Employer National Insurance contributions

Employer National Insurance contributions are the often-overlooked second payroll tax that adds 13.8% to almost every salary above the secondary threshold. For a small business hiring its first employees, employer NIC can quickly become the biggest line in payroll outside gross wages, which is why the Employment Allowance matters so much. Understanding how it is calculated, when reliefs apply and how to claim the allowance is one of the most valuable parts of managing UK payroll and HR well.

How employer NIC works

Employers pay secondary Class 1 NIC on each employee’s earnings above a weekly or annual secondary threshold. The rate has been 13.8% for many years (subject to confirmation in each year’s Finance Act). Unlike the income tax and employee NIC deducted from a worker’s pay, employer NIC is a cost to the business on top of the wage, so it never appears on the employee’s gross salary figure but does sit in your payroll budget.

The employee separately pays primary Class 1 (currently 8% above the primary threshold) — see our PAYE Real Time Information guide. Employer NIC is reported to HMRC alongside everything else through your full payment submission each pay period, so it is calculated automatically by compliant payroll software rather than worked out separately.

What employer NIC applies to

Secondary Class 1 NIC is charged on earnings, which is broader than basic salary. The main components are:

• Basic pay, overtime, bonuses and commission above the secondary threshold
• Cash allowances such as car or travel allowances paid through payroll
• Notional pay where share schemes are settled in readily convertible assets

Most benefits in kind — company cars, private medical cover and similar — instead attract Class 1A NIC at the same 13.8% rate, declared annually rather than each pay period. If you provide benefits, our P11D guide explains the reporting that drives the Class 1A charge.

Reduced rates for specific groups

Employer NIC is reduced to 0% up to a higher upper threshold for some categories of worker, designed to encourage hiring.

These savings can shape recruitment decisions, especially for fast-growing SMEs. To claim a reduced rate you must record the correct NIC category letter for each affected employee in payroll, and keep evidence — such as a veteran’s discharge documents — to support it.

Employment Allowance in practice

A qualifying employer claims up to £5,000 a year off its employer NIC bill. To qualify the employer must have at least one employee earning above the secondary threshold and total employer NIC of less than £100,000 in the previous tax year. Single-director companies with no other employees do not qualify, which is a common trap for owner-managers planning their director’s salary.

• Tick the Employment Allowance box in your payroll software EPS
• Track the running balance — claim stops at £5,000 in-year
• Carry no unused balance forward; the allowance resets each tax year
• Connected employers share one £5,000 allowance between them
• Re-claim each tax year; it is not automatic
• Confirm de minimis state aid rules where relevant

Larger employers and the levy

Once your annual pay bill passes £3m you also pay the Apprenticeship Levy at 0.5% of earnings, offset by a £15,000 annual allowance. It is collected through PAYE in the same way as employer NIC, so larger payrolls effectively manage two employer-side charges at once — our Apprenticeship Levy guide sets out how the funds can be recovered for training.

Planning the bill

Build employer NIC into salary modelling from day one. Pair this with our pension auto-enrolment guide, the PAYE RTI article, and our year-end checklist to keep pay-day surprises off the table. Verify current rates on the HMRC National Insurance rates page . See pricing for payroll that calculates employer NIC and Employment Allowance automatically.