How umbrella contractors can understand their payslip
Contractors may find themselves out of pocket because they do not always take the time to fully understand the complex content of their payslips, writes Phil McDonald, managing director of umbrella company Paraplus.
Some contractor umbrella companies do not always present information contained in payslips in a clear and simple manner, meaning workers may lose out. The prevalence of complex, misleading and inaccurate data in payslips means it is imperative for contractors to take the time to scrutinise, and fully understand, the data themselves – don’t be afraid to ask questions!
There are both financial and legal reasons why this matters.
HMRC taking too much - or too little?
Firstly, and most obviously, employees may not be aware that they are paying too much income tax, or NI – or any other type of contribution, for example related to Pensions Auto Enrolment, which may be being underpaid. Unfortunately, these errors do not just affect pay but can also have a knock-on effect in other parts of life.
Child maintenance now at risk
The recent introduction by HM Revenue & Customs of the Real Time Information (RTI) requirements now links individuals’ payroll data to the benefits system through the Universal Credits scheme. This means that incorrect information contained in a payslip can directly affect the amount of benefits an individual receives or pays out, such as child maintenance.
Furthermore, workers are directly responsible for the accurate recording of their financial data, such as expenses. Not picking up on PAYE errors can open up individuals to the risk of scrutiny from HMRC, meaning potentially legal and compliance issues.
Five must-ask questions
So how can contract workers ensure they are picking apart their payslip correctly?
Concentrating on identifying, and then understanding, key areas of a payslip are the first steps to take. Asking five simple questions can also help reveal whether a payslip is overly complex and needs further clarification:
- Is your payslip easy to read and understand? From the top of the page to the bottom can you clearly follow the calculation – can you identify your expenses, contributions and taxes paid?
- Are you reporting your expenses yourself (or is someone doing it for you)?
- Do you recognise all of the expenses on your payslip?
- Does your pay slip clearly show you your National Insurance contributions and the level of tax you are on?
- Are any relevant fees and margins taken clearly visible and correct?
Don’t settle for ‘No’
If the answer to any of these questions is ‘No’, there are some simple steps that contractors can take to address the problem. The first thing to do is to speak to the agency, umbrella company or employer directly. Remember, the employer is legally obliged to give an itemised and easy-to-understand payslip. If they fail to provide this information, it can be demanded straight away. So do not take ‘No’ for an answer, and ensure that the relevant response and clarification are given.
Not taking these steps can cost umbrella company workers in more ways than one. However with a solid understanding of the data contained in a payslip, such contractors can avoid expensive mistakes, nasty surprises from HMRC, and still be sure they are being paid accurately and fairly.
For more information please visit ContractorUK's umbrella company guides.