Social Security employee and employer contributions (FOI)

Request

Please can you give me information as to where the 6% employee and 6.5% employer contribution goes in the following scenario?

A person is on a low income working more than eight hours per week. This person has been offered to pay the standard rate. If they were to pay the standard rate (less 6% employee and 6.5% employer) for even one month in each quarter this rate would be higher than their monthly income. The person is therefore unable to pay the standard rate so where does this money go? See question 'A' below.

A

If they decide to not pay the standard rate where does the 6% employee and 6.5% employer monies go. Who benefits from this money because it is unable to be used as a contribution towards a pension?

B

Why are they being penalised for being on a low oncome?

Response

A

Person earning less than £980 per month:

A person that works more than eight hours a week and earns less than £980 per month, pays a 6% Social Security employee contribution and their employer pays a 6.5% employer contribution on the earnings.

This person will receive a small contribution record for the month in proportion to the Standard Monthly Earnings Limit of £4,610. This will go towards their eligibility and entitlement to the working age contributory benefits and the old age pension.

For example, a person who works more than eight hours a week, earning £800 in a month, will pay employee contributions of £48 and their employer will pay contributions of £52.

They will get a contribution record for the month worth £800 / £4,610 = 17.35% of a full record.

This person will also be asked to pay the “standard rate” contribution less any contributions already paid for the month. The “standard rate” contribution is £484.05 (10.5% of £4,610 a month) for January to June 2021 and £576.25 (12.5% of £4,610 a month) for July to December 2021, once the temporary reduction in contributions (to support the economy in response to Covid-19) has ended.

If a person is unable to pay their contributions in a month, then there are several options depending on the situation. For example, contributions may be credited for periods of unemployment or sickness, or otherwise a person may apply for low income contribution relief if they have a low income for the year.

If they do not pay the balance of contributions they will still get a small contribution record for the month.

Person earning more than £980 per month:

A person that works more than eight hours a week and earns more than £980 per month will have their contributions supplemented by the general taxpayer so that they have a full contribution record for the month, worth the equivalent of paying contributions at the Standard Monthly Earnings Limit of £4,610.

For example, a person earning £1,600 in a month will pay employee contributions of £96 and their employer will pay contributions of £104.

They will get a contribution record for the month worth £4,610 / £4,610 = 100% of a full record. This is made up of £200 from their own contributions plus the supplementation to bring the contributions up to £4,610.

B

A person earning less than £980 per month does not get penalised for being on a low income, but they do not get the benefit of their contributions being supplemented by the general taxpayer.

Contributions of people with earnings below £980 per month are not supplemented so that the total cost to the general taxpayer of supporting employees is affordable.