Will the National Insurance Change affect Domestic Employers?
In his Spring Statement, the Chancellor announced a change to the National Insurance threshold from 6th July 2022. This threshold marks the amount at which employees start to pay National Insurance Contributions (NICs) on their earnings. So, what does this change mean for you and your domestic staff?
What National Insurance Threshold Change Will Come Into Effect From July?
From Wednesday 6th July 2022, the National Insurance threshold will increase from £9,880 to £12,570 a year. This threshold refers to the amount an employee can earn before paying National Insurance.
How Will This Affect Domestic Employers And Household Staff?
The effects of this change will depend on whether the employee is on a Gross or Net salary agreement.
Gross Salary Agreements
Employees on a Gross salary agreement will benefit from an increase to their Net/ ‘take home pay’ and employer is not affected by this change.
Why is this?
The employee will see an increase to their net ‘take home pay’ as the amount they are able to earn before paying National Insurance on their earnings, has increased. There are no changes to the Employer’s National Insurance contributions and so this will not affect the employer.
Net Salary Agreements
Employees on a Net salary agreement won’t benefit from this National Insurance saving as Employer has committed to paying set Net/ ‘take home pay’ figure.
Why is this?
The employee’s ‘take home pay’ will not change as on a net salary agreement, the employer has committed to paying their employee a set net figure, each pay day. This means that whenever changes to tax and National Insurance come into play, it is only the employer who will be affected. Therefore in this instance, the employer will see the National Insurance saving.
Although this sounds beneficial to the employer this time, it is the employee that should be entitled to this National Insurance saving. There are lots more risks when committing to paying a net salary which are outlined in our Net vs Gross page here.
What About The Pension Contributions?
If the employee is on a Gross salary agreement, there will be no changes to the pension contributions.
However if the employee is on a net salary agreement, the change may reduce their pensionable earnings. Therefore, those on a net salary agreement may see less pension contributions.
How Will These Changes Appear On Staff Payslips?
We have a handy Payslip Explainer which shows you all the breakdowns on our domestic staff payslips.
The Employee’s National Insurance Contributions can be found under Number 6 – Deductions: National Insurance.
The Employer’s Pension Contributions can be found under Number 8 and the Employee’s Pension Contributions can be found under Number 6 (NEST).
The employee’s remaining Net/ Take Home Pay can be found under Number 11.
How Can Stafftax Help?
As the first and largest Domestic PAYE service in the UK, we are always aware of tax and NI changes on the horizon, so our clients don’t have to worry. Do you employ a housekeeper, gardener or carer? For peace of mind with your payroll and tax obligations, look no further. Our award-winning domestic staff payroll service includes weekly/monthly payslips, contracts, HR and legal support. You can also choose our add-on pensions service to cover your pensions and auto enrolment obligations.
