It’s been on the cards for a while, and now it’s almost here.
Both Employer and Employee’s National Insurance is rising by 1.25% this April. The increase is expected to bring in an estimated £36 billion over the next three years. The money will be used to get the NHS back on its feet after the last couple of years, and to kick-start a national social care reform.
How will it affect my agency and my contractors?
Millions of UK workers could see an increase to their National Insurance tax bill. But for agencies and contractors engaging with Umbrella companies the increases carry further complication as well as expense.
The Employer’s National Insurance increase impacts nearly all workers in the UK.
The way Umbrellas are structured means that contractors (especially those on short term assignments) could be impacted by both the 1.25% Employer’s and Employee’s National Insurance rise.
Who foots the bill for the extra 1.25% Employer’s National Insurance?
This is heavily influenced by the assignment duration because of the Agency Workers Regulations of 2011 (AWR).
Why does AWR matter?
Temporary workers on assignments of 12 weeks or over are entitled to pay and benefits equal to a comparable permanently employed worker.
Permanently employed workers will see the additional 1.25% Employee’s National Insurance deductions on their payslip, but the employer pays the additional 1.25% Employer’s National Insurance. This means that in order to remain compliant with comparator pay rules under AWR, agencies should increase Umbrella pay rates by 1.25%.
Failing to do so on 12 week plus assignments would result in a breach of the AWR comparator rules and leave the agency exposed.