Aggregation of earnings

25th March 2022

Most people will be familiar with the concept that the amount of tax due to be paid by an individual is based upon their total income earned throughout the tax year. Where the individual is employed, Income Tax is collected through the payroll in accordance with the PAYE regulations.

Employees will be familiar with the deduction of Class 1 National Insurance from their salary via the payroll. The employer is required to pay Class 1 National Insurance, known as secondary contributions on the salary paid. National Insurance is typically calculated based on the employee’s earnings period, for example weekly or monthly. However, it is not uncommon within the care sector for employees to have more than one employment contract with the same employer; therefore the amount of National Insurance due must be calculated based upon the aggregation of all earnings.

This can prove to be challenging for employers for several reasons:

  1. Identifying whether the employee has more than one employment
  2. Different earnings periods, for example, the employee is paid monthly for their regular employment but weekly for any bank work performed
  3. Different PAYE schemes may apply depending upon whether the salary is paid weekly or monthly

The Social Security Regulations allows employers not to aggregate earnings where, owing to the different factors outlined above, it is ‘not reasonably practical’ to do so. The lack of any statutory definition for the term ‘not reasonably practical’ is particularly unhelpful. HM Revenue and Customs (HMRC) recognises that the costs should not be disproportionate to the loss of National Insurance and the benefit entitlement, when considering how and whether the aggregation rules can be . The onus is placed upon the employer to demonstrate where it is not practical.

Employers should not proceed on the basis they will fall within the scope of the exclusion. Where employees work under more than one arrangement with the same or connected employers (for example, employers within the same group structure), consideration needs to be given to the practical steps which need to be taken to ensure the correct amount of Class 1 National Insurance is paid in the same earnings period. HMRC guidance is to calculate the contributions due by applying weekly earnings periods. This which may require ‘manual intervention’ when calculating the amounts due.

The challenge around the aggregation of earnings has commonly occurred with NHS Trusts. However, where for example, care providers have ‘bank’ staff arrangements, then it is highly likely the aggregation of earnings regulations will apply. If the arrangements across the organisation are not reviewed, there is the potential risk of incurring an underpayment of Class 1 National Insurance, mainly as a result of the employee and employer benefit from more than one lower earnings threshold.

If you have any questions about the aggregation of earnings, please contact Nick Bustin.


Nick Bustin

Employment Tax Director
+44 20 7969 5578
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