Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.
National Insurance (NI) is a rather strange compulsory income deduction that harks back to times when an employee worked regular full-time hours for one employer for years on end. Social trends have changed considerably since it was introduced and yet its structure does not seem to have caught up.
Irregularity
Temporary and bank workers can be caught out by the fluctuating nature of their assignments. Because NI is levied per set time period such as a week or month, there is less flexibility than with tax, which is eventually reconciled over a whole year. It can make a difference whether you are paid weekly or monthly. You may or may not have a choice over this and if you do, then it can be difficult to determine which one is better for you.
Zero-hours staff may have more than one employer and, hence, could end up with greater National Insurance contributions than if all hours were with one allocation. It could be that they have a main substantive job and then do extra bank shifts if needed, which may be classed as a separate employment even within one organisation. You can contact the authorities in advance to ask for deferment, or at the end of the financial year for a refund, but this is not always guaranteed.
Releasing payment
Temps may have some control over when they submit their time sheets and get paid. Thus they can deploy strategies to manage National Insurance contributions and taper their earnings and/or hours to fit in with any state benefits limits. Any self-employment also needs to be taken into account.
There is no easy or set way to work all this out optimally. Each person will develop their own methods or broad principles depending on their abilities and circumstances. Often, sadly, this is learnt the hard way (which is partly what prompted me to write this piece).
Thankfully, the days of filling in paper time sheets, trying to catch elusive managers for ink signatures and relying on the post or fax machine are mostly over. However, you do still need to be organised and hope your authoriser responds promptly to electronic requests. If a time sheet is rejected or queried and payment subsequently delayed, this can have implications for your calculations. You need to be aware of pay cut-off dates and deadlines, which may change over holiday periods, and use them to your advantage if possible.
Triggering payment may also activate annual leave accumulation, which needs to be handled judiciously to ensure that you do not lose it. There may be a requirement to take all your holiday within a year. In a similar vein, you need to be careful about postponing payment for too long or you may not be granted the leave allowance for that shift. Corporate budget-holders may also object if your financial creativity is causing anomalies for them.
The NI system is immensely complicated and I cannot pretend to understand its ramifications myself, nor advise anyone else. However, if you are aware of some of these pointers, then that is a good start! You might also find The Motley Fool UK’s income tax calculator helpful.
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