Earnings Factors for Class 1 National Insurance Contributions

Have a query from a colleague about how to determine whether enough Class 1 NI has been paid previously, using a P60 as proof (their query relates to challenging DWP on not awarding a contributory benefit when it seems their client had earned enough to satisfy the NI contirubtion rules at the time).

CPAG suggests that when working out the earnings factor on which NI had been paid, earnings up to the Upper Earnings Limit, are used ie those earnings above the UEL in any one week/month are not included in the total.

DWP have suggested only earnings above the LEL and below the UEL count ie those weeks where earnings are below the LEL are ignored, as well as earnings above the UEL.

CPAG notes point to the Social Security (Earnings Factor) 1979 regs which I can find on the internet, but there seems to be missing from the site a (complicated?) maths forumla?

Anyone able to point me in the right direction or give a definitive answer?

Many thanks!

I think there might be a misunderstanding with the DWP.

As far as I understand, the earnings factor method was introduced to look at a person’s earnings for a whole year and not just look at a person’s contributions on a weekly basis.  No single weeks will be ignored when calculating the earnings factor.

I think the DWP were maybe just pointing out that earnings under the LEL will not give rise to contributions, but you should concentrate on the yearly income figure and not weekly income figures. 

Unless I’ve completely misunderstood it!

Ignore my previous post.  I didnt answer your actual question.  I’m having one of those Fridays!

I would be inclined to agree with the DWP.  The wording in CPAG handbook is ‘earnings….on which those contributions are paid on’ which would suggest to me that any earnings below the LEL are not included as no contributions are paid on them.

UEL might be mentioned in CPAG handbook p.788, and not LEL, as NI contributions are still paid above this at a reduced rate.

Others might be more insightful though.

Looking on our CD-Rom of social security law, the formula appears to be:

2.  The earnings factor derived form a person’s Class 1 contributions actually paid in respect of the year commencing 6th April 1985, and of any year thereafter, shall be–
100 ( F (P - Q) + G ( Q ) )
        R         R1
where
  (a)  P is the amount of his Class 1 contributions actually paid in respect of that year;
  (b)  Q is the amount of his contracted-out Class 1 contributions so paid;
  (c)  R–
  (i)  in relation to any Class 1 contributions paid at a rate specified in section 4(6)-(6B) of the Act, is the highest of the rates in question in force for that year; and
  (ii)  in relation to any Class 1 contributions paid at a rate so specified as modified by regulations under sections 128 to 132 of the Act, is the highest of the rates in question as so modified in force for that year;
  (d)  R1 is the highest of the rates of contracted-out contributions in force for that year ascertained by reference to section 27(2)(a) of the pensions Act;
  (e)  F is–
  (i)  in relation to any Class 1 contributions paid at a rate specified in section 4(6)-(6B) of the Act–
  (aa)  1.8 where P - Q is less than £156;
  (bb)    142 + 0.89
      P - Q
      , where P - Q is not less than £156 but not greater than £1,290.91;
  (cc)  1, where P - Q is greater than £1,290.91;
  (ii)  in relation to any Class 1 contributions paid at a rate so specified as modified by regulations under section 128 of the Act–
  (aa)  1.976, where P is less than £127.90;
  (bb)  140.2 + 0.88
        P
      , where P is not less than £127.90 but not greater than £1,161.82;
  (cc)  1, where P is greater than £1,161.82;
  (iii)  in relation to any Class 1 contributions paid at a rate so specified as modified by regulations under section 129 of the Act–
  (aa)  1.842, where P is less than £148.18;
  (bb)  141.5 + 0.887
        P
      , where P is not less than £148.18 but not greater than £1,255.05;
  (cc)  1, where P is greater than £1,255.05;
  (iv)  in relation to such part of any Class 1 contributions paid at the normal percentage in accordance with section 27(1)(a) of the Pensions Act in a year in which no payment is made of contributions to which head (i) above applies–
  (aa)  1.8, where P - Q is less than £98.80;
  (bb)  177.84
      P - Q
      , where P - Q is not less than £98.80 but not greater than £177.84;
  (cc)  1, where P - Q is greater than £177.84;
  (v)  in relation to such part of any Class 1 contributions paid at the normal percentage in accordance with section 27(1)(a) of the Pensions Act in a year in which no payment is made of contributions to which head (i) above applies–
  (aa)  1.8, where P - Q is less than £156;
  (bb)    142 + 0.89
      P - Q
      , where P - Q is not less than £156 but not greater than £1,290.91;
  (cc)  1, where P - Q is greater than £1,290.91;
  (vi)  in relation to such part of any Class 1 contributions paid at the normal percentage in accordance with section 27(1)(a) of the Pensions Act as modified by regulations under section 128 of the Act–
  (aa)  1.976, where P - Q is less than £81.02;
  (bb)  160.06
      P - Q
      , where P - Q is not less than £81.02 but not greater than £160.06;
  (cc)  1, where P - Q is greater than £160.06;
  (vii)  in relation to such part of any Class 1 contributions paid at the normal percentage in accordance with section 27(1)(a) of the Pensions Act as modified by regulations under section 129 of the Act–
  (aa)  1.842, where P - Q is less than £93.86;
  (bb)  172.90
      P - Q
      , where P - Q is not less than £93.86 but not greater than £172.90;
  (cc)  1, where P - Q is greater than £172.90;
  (f)  G is–
  (i)  in relation to any Class 1 contributions paid at the highest of the rates specified in section 4(6)-(6B) of the Act or to any contracted-out contributions ascertained by reference to section 27(2)(a) of the Pensions Act–
  (aa)  2.4, where Q is less than £48.48;
  (bb)  72 + 0.915
      Q
      , where Q lies between £48.48 and £847.06;
  (cc)  1, where Q is greater than £847.06;
  (ii)  in relation to any contracted-out contributions ascertained by reference to section 27(2)(a) of the Pensions Act, as modified by regulations under section 128 of the Act–
  (aa)  3.05, where Q is less than £33.05;
  (bb)  71 + 0.902
      Q
      , where Q lies between £33.05 and £724.49;
  (cc)  1, where Q is greater than £724.49;
  (iii)  in relation to any contracted-out contributions ascertained by reference to section 27(2)(a) of the Pensions Act, as modified by regulations under section 129 of the Act–
  (aa)  2.54, where Q is less than £44.20;
  (bb)  72 + 0.911
      Q
      , where Q lies between £44.20 and £808.99;
  (cc)  1, where Q is greater than £808.99;
and the amount resulting shall be rounded to the nearest whole penny.

Many thanks to you all - something to digest!