National Insurance is a key part of the UK tax system and plays an important role in funding state benefits and public services. For businesses with employees, National Insurance is not only deducted from wages but also paid by employers as an additional contribution.
Understanding how employers’ National Insurance works is essential for managing payroll costs, staying compliant with HMRC rules and planning your business finances effectively. At Keith Willis Associates, we help businesses understand their tax responsibilities and manage payroll and National Insurance obligations with confidence.
This guide explains what National Insurance is, how it is calculated and what employers need to know.
What Is National Insurance?
National Insurance contributions (NICs) are payments made by employees, employers and the self employed to the UK government. These contributions help fund several state benefits and social security systems. HM Revenue and Customs oversees the collection and administration of National Insurance.
The money collected through National Insurance helps fund services and benefits including:
The State Pension
Statutory Sick Pay
Maternity and parental benefits
Jobseeker’s Allowance and other welfare support
National Insurance is typically paid through the PAYE payroll system for employees. Both the employee and the employer make contributions, which are calculated based on the employee’s earnings and their National Insurance category.
How National Insurance Is Determined
National Insurance contributions are calculated using several factors:
Earnings Thresholds
Contributions only apply once earnings pass certain thresholds. For employees, contributions usually begin once earnings exceed the primary threshold.
National Insurance Category
Each employee has a category letter which determines the rate of contribution. The category depends on factors such as age, employment status and eligibility for certain schemes.
Earnings Bands
Employees pay different rates depending on how much they earn within defined earnings bands. For example, employees typically pay a main rate on earnings within a set range and a lower rate on earnings above the upper earnings limit.
Employers must calculate both the employee’s contribution and their own employer contribution when running payroll.
What Is Employers National Insurance?
Employers National Insurance is the contribution businesses must pay on top of an employee’s wages. This is often referred to as secondary Class 1 National Insurance.
For the 2025 to 2026 tax year:
Employers pay National Insurance at a rate of around 15 percent on employee earnings above the secondary threshold.
The secondary threshold is currently £96 per week or £5,000 per year.
Unlike employee National Insurance, the employer rate generally applies to all earnings above the threshold without a reduced rate for higher income bands.
In addition to standard payroll contributions, employers may also need to pay:
Class 1A National Insurance on employee benefits such as company cars
Class 1B National Insurance on certain expenses and benefits provided through PAYE settlement agreements
How Employers Calculate National Insurance
Employers calculate their National Insurance contributions during payroll processing. The general steps include:
Identify the employee’s gross earnings for the pay period
Determine the applicable National Insurance category
Identify the earnings above the secondary threshold
Apply the employer National Insurance rate to those earnings
For example, if an employee earns £30,000 per year, the employer contribution is calculated on the amount above the £5,000 threshold, meaning contributions apply to £25,000 of earnings.
The calculated amount is then paid to HMRC along with PAYE income tax and employee National Insurance deductions.
Employment Allowance
Some businesses can reduce their employer National Insurance bill using the Employment Allowance.
For the 2025 to 2026 tax year, eligible businesses may claim up to £10,500 per year to offset their employer National Insurance liability.
This allowance is particularly helpful for small and medium sized businesses, as it can significantly reduce payroll tax costs.
However, not all businesses qualify and the allowance must be claimed through payroll.
Employers’ Responsibilities
Employers have several responsibilities when it comes to National Insurance, including:
Calculating the correct contributions for each employee
Deducting employee National Insurance from wages
Paying employer contributions to HMRC
Reporting payroll information through Real Time Information submissions
Keeping accurate payroll records
Failing to meet these obligations can result in penalties, interest charges or compliance issues.
How Keith Willis Associates Can Help
At Keith Willis Associates, we are experienced Chartered Accountants based in Nottingham who support businesses with their tax and financial management.
Our team works with businesses of all sizes to simplify payroll and ensure compliance with UK tax regulations. When it comes to National Insurance, we can help with:
Payroll management and reporting
Calculating employer and employee National Insurance
Claiming Employment Allowance
Ensuring compliance with HMRC requirements
Strategic planning to manage payroll costs
By working with a professional accountant, businesses can avoid costly mistakes and ensure their finances are managed efficiently.
Frequently Asked Questions
Do employers have to pay National Insurance for every employee?
Employers only pay National Insurance on earnings above the secondary threshold. If an employee earns below this threshold, employer contributions are not required.
How is employer National Insurance paid?
Employer National Insurance is paid to HMRC through the PAYE system, usually at the same time as income tax and employee National Insurance payments.
Does employer National Insurance come out of employee wages?
No. Employer National Insurance is an additional cost to the employer and is paid on top of the employee’s salary.
Can businesses reduce employer National Insurance?
Some businesses can reduce their liability through the Employment Allowance, which allows eligible employers to offset part of their National Insurance bill.
Do employers pay National Insurance for employees over State Pension age?
Employees over State Pension age do not pay employee National Insurance. However, employers must still pay employer contributions on their earnings.
Speak to an Expert About National Insurance
Employers National Insurance can be complex, especially when managing payroll, changing thresholds and new tax regulations. Ensuring contributions are calculated correctly is essential for compliance and financial planning.
At Keith Willis Associates, we help businesses understand their responsibilities and manage payroll and tax efficiently.
If you would like expert guidance on National Insurance or support with payroll and business finances, contact our team today to see how we can help.
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