What is the HMRC payment 'NIERS' on my payslip?
Companies in the UK pay Employer’s National Insurance Contributions. And as a contractor, if you are being paid through PAYE by a recruitment agency or an umbrella company, then Employer’s National Insurance will be paid by them.
NIERS: introduction
But one of the most common questions around contractor pay is – ‘What is this NIERS deduction on my payslip?!’ If you’re paid via an umbrella or a limited company payroll, then you might see this on your payslip. NIERS is both an abbreviation and a deduction.
Beyond that however, what exactly is NIERS, writes Siddharth Agarwal, tax director at DNS Accountants, and why does it cause controversy and confuse contractors?
What is NIERS?
Well, we sort of explained it already! NIERS is the National Insurance Employer’s Contribution.
All employers in the UK have to pay Employer’s National Insurance Contributions (NICs) on the earnings of their employees. These are commonly referred to as Class 1 Secondary contributions.
NIERS are calculated at a rate of 13.8% (for 2021/22), and are usually payable on earnings above £170 per week (for 2021/22).
So, as a contractor, if you’re paid directly by an agency or an umbrella company via their payroll system, you may see the NIERS deduction on your payslip. This is because as your employer, they are obliged to operate PAYE and pay NIC on your earnings.
Is NIERS applicable if I’m paid via an umbrella company?
As your employer, by law, umbrella companies are required to operate PAYE and NIC on your earnings.
Therefore, whether you work through an agency or an umbrella company, both parties have to pay Employer’s NICs.
Does NIERS affect my pay rate?
No, it shouldn’t. To accommodate the additional overhead, the National Insurance Employer’s Contribution and other costs are factored in to the contractor’s agreed pay rate, which is commonly referred to as ‘assignment rate.’ This facilitates the umbrella company making the correct contribution on the contractor’s behalf.
Agencies (and umbrella providers) tend to build this deduction into their calculations when setting the contractor’s pay rate, because they need to ensure the NIERS contribution is held back to pay HMRC.
Why does it look like my rate has increased when I moved to an umbrella provider?
If you’ve moved to an umbrella provider, then it may appear like your rate has increased. This is usually because the agency/end client passes this increase on to the umbrella to pay NIERS and other employment costs on your behalf.
If you’re paid via an umbrella, the umbrella will now have the responsibility to pay NIERS as they will be classed as your employer. To cover this cost, the NIERS is included in your contractor PAYE rate. The difference between this PAYE rate and the rate you receive is for the NIERS contribution and other employment overheads, which the umbrella is legally obliged to pay.
Therefore, it is important that you understand the difference between the PAYE rate (actual pay you receive), and the ‘assignment rate’ agreed between the agency and your umbrella. Either way, NIERS is a legal deduction and it’s not a sign of wrongdoing by your umbrella, agency or client!
NIERS controversy
Contractors new to providing services through an umbrella company are sometimes disappointed at having Employer NICs and other costs deducted from their pay.
But unlawful deductions are not generally common. Whoever pays the individual via PAYE, all the employment costs (like Employer NIC, the Apprenticeship Levy, and Holiday Pay) will always be considered in arriving at gross salary. This is how operators and agencies work and there is nothing unlawful or underhand in these cases -- they are doing what is legally required of them.
Of course, there may be rogue operators in the market, but agencies and umbrella providers are not generally taking unlawful payment actions. Ensuring you deal with credible agencies and bonafide umbrella providers should usually protect you from any unlawful activity. To optimise your chances of avoiding nasty surprises and to ensure you understand your payslip, contractors should insist on receiving a Key Information Document (KID) from their agency.
Final NIERS pointers
Many contractors often don’t immediately understand what NIERS is, and they worry that NIERS is being deducted from their pay, incorrectly or even unlawfully. But the fact is NIERS must be paid to HMRC by agencies and umbrella providers and therefore it is a legal deduction (assuming it is calculated correctly!). If you are still unsure, by all means query it with the agency or umbrella provider to ensure you are comfortable with the deduction and if you’re still not satisfied, seek independent advice from a trusted accounting professional.
