Paying employer’s national insurance contributions

If you employ staff, you’ll have to pay national insurance contributions (NICs) on their earnings.

This can be a significant extra expense, so you will need to factor it in when considering the cost of staff.

However, if you are eligible, you may be able to reduce your annual NIC bill by up to £5,000 by claiming the employment allowance (increasing to £10,500 in April 2025).

What are Class 1 NICs?

Class 1 NICs must be paid when someone is employed (as opposed to self-employed). They consist of two separate payments.

‘Primary’ Class 1 NICs are also known as employee NICs and are paid directly out of the employee’s wages via PAYE.

However, as an employer, you must pay ‘secondary’ Class 1 NICs, also known as employers’ NICs.

How much are employer’s NICs?

Secondary Class 1 NICs are set at 13.8% of an employee’s gross salary (dividends do not count) above a certain threshold. This rate will increase to 15% in April 2025.

What are the thresholds for employer’s NICs?

The threshold for employers’ NICs is called the ‘secondary threshold’ and applies to all employees aged 21 or over, except apprentices under 25.

This is currently earnings over £9,100 a year, however, this will reduce to £5,000 in April 2025, following an announcement in the Autumn Budget in October 2024.

The secondary threshold for workers under 21 or apprentices under 25 is:

This high threshold means in most cases, employers will not have to pay Class 1 NICs for apprentices under 25 or workers under 21.

The threshold for apprentices under 25 and workers under 21 was not affected by the changes to employers’ national insurance, announced in the Autumn Budget.

Do I have to pay national insurance on my employees’ benefits?

If you provide employee benefits, you may have to pay additional NICs, depending on the benefits.

These are known as Class 1A NICs, and are charged at 13.8% cent of the value of the benefit.

For example, if you provide an annual gym membership worth £500 to 10 employees, the Class 1A NICs due would be £69 per employee, or £690.

In April the cost of these contributions will also increase to 15%. You will need to take this extra charge into account when deciding what benefits to offer your employees.

Remember that some benefits may also result in a tax charge on the employee.

Any benefits not already handled via payroll must be reported at the end of the tax year. ‘Trivial benefits’ (i.e. any worth less than £50) usually don’t need to be reported.

Do I pay NICs on employee expenses?

There is no tax or national insurance to pay when you reimburse employee expenses, so it's exempt from HMRC reporting requirements.

Are employer’s NICs tax deductible?

Employer’s NICs are tax deductible for the business, just as salaries and benefits are.

This means that the cost of paying secondary Class 1 NICs can be deducted from the business’s income before determining what other tax is due.

Can I claim the employment allowance?

As an employer, you may be able to reduce your annual Class 1 NIC bill by up to £5,000 (rising to £10,500 in April 2025).

The employment allowance means that you will only start paying Class 1 NICs once your bill for that tax year exceeds that amount.

You can claim the allowance through your payroll software, or via HMRC’s PAYE tools.

As the allowance is primarily aimed at helping small businesses, it is not available to businesses that pay more than £100,000 in NICs.

You can find out if your business is eligible here.

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