Introduction to Income Tax and NICs Earnings
National Insurance contributions
Most benefits are excluded from earnings for the purpose of National Insurance contributions. However again, there are exceptions (for example, almost all vouchers are liable to NICs through the payroll).
Those benefits that are reported at the end of the tax year (see above) are liable to NICs under separate rules (and are not processed through payroll).
If the employer makes a payment to a third party to settle an employee’s bill in full or in part, then the amount is liable to NICs through the payroll.
These are complex areas that are outside the scope of this course.
2.3
Payment / earnings period
The payment or earnings period at which an employee is paid is prescribed in the contract of employment.
2.3.1 Frequency of earnings periods
The most common payment or earnings periods are weekly and monthly, followed by fortnightly and four-weekly. Less common are quarterly, six monthly and annual periods. (Some company directors, for example, may be paid just once a year.) It is also possible for employees not to have a regular earnings period. They could be paid only on completion of the work or contract, which could be of any duration. This would be an ‘ad hoc’ period.
Note that, for NICs purposes, an earnings period cannot be shorter than a week.
2.3.2 Two or more earnings periods
Most employees have only one earnings period but it is possible for an employee to have two or more earnings periods. This can occur where an employee is paid a monthly salary but is also paid a quarterly commission payment separately, for example.
2.3.3 The effect of the earnings period
The earnings period affects:
The calculations of pay
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• The calculations of PAYE income tax and NICs
Payroll procedures and schedules.
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