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There are a number of situations to consider.
1. If an employee starts part way through a pay period and it is possible to calculate and pay the wages or salary in that pay period, the earnings period used for NICs is the employee's normal earnings period, even though payment is being made for only part of the period. The normal earnings period is always used for a new employee where the period between the start date and the first payday is less than the normal earnings period - even if it is clear from the P45 that the employee has already received pay for that period from the previous employer. The employee benefits from "NICs-free" pay for the same earnings period from both employers.
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Example: A monthly-paid employee starts on 17 September 2006 and the P45 shows that the employee has already received pay for month 6. The pay from the new employer for September is only for part of the month but NICs are calculated using a monthly earnings period.
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2. If an employee starts part way through one pay period but the pay for that period has to be included in the pay for the next period because the pay run for the first period was missed, the NICs must be calculated separately for each period, using the employee's normal earnings period in each case. The employee is entitled to benefit from the "NICs-free" pay for each earnings period. The deductions must be recorded as separate amounts for each earnings period but may be combined on the payslip.
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Example: A weekly-paid employee starts on a Wednesday and it is too late to pay the £;210 due for the three days to the Friday by that Friday. The employee is paid £;560 on the following Friday, but the NICs are calculated separately on the £;210 for the first week and the £;350 for the second week. The details are merged on the payslip.
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3. If the second situation occurs over the tax year end and the payment being made includes earnings for the last pay period of one year and the first pay period of the next, the NICs calculations for both earnings periods are still calculated separately but the NICs rates and limits that are used are those that apply for the new tax year. The amounts calculated are recorded as part of the total NICs for the new tax year.
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Example: A monthly-paid employee starts on 25 March 2007 and is paid for both March and April at the end of April 2007. The NICs are calculated for both months separately, but using the 2007/08 rates and thresholds. The NICs for March 2007 are included in the total NICs for the 2007/08 tax year.
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Although these procedures are set out in the CWG2 Further Guide, HMRC's Payroll Standard does not require payroll software to perform these calculations automatically. Employers with systems that do not have this functionality should ask their system provider how the correct calculations should be performed.
...back to 31 August 2006
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For Payroll and Human Resource Professionals
