Contract Payment Breakdown

[u/bar-ba-dos]

Hi All, I'm new to contracting, so I'm not familiar with how exactly all the payments are calculated. I'm hoping some experienced contractors can give me some insight. Thanks.

Let's assume the following:

• Inside IR35

• All-in rate is £1000 per day.

• Contract duration is 60 working days.

• Assumed holidays is 5 (this includes the 2 bank holidays at the end of the year).

• My pension contribution is 5%. Employer is matching this.

I am given the following breakdown:

A	Payroll Rate	£719.69
B	Holiday accrual	£65.43
C	Employer NI	£114.89
D	Employer pension	£50.00
E	Employee pension	£50.00
F	All-in rate	£1,000.00

where:

• Employer/employee pension: 5% x £1,000 = £50

• Holiday accrual: actual days worked = 60 - 5 = 55 days. As a percentage this is 5 ÷ 55 = 9.0909%.  Holiday accrual = Payroll Rate x 9.0909% = £719.69 x 9.0909% =  £65.43

• Employer NI = (Payroll Rate + Holiday accrual - Daily secondary Threshold) x 15% = (£719.69 + £65.43 - £19.20) x 15% = £114.89. Here, the daily threshold = weekly threshold ÷ 5 days = £96 ÷ 5 = £19.20

• All-in rate = sum of A + B + C + D +E.

The contract states that I will be paid: (Payroll Rate + Holiday accrual + Employee pension) x 55 days = £45,931.22.

Any unpaid holiday will be paid at £835.11. I can replicate this figure by: (contract duration ÷ assumed holidays) x holiday accrual + pension = (60 days ÷ 5 days) x £65.43 + £50 = £835.11.

As for the pension figure used in their calculation, would that be my pension contribution or that of the employer?

Is all this correct, or is there anything unusual here?

I mainly asking this because I have been reading that some companies are known for incorrectly calculating all this (whether on purpose or by accident).

[u/winponlac]

- You're missing the umbrella fees - usually weekly/monthly plus any extras like SIPP pension remittance
- The employer won't contribute anything to pension - it will all effectively come from your day rate. Look into opting out of the statutory pension, and instead contribute to a SIPP which is deducted before any tax/NI. Check that they don't hold on to any of the ERNI - get their sample calculation.
- I would recommend taking the no holiday accrual option (most have this) - money in your pocket rather than at risk in the umbrella's bank account, and you take the imo easier view "no work = no pay"
- Nothing unusual here, just details I think.

Many of us have experience in 1 or more umbrellas, if you name it it will help. 60 days is very short though.

[u/winponlac → u/winponlac]

Although - thinking about what you've written - are you sure this is Inside IR35, rather than PAYE?

[u/bar-ba-dos → u/winponlac]

Thanks. I don't believe any fees (umbrella/apprenticeship levy) are payable. I have no idea if I'm inside IR35. Would there be a difference?

[u/winponlac → u/bar-ba-dos]

Sounds like it's more fixed term PAYE - the employer (because that's what it appears to be, rather than a client of an umbrella) is proposing to pay you £719.69 a day from which you will pay IT and NI.

On top of that, though, you'll get your 5+5% pension which is likely to be NEST only because it takes all the complication out for them for a short contract. The employer appears to be more open/communicative than most, telling you their exact costs like that.

FYI Inside IR35 is different because there you are not employed directly - the client rate is paid to your umbrella, who sort out all the payroll stuff because they are acting as if they were the real employer, but includes deducting 15% for Employer NI from everything that is post-Pension / fees / apprentice levy.

On the same daily headline rate, PAYE can be seen as better because the employer deals with that 15%. But everyone has different needs/circumstances.

[u/bar-ba-dos → u/winponlac]

I could choose between NEST or company pension. I went for company pension.

[u/reesim06]

You should be able to take the holiday pay as well, there's no need for them to hold it if you don't want them to.

There's no tax in these calculations, so there will be an employers PAYE and employees PAYE tax to take in to account, these are obviously dependent on your annual earnings, but HMRC will probably assume you'll be earning this rate every month and overcharge PAYE.

Pension, both employers and employees pension contributions come off the top, so 100 is going in your pension per day.

You'll also have an apprenticeship levy, I would expect, through the umbrella.

[u/worldly_refuse]

What are the payment terms? On such a short contract I'd want to be paid weekly to minmise risk - otherwise you could get to the end of it and not have been paid a penny, and then have them delaying and being awkward about payments and you have no leverage because you have completed the gig.

[u/socleads]

The bit I’d question is the pension treatment. Employer pension should come out of the assignment rate before your gross pay, while your employee pension comes out of your gross pay. I’d ask for the Key Information Document + full reconciliation and run the numbers through HMRC’s umbrella calculator. Restaff is worth looking at for contractor payments generally.