When you set up a director, you need to select the director status. There are two status types: Director (Annual basis) and Director (Pro-rata basis).

Find out more below about what these statuses mean, and how they affect National Insurance (NI) calculations in your software.

The different status types affect how the director pays National Insurance (NI) throughout the tax year.

Director status

Directors have special rules that affect their NI contributions. By the end of the tax year, all directors must have paid the correct NI contributions based on the percentage method.

Whichever director status you choose, the overall NI contributions are the same at the end of the year.

To find the director status for an employee in Sage 50 Payroll, click Employee Record then the Employment tab.

 TIP: The calculation for tax is the same for employees and directors. 

Director (Annual basis)

Formerly known in Sage 50 Payroll as Director. The director can earn up to the annual primary threshold (PT) before they begin to pay NI.

This means the director pays no NI until their earnings to date exceed the annual PT.

Director (Pro-rata basis)

Previously known as Director (Table method). Their NI contribution calculation works the same way as for a standard employee. This means they’re more likely to pay NI for all months of the tax year, depending on how much pay they receive.

At the end of the tax year, a recalculation takes place in the final period based on their cumulative earnings for the year. Sometimes, this results in a director paying more or less NI in this final period.

If a director on the Pro-rata basis leaves the company part-way through the tax year, their final payroll must use the Annual method. You can do this when you process their final pay by indicating that it's the director's final pay.

Changing director status

There's legislation in place to determine the ▼ changes you can make to an employee’s director status part-way through the tax year.

Date directorship began

If you change an employee to either director status during the tax year, ensure you enter the right date in the Date Directorship Began box.

This date determines how many weeks of the tax year the employee is a director. Your software uses this to calculate their pro-rated NI thresholds, so it's crucial you set it correctly.

The date doesn't affect directors with a status of Director (Pro-rata basis) until their last payment of the tax year. In the last period of the tax year, or if you indicate it's their final payment, your software calculates their NI cumulatively.

To find or set this date:

1. Double-click the director on your employee list.
2. Click the Employment tab, then the YTD Values button.
3. Select the Director's NIC tab to find the date. 

 NOTE: If the director's pay frequency is Annual, there's no Director's NIC tab. Find out more in our annual pay frequency feature article. 

Payroll year end

Pro-rata basis directors NI uses the annual calculation method in their last payment of each tax year. You don't need to do anything differently, as your software does this automatically.

When you process the final period of the tax year for a Director (Pro-rata basis), the following message appears:

'This director has been recalculated on a YTD basis.'

This message is normal, click OK and continue to process as usual.

Example NI calculations

Visit our examples of directors national insurance (NI) calculations guide if you'd like to find out how the calculation works.

Processed employee as director incorrectly

If you process an employee as a director incorrectly, you can't change their status back to employee during the tax year. 

Instead, you need to rollback all payments for the tax year, then change their status back to Employee. You can then reprocess them back up to date on the correct status. For help to rollback, visit our how to use the rollback option article.