In this section:

National Insurance for employers: the basics

As an employer you pay National Insurance contributions (NICs) on the earnings you provide to your employees. Earnings include not only cash amounts but benefits, such as providing your employees with company cars. Most workers (both employed and self-employed) also pay NICs on their earnings, in addition to Income Tax. Many of these contributions go towards building up workers’ entitlements to social security benefits such as Jobseeker’s Allowance and the State Pension.

The tax and NICs due on your employees’ earnings are calculated and deducted at the same time through the PAYE (Pay As You Earn) system when you operate your regular payroll. You then pay them to HM Revenue & Customs (HMRC). However the NICs that apply to many employer-provided benefits are calculated separately after the end of the tax year.

All of the guides in our ‘PAYE for employers’ section cover how to deal with both tax and NICs. The purpose of this NICs-only guide is to provide a brief explanation of your responsibilities for paying and deducting National Insurance contributions and to give you an at-a-glance overview of the different classes and categories of NICs.

On this page:

National Insurance contributions – employers’ responsibilities
The six classes of National Insurance contributions
Employee Class 1 NICs rates and category letters
More useful links

National Insurance contributions – employers’ responsibilities

Broadly speaking, National Insurance contributions (NICs) are payable on employee earnings, including non work related expenses and provided benefits. There are different classes of NICs that apply in different circumstances. Some are paid by both employers and employees, some by employers only and others by the self-employed.

As an employer your main responsibilities are:

to deduct and pay the employer and employee Class 1 NICs due on your employees’ earnings through your payroll
to pay employer Class 1A NICs after the end of the tax year on benefits you’ve provided to your employees
to pay employer Class 1B NICs after the end of the tax year if you’ve agreed a PAYE Settlement Agreement (PSA) with HMRC

If any of the people you engage to carry out work for you are self-employed, then they’re responsible for paying their own NICs (Class 2 and Class 4).

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The six classes of National Insurance contributions

There are six classes of NICs. The two tables below summarise who must pay each class of NICs and what type of earnings they relate to. For details of the rates and thresholds that apply to each class of NICs, follow the link at the end of this section.

NICs payable or collected by employers

NICs class	Details
Class 1	Payable by both the employee (primary Class 1 contributions) and the employer (secondary Class 1 contributions). Both primary and secondary Class 1 NICs are collected through your payroll via the PAYE system. Charged as a percentage of employees’ earnings over a certain amount. Also applies to a small number of employer-provided expenses and benefits (including childcare vouchers over a threshold of £55 per week). Applies only to employees who are aged 16 or over. Employee contributions stop at State Pension age, but employer contributions continue for as long as the employee continues to work. There are numerous differed Class 1 categories that apply to employees in different circumstances. These are explained in the later section, ‘Class 1 NICs: contribution letters at a glance’. Note that Class 1 NICs for directors are calculated slightly differently from those for other employees. For more information, see the ‘More useful links’ section. Find out more about payroll calculations for tax and NICs
Class 1A	Payable by employers and certain third parties on taxable benefits provided to employees. Charged as a percentage of the cash equivalent of the benefits. Find out more about expenses and benefits
Class 1B	Payable be employers who have agreed a PAYE Settlement Agreement (PSA) with HMRC. Charged on the combined value of the items covered by the PSA and the tax payable by the employer under the PSA. Find out more about PSAs

NICs payable by individuals

NICs Class	Details
Class 1	Primary Class 1 collected by the employer through PAYE – see previous table
Class 2	Payable by self-employed individuals. Applies only to people who are aged 16 or over but remain below the State Pension age. Set at a fixed weekly amount, regardless of earnings.
Class 3	These are voluntary contributions that individuals can make to protect their entitlement to state pension and some social security benefits if they haven’t paid sufficient earnings-related contributions.
Class 4	Payable by self-employed workers as a percentage of their annual taxable profits. Applies only to people who are aged 16 or over but remain below the State Pension age.

Rates and thresholds for employers

National Insurance for individuals – find out more

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Employee Class 1 NICs rates and category letters

Different categories of employee pay Class 1 NICs at different rates. This is reflected in a range of different NICs ‘category letters’. The tables below outline which letters apply to which employees.

One of the factors that determines which letter applies to an employee is whether or not they’re a member of a contracted-out occupational pension scheme. (These employees pay NICs at a lower rate because they’ve opted out of the State Second Pension.) There are three types of contracted-out scheme, but only two involve a lower rate of NI. Each pension scheme, whether contracted-out or not contracted-out, has its own set of category letters. Those that involve a lower rate of NI are referred to as salary-related (ie, defined benefit) and money-purchase (ie, defined contribution) schemes. The third type of contracting out pension scheme is referred to as an appropriate personal pension, but because it does not involve a reduction in the amount of NI payable it shares the same category letters as those used for not contracted-out schemes.

Please note that if you employ mariners, a separate set of NICs category letters apply. For details, follow the link to HMRC’s CA42 publication in the ‘More useful links’ section at the end of this guide.

Employees not in a contracted-out pension scheme: NICs category letters

NICs category letter	Applies to
A	All employees who aren’t members of a contracted-out COSR or COMP pension scheme, other than the three exceptions listed below in this table.
B	Married women and widows entitled to pay reduced-rate Class 1 NICs who aren’t members of a contracted-out COSR or COMP pension scheme. For more information, see the ‘More useful links’ section.
C	Employees over the State Pension age.
J	Employees entitled to defer full-rate payment of Class 1 NICs (who aren’t members of a contracted-out COSR or COMP pension scheme) because they’re already paying NICs in another job.

Employees in a salary-related contracted-out scheme: NICs category letters

NICs category letter	Applies to
D	All employees who are members of a COSR pension scheme, other than the three exceptions listed below in this table.
E	Married women and widows entitled to pay reduced-rate Class 1 NICs. For more information, see the ‘More useful links’ section.
C	Employees over the State Pension age.
L	Employees entitled to defer full-rate payment of Class 1 NICs because they’re already paying NICs in another job.

Employees in a money-purchase contracted-out scheme: NICs category letters

Contracted-out money-purchase schemes will no longer exist from 6 April 2012. A fact sheet is available to explain the changes that employers using these schemes need to consider ahead of April 2012.

Download Employer fact sheet: abolition of contracting out on a defined contribution basis from the Department for Work and Pensions website (Opens new window)

NICs category letter	Applies to
F	All employees who are members of a COMP pension scheme, other than the three exceptions listed below in this table.
G	Married women and widows entitled to pay reduced-rate Class 1 NICs. For more information, see the ‘More useful links’ section.
C	Employees over the State Pension age.
S	Employees entitled to defer full-rate payment of Class 1 NICs because they’re already paying NICs in another job.

Once you’ve established which NICs category letter applies to an employee, using it is straightforward:

If you complete your payroll calculations using electronic means (such as commercial payroll software), simply enter the appropriate letter into the tool you’re using.
If you still complete your payroll calculations manually, there are downloadable tables for each Class 1 category letter – these show what NICs are due on an employee’s earnings. Follow the link to our ‘PAYE forms and publications’ guide in the ‘More useful links’ section below.