by Joe Anderson
The rise in zero-hour contracts since 2010 is well-documented. The ONS estimates that the percent of people in employment on zero hour contracts has increased from 0.57% in 2010 to 0.84% in 2012. Ed Miliband is therefore right to call for a ban on their exploitative use. What, however, has not been often discussed is how the National Insurance system inflicts extra hardship onto workers on zero-hour and many other flexible contracts.
Unlike income tax, class 1 National Insurance contributions (NICs) are calculated on a weekly—rather than annual—basis. Whilst this may seem like a subtle difference, it has profound effects for those whose earnings vary significantly on a week-by-week or month-by-month basis, such as those on zero-hour contracts.
The class 1 NIC primary threshold in 2013/14 is £149, meaning employees earning over £149 in a given week are liable to make NICs. Yet, a significant number of people earning less than £7,775 per year (the annualised equivalent of the weekly primary threshold) will still be compelled to pay NICs. The reason for this is because if they earn more than £149 in any week (or £646 in any month, if paid monthly), they will be required to pay NIC, regardless of their annual income.
To illustrate the perverse effects of this anomaly, consider our conjectural protagonists, Jack and Jill.