National Insurance Explained for Employees and Employers
National Insurance explained for employees and employers. Learn about Class 1, 2, and 4 contributions, rates, thresholds, and how NI affects your pay.
Most people understand Income Tax. It comes out of their pay and goes to the government. But National Insurance is different. It is a social security contribution system that builds your entitlement to certain state benefits.
Your National Insurance contributions determine your eligibility for the State Pension, maternity pay, sick pay, and other benefits. The amount you pay depends on your employment status and your earnings.
For employers, National Insurance is an additional cost on top of wages. It is calculated on employee earnings and paid directly to HMRC. Understanding how it works helps you manage payroll, budget for staff costs, and stay compliant.
This guide explains everything you need to know about National Insurance for employees and employers in the UK for the 2026/27 tax year.
Use our National Insurance Calculator to see how much you should be paying. For a full breakdown of your take-home pay, our Income Tax Calculator shows both Income Tax and NI deductions.
Our how the UK tax system works guide covers the key principles of UK taxation.
National Insurance is a social security contribution system that funds state benefits. It is separate from Income Tax. Employees pay Class 1 NI through PAYE, and employers pay additional NI on top of wages.
What Is National Insurance
National Insurance is a UK government system that collects contributions from workers and employers to help fund state benefits and contribute to public spending, including health and social care.
When you pay National Insurance, you are building an entitlement to future benefits. Your contributions are recorded against your National Insurance number. Your entitlement depends largely on your National Insurance contribution record and qualifying years rather than the total amount paid.
National Insurance was introduced in 1911 as a way to protect workers during illness or unemployment. It has expanded over time to cover a wider range of benefits. Today, it remains one of the primary sources of funding for the UK's welfare system.
Your contributions help fund:
- State Pension – income after retirement based on your contribution record
- Statutory Maternity Pay – paid during maternity leave
- Statutory Sick Pay – income during illness
- Jobseeker's Allowance – support while unemployed
- Employment and Support Allowance – support for those unable to work due to illness or disability
- Bereavement Support Payment – support for surviving partners
The Personal Allowance guide explains how Income Tax and National Insurance work together.
National Insurance helps fund the State Pension, maternity pay, sick pay, and other benefits. Your entitlement depends on your contribution record and qualifying years rather than the amount you paid.
Who Has to Pay National Insurance
You must pay National Insurance if you are an employee earning above the threshold, self-employed with profits above the lower limit, or an employer paying staff through payroll.
The amount you pay depends on your employment status, your earnings, and which NI class you fall under.
Employees pay Class 1 National Insurance through the PAYE system. Your employer deducts it from your wages each month and sends it to HMRC alongside your Income Tax.
Self-employed individuals pay Class 2 and Class 4 National Insurance. From 6 April 2024, mandatory Class 2 contributions were abolished for eligible self-employed people. Most self-employed individuals generally receive a National Insurance credit instead of paying mandatory Class 2 contributions. However, voluntary Class 2 contributions remain available in certain circumstances to protect your State Pension record.
Employers pay Class 1 National Insurance on top of employee wages. This is an additional cost of employment, separate from the employee's pay. Employers also pay Class 1A and Class 1B National Insurance on certain benefits and expenses provided to employees.
Some individuals are exempt from paying National Insurance. These include people over State Pension age who are still working and certain foreign nationals with specific circumstances.
Employees pay Class 1 NI through PAYE. Self-employed individuals generally receive NI credits instead of paying mandatory Class 2 contributions from April 2024. Voluntary Class 2 contributions remain available. Employers pay additional NI on top of wages.
National Insurance Classes Explained
HMRC categorises contributors into different classes depending on their circumstances. The class you pay determines the rate, how you pay, and what benefits you qualify for.
| Class | Who Pays It | When It's Paid | Purpose |
|---|---|---|---|
| Class 1 | Employees and employers | Through PAYE | Main category for employees |
| Class 1A / 1B | Employers | Annually | On benefits and expenses |
| Class 2 | Self-employed (voluntary from April 2024) | Optional | Protects State Pension record |
| Class 3 | Voluntary | Optional | To fill gaps in NI record |
| Class 4 | Self-employed | With Self Assessment | Based on annual profits |
Class 1 is the most common class for employees. Your NI category letter determines the exact rate you pay. Most employees are on category A, which applies the standard rates.
Class 2 contributions are no longer mandatory for most self-employed individuals from April 2024. Eligible self-employed people generally receive National Insurance credits instead. However, voluntary Class 2 contributions remain available to protect your State Pension record if you have gaps.
Class 3 contributions are entirely voluntary. You can pay them to fill gaps in your contribution record, which may increase your State Pension entitlement.
Class 4 contributions are paid by self-employed individuals on their annual profits. They are calculated alongside Income Tax through the Self Assessment system.
Our self-employed tax calculator can help you estimate your Class 4 contributions.
National Insurance has several classes. Employees pay Class 1. Self-employed individuals generally receive NI credits instead of mandatory Class 2 contributions from April 2024. Class 4 is paid on profits. Class 3 is voluntary to fill gaps.
National Insurance Rates and Thresholds for 2026/27
National Insurance contributions are based on your earnings. At the time of writing, the main thresholds have been frozen until 2028, but the rates have changed in recent years.
For Employees (Class 1)
| Band | Annual Earnings | NI Rate |
|---|---|---|
| Below £12,570 | No NI | 0% |
| £12,570 to £50,270 | 8% | |
| Above £50,270 | 2% |
The rate was reduced from 10% to 8% from April 2024. This means employees keep slightly more of their earnings compared to previous years.
For Employers (Class 1)
| Band | Employee Earnings | Employer NI Rate |
|---|---|---|
| Below £5,000 | No employer NI | 0% |
| Above £5,000 | 15% |
Employers pay National Insurance in addition to the employee's salary. It is not deducted from the employee's pay. The employer NI rate was increased from 13.8% to 15% from April 2024. The secondary threshold was also reduced from £9,100 to £5,000 per year.
These changes mean employers pay more NI on each employee, particularly for part-time and lower-paid workers.
For Self-Employed Individuals
| Type | Threshold | Rate |
|---|---|---|
| Class 2 (voluntary) | Optional | £3.45 per week (if paid) |
| Class 4 | £12,570 to £50,270 | 6% |
| Class 4 (Over £50,270) | 2% |
From 6 April 2024, mandatory Class 2 contributions were abolished for most self-employed individuals. Eligible self-employed people generally receive National Insurance credits instead. Voluntary Class 2 contributions remain available to protect your State Pension record.
Employees pay 8% NI on earnings between £12,570 and £50,270, and 2% above that. Employers pay 15% on earnings above £5,000. Self-employed individuals generally receive NI credits instead of paying mandatory Class 2 from April 2024, with Class 4 at 6% on profits between £12,570 and £50,270.
Example: National Insurance for an Employee
Let us look at an example to see how National Insurance works in practice for an employee.
Employee salary: £35,000 per year
- Earnings up to £12,570 – No NI
- Earnings from £12,571 to £35,000 = £22,430 × 8% = £1,794.40
Total NI Contribution = £1,794.40 per year
This is automatically deducted through your employer's PAYE system, alongside Income Tax. The deduction appears on your payslip each month. It is important to check that the figure matches your expected contribution, as errors can occur.
If your salary is higher, the calculation changes. For a £60,000 salary, the calculation would be:
- £12,570 to £50,270 = £37,700 × 8% = £3,016
- £50,271 to £60,000 = £9,730 × 2% = £194.60
Total NI Contribution: £3,210.60 per year
Use our National Insurance Calculator to see how much you should be paying based on your salary.
An employee earning £35,000 pays £1,794.40 in National Insurance each year. An employee earning £60,000 pays £3,210.60. NI is calculated on earnings above the threshold.
Example: National Insurance for Employers
Employers also contribute National Insurance on each employee's earnings above £5,000 per year. This is an additional cost of employment and does not reduce the employee's pay.
For the same £35,000 employee:
- Employer NI: £35,000 – £5,000 = £30,000 × 15% = £4,500
Total Employer NI Cost: £4,500 per year
Employers must pay this amount to HMRC alongside the employee's deductions. The total cost of employing someone is therefore the salary plus employer NI. Actual liabilities may vary depending on reliefs or special circumstances.
Employers report and pay NI through Real Time Information (RTI) when submitting payroll to HMRC each month. RTI is the system that requires employers to report PAYE information to HMRC on or before each payday.
Small businesses can claim the Employment Allowance to offset some of their employer NI liability. At the time of writing, the Employment Allowance is available for eligible employers. Check GOV.UK for the current allowance amount.
The employer NI calculator can help you estimate your total employment costs.
An employer pays £4,500 in NI on a £35,000 salary. This is in addition to the employee's pay. Actual liabilities may vary. Check GOV.UK for the current Employment Allowance amount.
How to Check Your National Insurance Record
Your National Insurance record shows how many years of contributions you have made. This determines your eligibility for the State Pension and other benefits.
You can check your record online through the government portal. The service is free and available 24 hours a day.
Step-by-Step:
- Go to GOV.UK and search for Check your National Insurance record
- Sign in with your Government Gateway ID
- View your years of full contributions, gaps in your record, and your future pension forecast
If there are gaps in your record, you can make voluntary Class 3 contributions to fill them. This can increase your State Pension entitlement.
You can also confirm whether your employer is paying NI correctly by comparing your payslip to your online record. Review your record periodically to ensure your contributions are recorded correctly.
For more on record keeping, our how long to keep tax records guide explains the requirements.
Check your National Insurance record online through GOV.UK. You can see your years of contributions, gaps, and pension forecast. Fill gaps with voluntary Class 3 contributions if needed. Review your record periodically.
How to Reduce Your National Insurance Legally
While everyone must pay National Insurance, there are ways to reduce your liability fairly and legally.
| Method | Explanation |
|---|---|
| Salary sacrifice schemes | Exchange part of salary for benefits (e.g. pension contributions or cycle-to-work) to lower NI basis |
| Maximise pension contributions | Pension contributions are NI-exempt for employees and employers |
| Claim allowable expenses | Self-employed workers can offset legitimate costs against profits |
| Check code accuracy | Make sure your tax code is correct — wrong codes can affect total deductions |
Salary sacrifice is one of the most effective ways to reduce NI. When you sacrifice part of your salary for pension contributions or other benefits, both you and your employer save NI on the sacrificed amount.
Savings depend on your tax position and the type of salary sacrifice arrangement. For example, a basic rate taxpayer sacrificing £100 of salary saves 20% Income Tax and 8% National Insurance, making the net cost just £72. A higher rate taxpayer saves 40% Income Tax and 2% National Insurance, making the net cost £58.
Our salary sacrifice guide explains the rules and benefits in more detail.
Salary sacrifice, pension contributions, and allowable expenses can reduce your NI liability. Savings depend on your tax position and the type of salary sacrifice arrangement.
National Insurance for Employers: Responsibilities
Employers have several responsibilities when it comes to National Insurance. Understanding these helps you stay compliant and avoid penalties.
You must deduct employee NI via PAYE. This is calculated based on the employee's earnings and their NI category letter. You must ensure the correct amount is deducted each pay period.
You must pay employer NI on top of wages. This is calculated on earnings above the secondary threshold. The rate is 15% on earnings above £5,000 per year.
You must submit Real Time Information (RTI) reports to HMRC. RTI requires you to report PAYE information to HMRC on or before each payday. This includes employee pay, deductions, and employer NI contributions.
You must keep records of NI payments and payroll for at least 3 years. HMRC can request these records during compliance checks.
You can claim the Employment Allowance to offset your employer NI liability. At the time of writing, the allowance is available for eligible employers. Check GOV.UK for the current amount.
Our employer NI calculator helps you estimate your employer NI costs.
Employers must deduct employee NI, pay employer NI, submit RTI reports, and keep records for 3 years. Employment Allowance is available for eligible small businesses. Check GOV.UK for the current amount.
Common National Insurance Mistakes
Several common mistakes can lead to overpaying or underpaying National Insurance. Understanding them helps you avoid costly errors.
| Mistake | Impact | Fix |
|---|---|---|
| Wrong NI category letter | Overpayment or underpayment | Check category on payslip |
| Duplicate NI number | Gaps in record | Contact HMRC to merge records |
| Incorrect payroll setup | Employer compliance risk | Reconcile RTI with HMRC each month |
| Missing voluntary contributions | Reduces pension eligibility | Pay Class 3 contributions |
| Not claiming Employment Allowance | Missed savings | Check eligibility yearly |
If you notice an error on your payslip or in your National Insurance record, contact your employer's payroll department or HMRC as soon as possible.
For more on correcting tax and NI errors, our how to check and correct your HMRC tax code guide explains the process.
Common NI mistakes include wrong category letters, duplicate records, incorrect payroll setup, missing voluntary contributions, and unclaimed Employment Allowance. Check your payslip and record regularly.
Final Thoughts
National Insurance is an important part of the UK's social security system. It helps fund the State Pension and other benefits that many people rely on during their working lives and in retirement.
Employees pay Class 1 NI through PAYE at 8% on earnings between £12,570 and £50,270, and 2% above that. Employers pay 15% on earnings above £5,000. From 6 April 2024, mandatory Class 2 contributions were abolished for most self-employed individuals, with eligible individuals receiving National Insurance credits instead.
Understanding how National Insurance works helps you check your payslip, plan your finances, and avoid overpaying. Check your National Insurance record regularly to ensure your contributions are recorded correctly and you are on track for the State Pension.
All information in this guide is based on official HMRC and GOV.UK sources. Readers should verify their National Insurance record through their HMRC Personal Tax Account before making financial decisions, as individual circumstances vary and rules may change after publication.
Written by
Mia Carragher
Mia writes beginner-friendly UK tax and personal finance guides, with a focus on income tax, National Insurance, salary calculators and simple HMRC explainers.
See more from Mia Carragher