National Insurance Contributions Explained for Employers



If you hire staff, you must pay National Insurance Contributions (NICs) on their wages. This

can be a rather large expense; therefore it is important to think carefully about it when

considering the cost of staff. That being said, it is possible to reduce your NIC bill by up to

£5,000 if you claim the employee allowance.


Class 1 NICs


Class 1 NICs are payable by employed taxpayers and consist of employee salary deductions

through employer payments or PAYE. However, employers must pay Employer’s NICs, also

known as ‘Secondary’ Class 1 NICs.


Secondary Class 1 NICs are currently 13.8% of an employee's gross salary (dividends

are not included) above a particular threshold.


The threshold for Secondary Class 1 NICs is named the ‘secondary threshold’ and it is

applicable to all employees aged 21 and above, with the exception of apprentices aged 25

or under.


The secondary threshold for the majority of workers stands at just over £8,500 per year as

of the 2019/20 tax year. The secondary threshold for employees under 21 and apprentices

under 25 stands at £50,000 per year, again as of 2019/20. The high threshold conveys that

in pretty much every case employers will not need to pay Class 1 NICs for apprentices under

25 and employees under 21.


Am I required to pay National Insurance on my employees’ benefits?


If you supply employee benefits (non-wage compensation given to employees in addition to

their normal wages), you may have to pay additional NICs depending on what the benefits

are for. These are called Class 1A NICs and are currently charged at 13.8% of the cost

of the benefit. An example of one of these benefits could be providing your staff with a gym

membership or gift cards.


It is crucial that you take this extra charge into account when determining what benefits to

offer your staff. Don’t forget that benefits could result in a tax charge on the employee also.

Any benefits that are not dealt with via payroll must be reported at the year-end. ‘Trivial

benefits’ (usually meaning benefits worth less than £50) usually don’t need to be reported.


Do I need to pay NICs on employee expenses?


There is no National Insurance or tax to pay when you repay staff expenses. Employee

expenses are also excused from HMRC reporting requirements.


Are Employer’s NICs eligible for tax deduction?


Employers’ NICs are tax-deductible, just like benefits and salaries. Due to this, the cost of

paying Secondary Class 1 NICs can be removed from the business’ income before analysing

what tax is due.


How can I claim the Employment Allowance?


You can claim the Employment Allowance by going through your payroll software or using

HMRC’s PAYE tools.

The Employment Allowance is mainly aimed toward limited companies, sole traders and

partnerships where at least one employee is liable for Class 1 NICs.

As the Employment Allowance is primarily geared toward small businesses, from April 2020

your business will not be eligible to claim Employment Allowance if you pay over £100,000 I

NICs.


That Wraps It Up


Thank you for reading our article about National Insurance Contributions for Employers. We

hope this has been beneficial for you. If you liked this, please take a look at our other

articles, as they may help to expand your business brain.