National Insurance Deductions

confused_24

Hi,

I work part time 20 hours per week.  Earning minimum wage, £11.44 per hour.  This month is the first month that I have received the full amount since NMW went up.  I am confused as to whether my pay slip is correct.  Can anyone explain this to me please.

So, I am under the impression that as someone who only earns £11897.60 per year.  I would fall below the threshold for any deductions.  However, we get paid on the last friday of every month, so some months it is a 4 week pay slip (£915.20), others it is a 5 week pay slip, (£1144).

This month is a 5 week one, so my employer has deducted national insurance contributions.  I have queried this with them, and they have told me that national insurance is collected on a month by month basis, unlike tax, which is cumulative, so this month I have earned over the threshold and have therefore been deducted. 

Is this correct?  It seems unfair, if my wages were spread out equally over 12 months, I would fall below the threshold, or if I was paid weekly, I would receive the full amount, yet  because of this 4 weekly and 5 weekly pay system, I will sometimes have deductions to my wages.   

Thanks for your help

p00hsticks

Yes, your employer is right. Unlike income tax, NI is calculated pay period by pay period. 

Marcon

confused_24 said:

Hi,

I work part time 20 hours per week.  Earning minimum wage, £11.44 per hour.  This month is the first month that I have received the full amount since NMW went up.  I am confused as to whether my pay slip is correct.  Can anyone explain this to me please.

So, I am under the impression that as someone who only earns £11897.60 per year.  I would fall below the threshold for any deductions.  However, we get paid on the last friday of every month, so some months it is a 4 week pay slip (£915.20), others it is a 5 week pay slip, (£1144).

This month is a 5 week one, so my employer has deducted national insurance contributions.  I have queried this with them, and they have told me that national insurance is collected on a month by month basis, unlike tax, which is cumulative, so this month I have earned over the threshold and have therefore been deducted. 

Is this correct?  It seems unfair, if my wages were spread out equally over 12 months, I would fall below the threshold, or if I was paid weekly, I would receive the full amount, yet  because of this 4 weekly and 5 weekly pay system, I will sometimes have deductions to my wages.   

Thanks for your help

I've got a lot of sympathy with this, especially as it impacts on someone earning a modest amount.

Being paid on the last Friday of every month isn't the issue; it's the fact that your employer seems to be making their own life difficult - a point you might gently point out to them! If you are on an annual salary, then paying in 12 equal instalments would be much simpler, and more accurate. NI is based on weekly or monthly earnings, and no month ever has 5 weeks.... https://www.gov.uk/national-insurance-rates-letters

A pay reference period can never be longer than one calendar month for minimum wage purposes: https://www.gov.uk/hmrc-internal-manuals/national-minimum-wage-manual/nmwm09020 so it would seem worth suggesting to your employer that they take a similar stance in terms of NI:

A worker’s pay reference period is either:

• a month, or
• if the worker is paid by reference to a period shorter than a month, that period.

A pay reference period can never be longer than one calendar month.

For example: If a worker is paid fortnightly, their pay reference period will be 2 weeks.

If the worker’s pay is calculated fortnightly (such as if the worker has a 2-week shift pattern) but paid monthly, their pay reference period is a month.

If the worker is paid once every 3 months, their pay reference period will be 1 month.

When determining the pay reference period, it does not matter when the payment of wages is actually made. The important thing to consider is the period the payment covers.

For example, a worker who is paid for the month of August on the last Thursday of the month will have the same pay reference period as someone paid for the same period on the last day of the month i.e. 1st August to 31st August.

Marcon

Thinking on about this...any payroll professionals know if it's correct to treat NI this way when 'months' vary in length? Should a 'five week month' actually be 5 x weekly rates of NI?

chrisbur

Marcon said:

Thinking on about this...any payroll professionals know if it's correct to treat NI this way when 'months' vary in length? Should a 'five week month' actually be 5 x weekly rates of NI?

No there is no way of doing this in PAYE.  You can have monthly weekly every two weeks or every four weeks.  You can change from one to another if it is a genuine change in pay arrangement but there is no facility to change back and forth and definitely no five week payments then four week etc.
As said earlier best option to try and convince the employer to have 12 monthly  paydays each year averaging out the yearly figure.

Marcon

chrisbur said:

Marcon said:

Thinking on about this...any payroll professionals know if it's correct to treat NI this way when 'months' vary in length? Should a 'five week month' actually be 5 x weekly rates of NI?

No there is no way of doing this in PAYE.  You can have monthly weekly every two weeks or every four weeks.  You can change from one to another if it is a genuine change in pay arrangement but there is no facility to change back and forth and definitely no five week payments then four week etc.
As said earlier best option to try and convince the employer to have 12 monthly  paydays each year averaging out the yearly figure.

Thank you!

OP - you could try referring your employer to Section 1.7 and the paragraphs headed 

Pay interval — irregular pay intervals of more than a week but not multiples of weeks or months

 of https://www.gov.uk/government/publications/cwg2-further-guide-to-paye-and-national-insurance-contributions/2023-to-2024-employer-further-guide-to-paye-and-national-insurance-contributions

penners324

Marcon said:

Thinking on about this...any payroll professionals know if it's correct to treat NI this way when 'months' vary in length? Should a 'five week month' actually be 5 x weekly rates of NI?

A salaried employee will be paid 1/12th of salary regardless of the length between pay days.

The company process are daft or the payroll employee doesn't understand payroll properly 

confused_24

The company process is daft, we went from weekly pay, then the payroll employee retired, so we went to this process.

The new employee doesn’t understand.  I’m hoping I can take it up with HMRC at the end of the year, surely it will say on my P60 I’ve been paying NI when I haven’t needed to.

chrisbur

confused_24 said:

The company process is daft, we went from weekly pay, then the payroll employee retired, so we went to this process.

The new employee doesn’t understand.  I’m hoping I can take it up with HMRC at the end of the year, surely it will say on my P60 I’ve been paying NI when I haven’t needed to.

Your P60 will just show the NI details for your employment.  It will not show that NI should not have been deducted.  
The following link is for reclaiming, it will lead to details you will need to send at year end
https://www.gov.uk/claim-national-insurance-refund

Also gives this number if you want to speak to someone  0300 200 3500

confused_24

I feel like I’ve stepped into a minefield. 

Have I discovered that payroll have been overcharging all employees NI contributions for the past 2 years, since we went onto this 4 weekly/5 week pay scheme?

chrisbur

My personal feeling is that your employer has taken the correct deductions though perhaps could have arranged things better for some perhaps all part time employees.  I would assume that for most employees it would make no difference as they will be over the threshold for NI every pay period whether using an annual figure divided by 12 or the 5week/4week method.