Calculating Employers National Insurance for Furloughed Workers
Now the dust has settled there is a little more clarity. If an employee is furloughed for the entire period claimed, then the employers NIC that can be claimed can be calculated as originally indicated:
13.8% of (Furlough Pay – Secondary Threshold) = Employers NI
If an employee is only paid furlough pay then the values can be taken from our reports without need for further calculation. If the pay has been topped up you will need to apply the calculation. The secondary threshold for this tax year is £169 per week or £732 per month.
BUT if an employee was only furloughed for part of the period then you can use the pro rata calculations as previously described by HMRC
For further details see the Government CJRS website – https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme#work-out-how-much-you-can-claim-for-employer-national-insurance-contributions-nics
Don’t forget to factor in Employment Allowance if your employers NI does not normally go above this and you are eligible, in this case you would not be claiming the employers NI as you would not be paying any.
(Please read the latest guidance before making a claim, HMRC are using a pro-rata for the calculation rather than their original guidance)
From the latest guidance (200416 Calculating the CJRS – step by step v1.1):
“Simplified calculation guidance for employers whose employees all have the same weekly pay period with only a single payment date and who choose a claim period equivalent to a pay period that is entirely within the period 1 March and 31 May 2020
Step 0 – Identify qualifying furlough days
Identify all qualifying furlough days for all employees based on:
(a) who has already been furloughed, and
(b) for which employees there are firm plans for furloughing.
Step 1 – Identify furloughed employees who have been paid in the period
Identify all employees who have been or will be paid who have at least one qualifying furlough day in the pay period.
Step 2 – Calculate gross pay grant per employee
For each employee identified at Step 1, the amount of grant entitlement is the lowest of (1) and (2):
(1) [£576] x number of qualifying furlough days in week / 7
(2) 80% x weekly reference pay x number of qualifying furlough days in week / 7
Step 3A – Calculate Employer’s NICs grant per employee
For each employee identified at step 1, calculate the amount of employer NICs that would have been due on the outcome of step 2.
If there is no employer’s NIC due on the employee the amount is zero (i.e. apprentices under 25, category H, employees under 21, category M, and employees under 21 who can defer NI because they’re already paying it in another job, category Z).
Where NICs are due, for each pay period partly or wholly within the claim period, you will need to perform the following calculations:
iv) Calculate the daily employer NICs due:
employer NICs due on the employee in the pay period / number of days in the pay period
v) Calculate amount of employer NICs due in the claim period:
daily employer NICs in the pay period x number of days within the pay period which are also in the claim period
vi) Employer NICs due on the pay gross pay grant, within the claim period:
Employer NICs due in the claim period part of the pay period x gross pay grant for the claim period part of the pay period / total gross pay in the claim period part of the pay period
It is necessary to apply step iii) where the employer has chosen to top up the furlough pay beyond pay required to be paid to the employee under the CJRS.
Where NICs are due the secondary threshold is £719 per month for payments up to 5 April 2020 and £732 per month for payments from 6 April 2020.
Step 3B: Calculating the grant for Employer NICs per employee
Sum the amounts calculated for each pay period in step 3A.
Step 3C – Restrict overall Employer’s NIC grant to the amount due for the payment
Sum all of the amounts calculated at Step 3B for a particular payment. If the total is greater than the total employer’s NICs for the pay period (after employment allowance), less any amounts previously claimed in Employer’s NIC grant for the pay period then restrict the amount of grant to the amount of employer’s NICs relating to the payment.”
The key part is that a pro rata calculation is being used rather than the thresholds as below. So effectively for the furlough period:
Total employers NI due x Furlough pay / total gross pay.
This is likely to be a little more generous that the expectation of deducting the threshold as per the original guidance.
Calculating NI for Furloughed Workers (original published text)
With many companies using Furlough Pay for their employees and planning to claim via the Coronavirus Job Retention Scheme, we thought it would be useful to provide some notes on calculating employer’s National Insurance. If an employee only receives Furlough pay then the payroll reports will provide the value to use, but if there is a combination of pay then a manual calculation will be required.
There are two methods, they will give slightly different answers but both are accepted by HMRC.
- Table Method
This is a little old school now but if you want to calculate this way then the tables are still available. You can find this year’s here.
If you do not know how to use the table method then now is not a good time to learn and you are probable better to go with the calculator method
- Calculator Method
This method will make more sense to most people, and means calculating the amount due on the portion of the pay above a threshold.
This is important. If an employee is category H, M or Z then there will be no employer National Insurance on Furlough pay. Foreign Nationals that do not pay National Insurance are probably exempt from the scheme anyway.
Employers National Insurance Contributions (NICs) are at 13.8% above the secondary threshold. The secondary threshold for the 20/21 tax year is: £169 per week or £732 per month. For the 19/20 tax year the thresholds were £166 per week or £719 per month.
It is also possible to check calculations for this tax year on the HMRC website, and this would be wise before making any claim.
If an employee has their furlough pay calculated as £2500 per month, they are NI category A, and they are on a monthly pay frequency, then the calculation for April is as follows:
2500 – 732 = 1768
0.138 x 1768 = £243.98
If that employee has the furlough pay calculated as £500 per month, then the calculation for March is as follows:
500 – 719 = 0 (you cannot have a negative value)
No Employer’s NICs to pay
If you were on a fortnightly or 4 weekly pay frequency you would use 2 x £169 (£166) or 4 x £169 (£166) for the threshold.
If a company is making up to full pay it is likely they will be liable for the NICs on the top-up portion, which will be 13.8% of the whole top-up amount. This is a little unclear but is our understanding of the process. This is no longer valid, see example above.
National Insurance is not straightforward, there are bands and different rates. By capping the amount the Government has actually simplified this a little. Where a company might need to manually calculate the NICs is where the employee is paid an amount greater than the 80% furlough or the employee is only furloughed for part of the pay period.
If an employee is only receiving furlough pay the total will be easy to pull from payroll reports; the Gross to Net for instance. Where the total pay is made up of furlough and non-furlough components a calculation will need to be made outside of payroll. Within payroll it is the total pay subject to NI that is used for calculations, there is no concept of different priorities of pay component.
When furlough pay was announced by the government we expected the gross amounts for the employees to be entered, and then the portal would calculate the overall total, but this now does not appear to be the case. The burden has been placed back to employers to calculate the amounts, and record and store the basis of these calculations.
We will be working on a report with a calculation for employers National Insurance for a pay component with Furlough in the description, this may well not be available by Monday and will probably only function in the current pay period. Where there is a more complex pay arrangement the payroll csv should contain all the raw data required.
For those of you that have asked about whether there is tax and employee NICs covered you should bear in mind these are deductions from the employee gross pay, so they will be covered by the furlough grant.
The pension if applicable will be covered separately, but there is a facility within the grant process to claim back employer’s pension contributions. Employee contributions are again deducted from employee gross pay, so would be covered by the grant. Salary Sacrifice is different, if you have a salary sacrifice pension you will need additional guidance from your pension adviser.