UK Employer National Insurance Contributions (NICs): A Comprehensive Guide

What are Employer NICs?

Employer National Insurance Contributions, often referred to as 'secondary Class 1 NICs,' are a mandatory tax that employers must pay on their employees' earnings. This is separate from the National Insurance Contributions that employees pay themselves (primary Class 1 NICs).

The money collected from NICs goes towards funding state benefits such as the State Pension, unemployment benefits, and NHS services. As an employer, these contributions are a key part of your total wage bill.

How to Calculate Employer NICs

The calculation is based on your employees' gross weekly or monthly earnings. The amount you pay is determined by a specific percentage of their salary above a set threshold.

Key Thresholds and Rates (2025/26 Tax Year)

To calculate Employer NICs, you need to be aware of the following thresholds:

• Secondary Threshold (ST): £175 per week / £758 per month. You do not pay NICs on earnings below this amount.
• Upper Earnings Limit (UEL): £967 per week / £4,189 per month. The NICs rate changes for earnings above this amount.

Standard Employer NICs Rate: 13.8% on earnings between the Secondary Threshold and the Upper Earnings Limit.

Important: Unlike employees, employers do not have a separate tax band for earnings above the Upper Earnings Limit. The 13.8% rate applies to all earnings above the Secondary Threshold, with no upper cap.

Example Calculation (Monthly Payroll)

Let's assume you have an employee with a monthly salary of £2,500 in the 2025/26 tax year.

1. Monthly Salary: £2,500
2. Secondary Threshold (ST): £758
3. Taxable Earnings: £2,500 - £758 = £1,742
4. Employer NICs Payable: £1,742 x 13.8% = **£240.40**

How to Reduce Your Employer NICs Liability

While NICs are compulsory, there are legitimate ways for businesses to reduce their tax burden.

1. The Employment Allowance

This is a valuable relief for small businesses. It allows eligible employers to reduce their annual Employer NICs bill by up to £5,000. It is a "one-per-business" allowance, not per employee.

• Eligibility: Your NICs bill must be below £100,000 in the previous tax year, and you must not be a "sole director" company where the director is the only employee paid above the Secondary Threshold.
• How it works: You simply deduct the allowance from your NICs bill until it's used up or the tax year ends.

2. Salary Sacrifice Schemes

This is a popular and effective strategy. It involves an employee giving up a portion of their salary in exchange for a non-cash benefit. Because the employee's salary is reduced, both employer and employee pay less National Insurance Contributions.

**Common Salary Sacrifice Schemes:**

• Workplace Pensions: Contributions to a pension scheme via salary sacrifice are not subject to Employer NICs, creating a significant saving for the business.
• Cycle to Work Scheme: Employees save on a new bike and equipment, and employers save on NICs.
• Electric Vehicle (EV) Schemes: Similar to the Cycle to Work scheme, this provides a tax-efficient way for employees to lease an EV, while the employer enjoys NICs savings.

3. Hiring Apprentices and Young Employees

Employers do not have to pay NICs on apprentices' earnings up to the Apprentice Upper Secondary Threshold.

Other Useful Details and Key Takeaways

• Payroll Software: Most modern payroll software will automatically calculate NICs for you, but understanding the underlying mechanics is essential for financial planning.
• HMRC Payment: You must report your employees' pay and deductions to HMRC on or before each payday and pay your NICs liability monthly or quarterly.
• Business Planning: When planning salary increases or new hires, always remember to factor in the additional cost of Employer NICs on top of the base salary.

By understanding the rules and leveraging available allowances and tax-efficient schemes, you can effectively manage your business's payroll costs and create a more attractive, rewarding package for your employees.