A Guide to Employer's National Insurance | The Accountancy Partnership

It’s important to look beyond the headline salary and consider the full cost of employment when you hire a new employee. Expenses such as workplace pension contributions, training, equipment, and other overheads all add up, as well as the National Insurance contributions you’ll need to make as an employer.

In this blog we’ll break down the different types of National Insurance employers are responsible for when they pay their employees. We’ll help you understand what to budget for and how these contributions are calculated, so you can confidently answer any National Insurance questions your employees may have.

What is National Insurance?

National Insurance is a tax on earnings paid by employees and employers, and self-employed people in the UK. It is used to help fund things like the State Pension, the NHS, unemployment benefits, and Maternity Allowance.

Who needs to pay National Insurance?

You’ll pay National Insurance if you’re:

An employee or director aged 16 to State Pension age, and earning more than the £12,570 Primary Threshold (the point at which employees start paying NI)
An employer; you’ll start making NI contributions on anything an employee earns above the £5,000 Secondary Threshold
Self-employed and your profits are more than the £12,570 Lower Profits Limit in a tax year. You can also make voluntary contributions.

Do company directors pay different types of National Insurance?

Some company directors will pay different types of National Insurance, but it all depends on how much you pay yourself, and how. For example, taking a salary above the NI thresholds for both employers and employees means you’ll pay NI twice on the same money. It’s why most directors tend to take a tax efficient salary and dividends.

What about if I’m a sole trader and have employees?

If you’re a sole trader and employ someone else you’ll still need to make NI contributions as their employer, but it won’t affect the self-employed National Insurance you need to pay on your sole trader profits.

How does National Insurance work for employers?

Employers deduct their employees’ NI contributions from their wages each time they pay them, and then pay this amount on to HMRC along with their own employer contribution. Like the NI employees pay, it goes towards things like the State Pension, Maternity/Paternity pay, and the NHS.

For example

Your employee earns £20,000 per year. You deduct their National Insurance contributions from their salary at a rate of 8% on the part of their earnings above £12,570.

You make your contribution as an employer at a rate of 15% on earnings above £5,000 (so the employer’s contribution doesn’t come out of your employee’s pay).

You send both of these payments to HMRC.

Is it my responsibility to deduct National Insurance from my employees pay?

Yes! As an employer, you are legally required to deduct employee National Insurance (NI) contributions from your employees’ wages through the PAYE system. You must calculate the correct amount, deduct it before paying their salary, and submit these contributions to HMRC. And remember, on top of this – you need to pay your own Employer National Insurance contributions. You can use our online calculator to estimate the cost of hiring someone.

It’s essential you keep records of everything you deduct and pay, even if your employees’ earnngs are below the tax and National Insurance thresholds.

Different classes of National Insurance employers should know about

It’s important that, as an employer, you understand the different classes of National Insurance so you can correctly calculate payroll deductions.

National Insurance classes include:

Class 1 (Primary and Secondary): The ‘primary’ contribution is the amount deducted directly from an employee’s earnings, while the ‘secondary’ contribution is the employer’s (your) National Insurance contribution made on behalf of the employee
Class 1A or 1B: This is another type of National Insurance contribution employers must make on things like expenses, taxable benefits (known as benefits in kind) such as a company car or a gym membership, and termination payments.

Check the current NI rates and thresholds for employees and employers

Can I claim any sort of allowance or tax relief to reduce employer National Insurance?

Yes, some employers can use the Employment Allowance to reduce their National Insurance bill by £10,500 each year. You’ll only be eligible to use it if you have at least one employee (or at least 2 directors if you don’t have any employees) earning more than the £5,000 Secondary Threshold each year. You can claim this using your payroll software or with HMRC’s Basic PAYE tools.

Are there any other National Insurance reliefs available for employers?

Yes, there are other reliefs available for employers paying Employer National Insurance. For example, employers’ NI relief for veterans means your contributions will be ‘zero-rated’ (so basically you won’t pay anything) for the first 12 months you employ a qualifying armed forces veteran.

Will my employees need to pay tax on salary sacrifices for pensions?

Not at the moment. But from April 2029, National Insurance will apply to any pension salary sacrifice that exceeds £2,000 per year. Ahead of this, you should inform your employees and update any employee handbooks if you offer salary sacrifice schemes. It might also be useful to think about how this affects your tax planning if you pay into a pension scheme as a company director.

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