What are Employers’ National Insurance?

During her Autumn Budget speech, Chancellor Rachel Reeves confirmed changes to National Insurance Contributions (NIC). For business owners, employers NIC is a crucial part of their payroll calculations.

As NIC changes per tax year, it’s important for employers to know what the rate is, who it affects, and how much they’re expected to pay. One wrong move could lead to paying hefty fines and unmanageable business disruptions. Speak to one of our expert HR consultants today for more advice on paying your NIC rates.

In this guide, we’ll look at what employers’ National Insurance is, what the rates are, and how to ensure your business pays the correct amount according to your legal obligations.

What are employers’ National Insurance?

Employers National Insurance Contributions (NICs) are taxes that you need to pay on top of staff’s wages.

This is a legal requirement for any business that hires employees. Such taxes are put back into the community; for example, through NHS services, state pensions, and other areas to help run the country.

When an employee pays NIC, it’s taken from their pay rates. But when an employer pays NIC, it’s paid on top of staff wages. In simple terms, it’s a separate rate directly linked to your employees’ wages. It’s also collected through PAYE or payroll software.

Why do employers need to pay National Insurance?

There are several reasons why employers need to pay National Insurance. Some of the most common examples include:

Invest in social services

The main reason for paying National Insurance is to provide financial aid to the country and its citizens. Social services receive a huge amount, as tax payments provide support for people who are sick, unemployed, or retired.

For example, NICs are used for State Pension, Maternity Allowance, Jobseeker’s Allowance, and Widowed parent’s allowance. It’s important to note that State Pension is not the same as a workplace pension.

Legal obligations

Employers are legally obliged to pay NIC, just like the rest of us. HMRC (HM Revenue and Customs) are in charge of overseeing National Insurance compliance.

Through HMRC investigations, you’ll be informed on any missing NICs or late payments. But it falls on you to stay on top of your tax contributions – for you and your staff. Calculating payroll amounts through automatic systems make the process easier for your HR teams, as well as keeping numbers free from human errors.

Support for your staff

Whilst a majority of your NIC amounts goes back into the country, your employees may directly benefit from payments, too. That’s because there are social services that are specifically designated for workers.

The biggest examples of this would be services like maternity, paternity, and shared parental leave. NICs can also go towards statutory sick leave and sick pay, as well as certain unemployment benefits.

How much National Insurance do employers need to pay?

Employers should pay Class 1A and 1B National Insurance rates. As of April 2024/25, this is 13.8% on employee earnings above a set threshold. Take a look at the NIC rates below:

It’s important to note that NIC rates change year on year (usually upwards). From April 2025, the standard NIC rate is set to increase by 1.2% - meaning employers’ NIC will be at 15%.

Threshold rates also change, too. From April 2025/26, the threshold will reduce from £9,100 to £5,000 annually. Employers will need to make NIC of 15% on employee earnings that are above £96 per week.

How to manage employers National Insurance Contributions

Whilst paying taxes is a legal duty, it doesn’t mean you should pay them without understanding why. Staying on top of your tax compliance not only minimises penalties, but it also provides assurance for your societal contributions.

Let’s take a look at how to manage National Insurance Contributions as an employer:

Outline payroll costs

As employer NIC is paid in relation to employee wages, it’s not the only cost to consider. Your payroll expenses will generally be higher than gross salaries.

Think about payroll costs during your own budget procedures, as this will help ensure you’re able to pay the full cost of hiring employees.

Invest in payroll software

Figuring out your NIC rates is a complicated process to go through alone. It can be complicated and never-ending, especially if you’ve got employees on different wages and entitlements.

Try to stay on top of your NIC admin by investing in payroll software. Not only does it automate your tax calculations, but it also minimises the chance of human error from occurring. Payroll software can also help with setting reminders for HMRC compliance.

File your contributions to HMRC

Once you’ve done all your calculations, you should file your figures to HMRC. Using PAYE or other payroll software can help with reporting employee reductions and payments to HMRC.

Employers need to complete a Full Payment Submission (FPS) every pay run. You’ll need to pay the full balance by the 22nd of the following tax month – through a bank transfer, direct debit, or cheque.

What is Employment Allowance?

Employment Allowance is a government initiative that allows employers to reduce their National Insurance Contributions liability if they’re qualifiable. This means your business’s liability may reduce up to £5,000 for the 2024/25 tax year.

During her Autumn Budget speech, the Chancellor Rachel Reeves announced that this amount will increase to £13,500 in April 2025.

Do you need to pay NIC for all your staff?

No, employers don’t need to pay national insurance contributions for all staff members. Your tax rates are based on their earning thresholds, not employment status. There are some exceptions to employer NIC; for example:

• Young employees (under 21).
• Apprentices (under 25).
• Armed forces veterans.
• Freeport employees.

Get expert advice on employers National Insurance with Peninsula

Paying tax is a legal obligation for most people in the UK – including business owners. As an employer, it’s crucial to know what your NIC rates are per tax year. This includes your employee wages, as well as other relevant financial objectives.

Peninsula offers expert advice on employers National Insurance. We offer an array of HR Management Software – ensuring your financial compliance is met every tax year.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with one of our HR advisors today.