Hello,

    I jumped into a PAYE role a couple of months ago, having now received my first payslip, I discovered that my agency is deducting employers NIC from my NET salary instead of GROSS.

    e.g.

    Gross Pay 11647.35

    Employees NIC 554.61
    Holiday 146.2
    Tax 3616.6
    Employers NIC 1506.32

    Take Home 5823.62

    So I am essentially paying tax on the employers NIC, which is surely incorrect? I believe the correct way should be to deduct the employers NIC from the gross salary and then tax the remainder, like so:

    Gross Pay 11647.35
    Employers NIC 1506.32

    Taxable Pay 10141.03
    Employees NIC 524.49
    Holiday 146.2
    Tax 3014.45

    Take Home 6455.89

    Could someone confirm if what they are doing is wrong? I assume it was a mistake in their calculations if so.

    Thanks

    #2
    Originally posted by lunchbox View Post
    Hello,

    I jumped into a PAYE role a couple of months ago, having now received my first payslip, I discovered that my agency is deducting employers NIC from my NET salary instead of GROSS.

    Gross Pay 11647.35

    Employees NIC 554.61
    Holiday 146.2
    Tax 3616.6
    Employers NIC 1506.32

    Take Home 5823.62
    If that is the case all I can say is WOW! If the £11,647.00 is your invoice value, then the take home should be around £6,633 assuming a normal tax code. If they are decuting the Employers NICs from your taxable salary that is unlawful deduction of earnings and could leave them in big, big trouble. The Ers NICs is also too high, it should be in the region of £1,305.

    Honestly, please be careful when choosing a brolly, there are a number who I have seen that have set up recently with only a background in normal payroll, this is not the same and leads to mistakes like this. I honestly hope that what is quoted above is not how they have worked it in practice.

    Comment


      #3
      Originally posted by lunchbox View Post
      Holiday 146.2
      No idea how that has been calculated either, this should be calculated at 12.07% of your taxable salary, looks like they are basing this on NMW, which they are not allowed to do anymore, needs to be based on the full amount not just the basic rate.

      Comment


        #4
        Thanks for confirming for me Lucy.

        Can you let me know how you get to your employers NIC contribution please? I believed it should be at 12.9% according to the following website:

        UK Salary Tax Calculator 2020 / 2021: Calculate my take home pay : gross salary of GBP139768.2 (2020)

        Comment


          #5
          What does the Key Information Document the agency should have given you say? Are you being paid directly by the agency or via an umbrella company

          If you are PAYE from the agency you shouldn't be paying Employer NI and holiday pay those deductions should be outside the calculations.

          I suspect the payroll company the agency is using has completely screwed things up here so I would speak to the agency and get them to correct things.

          Under PAYE you should really only see

          Taxable income (what you earnt)
          Employee NI
          Income Tax
          Student Loan repayment (if applicable)
          Net Income (what is being paid into your bank account)
          Last edited by eek; 7 January 2021, 17:06.
          merely at clientco for the entertainment

          Comment


            #6
            Originally posted by lunchbox View Post
            Hello,

            I jumped into a PAYE role a couple of months ago, having now received my first payslip, I discovered that my agency is deducting employers NIC from my NET salary instead of GROSS.

            e.g.

            Gross Pay 11647.35

            Employees NIC 554.61
            Holiday 146.2
            Tax 3616.6
            Employers NIC 1506.32

            Take Home 5823.62

            So I am essentially paying tax on the employers NIC, which is surely incorrect? I believe the correct way should be to deduct the employers NIC from the gross salary and then tax the remainder, like so:

            Gross Pay 11647.35
            Employers NIC 1506.32

            Taxable Pay 10141.03
            Employees NIC 524.49
            Holiday 146.2
            Tax 3014.45

            Take Home 6455.89

            Could someone confirm if what they are doing is wrong? I assume it was a mistake in their calculations if so.

            Thanks
            Hi @lunchbox

            You can view our net pay calculator on our website which will show you how each element should be calculated. Umbrella – Contractors | Fair Pay Services

            If you have figures that differ from those other than margin, there is something clearly not right.

            Comment


              #7
              Originally posted by lunchbox View Post
              Thanks for confirming for me Lucy.

              Can you let me know how you get to your employers NIC contribution please? I believed it should be at 12.9% according to the following website:

              UK Salary Tax Calculator 2020 / 2021: Calculate my take home pay : gross salary of GBP139768.2 (2020)
              No idea where the 12.9% comes from but the Employers Nics is 13.8% of the taxable salary and not the gross invoice rate.

              Comment


                #8
                Originally posted by lucyclarityumbrella View Post
                No idea where the 12.9% comes from but the Employers Nics is 13.8% of the taxable salary and not the gross invoice rate.
                I do - they've done the Employer NI calculation as

                Employer NI = (gross -732)*0.138 which gives you £1506.32

                And we all know the actual calculation is way more complex than that as the percentage is based on your taxable income (X in the figures below)

                £11647.35 = X + (0.138*(X-732))
                X=£(11647.35+(732*0.138))/1.138

                So you taxable income were this an umbrella payment would be £10,323.70
                and the Employer NI deducted would be £1,323.65.

                Which confirms that the agency is trying to do this themselves as no payroll company would have made such a hash of what is to them a rather simple, very standard, calculation.

                But that really shouldn't matter because if this is a PAYE contract all the holiday pay and Employer NI should be in addition to the £11647.35 and not being taken from it.
                Last edited by eek; 8 January 2021, 14:41.
                merely at clientco for the entertainment

                Comment

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