All employers are legally obliged to pay employers NI on the earnings of their employees.  An Umbrella Company (as your employer) is no different in this respect.  What you see as a “charge for employers NI” is actually a legal deduction that has to be made. So that a contractor doesn’t lose out the amount deducted for employers NI should be factored in to your contract rate, the same as the apprenticeship levy.  The end client/agency should provide an uplift in assignment rate to allow for this.  This is one of those scenarios where the people behind the IR35 reforms have made assumptions (that the client or agency would uplift contract values to account for added expenses) where the reality is that it may not be the case.

You have to remember than an Umbrella Company makes its money on the margin charged in order to process payroll for its employees, that is all.  The margin is small.  For example if your Umbrella charges a margin of £25 a week then they make £25 a week from their relationship with you – there is no other secret income source.  How could they possibly cover Employers NI (@13.8% on any earnings above £169 a week) from that £25?  If you are a contractor on a day rate of even £200 then then the Employers NI is well in excess of £100 per week – you can see that instantly Umbrellas can’t function like that, they will be operating at a huge loss from day 1.  For higher rates the difference is even more stark.  A higher assignment rate for those caught by IR35 is essential to make sure that the contractor does not end up out of pocket.

You want to know why Umbrella Companies charge employers NI?  They don’t, when your status changes to that of an employee then your employers is legally obliged to pay employers NI.  If your contract is switching from being outside of IR35 to inside then this is a conversation you need to have with your agency or if direct to client end-client to ensure it is accounted for in any future contract rate.