Working in the contractor/agency sector, you find that the same questions always rear their heads.
One of the most repeated questions is what is this NIERS deduction on my payslip? If they have not been paid via an Umbrella Payroll company or had their own Limited Company before, then this additional deduction can cause some confusion.
So what is NIERS?
It’s the National Insurance Employers Contribution (NIERS?? post at the bottom if you can work out the abbreviation).
Which is? Well when a contractor is paid directly by the agency via their own in-house PAYE system, the only deductions they will most likely only see on their payslip will relate to TAX and Employees NI. What is not usually shown on their payslip is the amount of money that the agency is paying to HMRC in the form of NIERS.
If you have experienced both forms of pay, PAYE and umbrella, you would have noticed that your rate is lower when paid in-house. This is because the NIERS contribution is built into the rate charged to the end client and held back to pay NIERS.
Rate increase because of NIERS
When you move to an Umbrella provider then it appears that your rate goes up. This is because the agency pass this rate increase on to the Umbrella to pay the National Insurance Employers Contribution on your behalf.
When a contractor is paid via an Umbrella, the agency is no longer regarded as the employer. This means that they are no longer responsible for paying NIERS. These responsibilities have now been passed over to the Umbrella since they are now regarded as the employer. In order to accommodate this, the National Insurance Employers Contribution is included in the contractors PAYE rate so that the Umbrella can make the correct contribution on the contractors behalf.
The difference between the agency PAYE rate and the rate you receive when working with an Umbrella works out to around a 13.5% increase. But don’t forget this is for the NIERS contribution which all contractors are legally obliged to pay.
This is often a contentious point as it makes the Umbrella seem like the bad guy, giving away a contractors hard-earned money to the financial boogeyman (read: HMRC). This contribution is always given it’s just that the Umbrella is more transparent with showing the deductions and thus showing you where your money goes.