National Insurance explained

UK National Insurance: Rates, Classes, and Employer Obligations Explained

If you are employing someone in the United Kingdom, National Insurance contributions are one of the costs you cannot avoid. They sit alongside income tax as part of the PAYE system, but they serve a different purpose. While income tax funds general government spending, National Insurance contributions go towards specific benefits, most notably the State Pension and the National Health Service (NHS).

For international employers, National Insurance can be one of the more confusing parts of UK payroll. There are multiple classes, different rates for employees and employers, and thresholds that change each tax year. Getting it wrong means either overpaying (which hits your bottom line) or underpaying (which triggers penalties from HMRC).

This guide explains how National Insurance works, what the current rates are, and how a UK Employer of Record can manage the whole process for you.

What are National Insurance contributions?

National Insurance contributions (NICs) are a tax on earnings and profits in the UK. They fund state benefits including the State Pension, statutory sick pay, statutory maternity pay, and the NHS. Everyone who works in the UK and earns above a certain threshold pays National Insurance, and their employer pays contributions too.

The system is administered by HMRC, and contributions are collected through the PAYE system alongside income tax. For most employees, the deduction appears on their payslip each month, and the employer pays their share on top of the employee's gross salary.

National Insurance is not optional for most workers. If you earn above the primary threshold, you pay it. If you employ someone above the secondary threshold, you pay it. The only exceptions are for people who have reached State Pension age (currently 66) and certain categories of low earners.

Who pays National Insurance in the UK?

National Insurance is paid by three groups: employees, employers, and the self-employed. Each group pays a different class of contribution.

Employees pay Class 1 contributions. These are deducted from their wages by the employer through PAYE. The rate is 8% on weekly earnings between £242 and £967, and 2% on earnings above £967.

Employers pay secondary Class 1 contributions. These are paid on top of the employee's gross salary and are not deducted from the employee's pay. The current rate is 15% on all earnings above £5,000 per year (approximately £96 per week).

Self-employed people pay Class 2 contributions (a flat rate of £3.65 per week if profits exceed £6,725 per year) and Class 4 contributions (6% on annual profits between £12,570 and £50,270, and 2% on profits above £50,270).

For international employers, the focus is almost always on Class 1 contributions, both the employee's share and the employer's share.

National Insurance classes explained

The UK National Insurance system has six classes, each applying to a different type of earner.

Class 1 (Employee contributions): Paid by employees earning above the primary threshold (£242 per week). The rate is 8% on earnings between £242 and £967 per week, and 2% above £967. These are deducted through PAYE.

Class 1 (Employer contributions): Paid by employers on all earnings above the secondary threshold (£5,000 per year). The rate is 15%. These are paid on top of the employee's salary and are not deducted from their pay.

Class 1A and 1B: Paid by employers on benefits in kind (such as company cars or private health insurance) and on expenses payments. The rate is 15% for the 2026/27 tax year. These are reported and paid annually.

Class 2 (Self-employed): A flat rate of £3.65 per week for self-employed people with profits above £6,725 per year. If profits are below this threshold, Class 2 contributions are voluntary.

Class 3 (Voluntary): Paid by people who want to fill gaps in their National Insurance record to qualify for the full State Pension. The rate is £17.75 per week for the 2026/27 tax year.

Class 4 (Self-employed): Paid by self-employed people on their profits. The rate is 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270.

For most international employers, only Class 1 (both employee and employer contributions) is relevant.

It is worth understanding the difference between Class 1A and Class 1B, even if they do not apply to every employer. Class 1A applies to benefits in kind, such as company cars or private health insurance. If you provide these benefits to your UK employees, you must pay Class 1A contributions on them at the end of the tax year. Class 1B applies to expenses payments and PAYE settlement agreements. These are less common, but if you are offering relocation packages or other expense-related benefits, they may apply.

Current NI rates and thresholds

The National Insurance rates and thresholds for the 2026/27 tax year are:

Employee (Class 1):

Employer (Class 1):

Employment Allowance: Eligible employers can claim up to £10,500 per year off their employer National Insurance bill. This is particularly useful for small businesses. To qualify, your employer NI liability must have been less than £100,000 in the previous tax year.

Apprenticeship Levy: Employers with an annual pay bill of more than £3 million pay an additional 0.5% Apprenticeship Levy on their total pay bill.

The Employment Allowance is worth knowing about. If you are a small employer with a relatively low NI bill, it can significantly reduce your costs. A UK Employer of Record will typically claim this allowance on your behalf if you are eligible.

NI letter categories explained

When you register as an employer, HMRC assigns a National Insurance letter category to each employee. The letter tells you which NI contributions apply.

The most common categories are:

• A — standard rate (the default for most employees)
• B — reduced rate (for married women and widows who opted to pay less before 1977)
• C — employees over State Pension age (no employee NI, but employer NI still applies)
• H — apprentice under 25 (employer NI at 0% on earnings up to the upper earnings limit)
• J — employee deferring NI (because they are paying NI in another job)
• M — employee under 21 (employer NI at 0% on earnings up to the upper earnings limit)

For most international employers hiring UK-based workers, category A is the default. If you are hiring apprentices or younger workers, categories H and M can reduce your employer NI bill.

Getting the category wrong means either overpaying or underpaying NI. It is worth checking each employee's category when they start, particularly if they are under 21 or on an apprenticeship.

When an employee reaches State Pension age, their NI category changes to C. This means they stop paying employee NI, but you still pay employer NI on their earnings. Your payroll software should handle this automatically if it is kept up to date, but it is worth checking when employees reach age 66.

How employer NI works in practice

Employer National Insurance is calculated on each employee's earnings above the secondary threshold. Here is how it works in practice:

1. Calculate the employee's gross pay for the pay period (monthly or weekly).
2. Deduct the secondary threshold (£417 per month or £96 per week).
3. Apply the 15% rate to the remaining amount.

For example, if an employee earns £3,000 per month:

• Gross pay: £3,000
• Less secondary threshold: £417
• Taxable amount: £2,583
• Employer NI at 15%: £387.45

This amount is paid on top of the employee's salary. It is not deducted from their pay. It is an additional cost to the employer.

Employer NI is reported through the PAYE system via the Full Payment Submission (FPS) each payday, and it is paid to HMRC alongside the employee's income tax and employee NI.

If your total employer NI bill for the tax year is less than £100,000, you can claim the Employment Allowance, which reduces your bill by up to £10,500. You claim it through your payroll software, and it is applied automatically once you have registered for it. For small employers, this can make a significant difference to the total cost of employment.

National Insurance and the State Pension

National Insurance contributions do more than fund the NHS. They also build up the employee's entitlement to the State Pension. To receive the full State Pension, an employee needs 35 qualifying years of National Insurance contributions.

A "qualifying year" is a year in which the employee paid or was credited with enough National Insurance contributions. If there are gaps in the record (for example, because the employee was living abroad or not working), they may receive a reduced pension.

Employees can check their National Insurance record online through the GOV.UK "Check your National Insurance record" service. If there are gaps, they may be able to pay voluntary Class 3 contributions to fill them.

For international employers, this is worth understanding because it affects your employees' long-term financial planning. If you are hiring someone who has spent time working outside the UK, they may have gaps in their NI record that they want to address.

Employees can also apply for voluntary contributions to fill gaps from years when they were living abroad. This is particularly relevant for expats who have returned to the UK or for internationally mobile employees who split their time between countries. The GOV.UK service shows exactly which years are missing and how much it would cost to fill each gap.

NI for international employers using an EOR

If you are hiring in the UK without a legal entity, an Employer of Record handles all National Insurance obligations on your behalf. The EOR registers as the employer with HMRC, calculates both employee and employer NI contributions, reports them through RTI, and pays them on time.

The total cost of employment in the UK includes more than just salary. On top of the employee's gross pay, you are paying:

• Employer NI at 15% on earnings above £5,000 per year
• Pension contributions (a minimum of 3% of qualifying earnings)
• Apprenticeship Levy (if your pay bill exceeds £3 million)

When you are comparing the cost of hiring through an EOR versus setting up your own entity, these additional costs are a significant part of the calculation. An EOR bundles them into a single monthly fee, which makes budgeting more straightforward and ensures you do not get caught out by unexpected NI bills.