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
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
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.