What is employer National Insurance and why do you need to pay it?

Owning a business is a great achievement, but with it comes great responsibility. One of those is employer National Insurance—a key part of payroll in the UK.

It’s a tax contribution you make as an employer, but beyond the numbers, it’s also a way to contribute to the health and stability of the UK’s social benefits system.

So, let’s look at what employer National Insurance really is, how it affects your payroll, and why it’s an essential part of your responsibilities.

What exactly is employer National Insurance?

Employer National Insurance Contributions (NICs) are taxes that you, as an employer, pay on top of your employees’ wages. It’s a government requirement for businesses with employees, and these contributions help fund services like the NHS, state pensions, and other social security benefits.

While employees also pay National Insurance, their contributions are deducted from their pay, whereas your employer NICs are paid on top of their wages. It’s a separate cost to you, directly tied to your employees’ earnings

Think of it as your contribution to keeping the country running. It helps fund benefits your employees could rely on while they work with you.

Why do employers have to pay National Insurance?

Now, you might be wondering why this extra cost falls on you. Here’s a few key reasons why you pay employer NICs:

You’re legally required to do so

Paying employer NICs isn’t just a best practice—it’s a legal requirement. HMRC (HM Revenue & Customs) monitors National Insurance compliance closely, and any unpaid or late payments can lead to penalties.

So, it’s important to staying on top of these contributions. Having a robust payroll system in place can reduce your risk of penalties or falling behind on HMRC payments.

Supporting your employees’ security

Employer NICs help fund social services, including benefits that employees may one day need. By paying these contributions, you’re adding to a system that provides stability for your team members in times of need—whether that’s maternity leave, sick pay, or unemployment benefits.

Investing in the State Pension

National Insurance is also what keeps the state pension system running. Your contributions, along with those of other employers, help ensure that your employees have a source of income after retirement. It’s a way of supporting their future, even beyond their time with your business.

It’s important to note that this is different to a workplace pension, to learn about your responsibilities for workplace pensions, see our article on Pension laws.

How much do you need to pay?

Let’s dive into the numbers. For most businesses, the standard rate for Class 1 Employer National Insurance Contributions is 13.8% on earnings above a set threshold. For the tax year 2024/25, the employer NIC rate applies to earnings above £175 per week. The full list of NIC rates can be found on the government’s website.

Here’s how it works in practice:

• If an employee earns £250 a week, NICs are paid on the amount over £175—so, £75 in this case. At 13.8%, that’s £10.35 per week.

• For an employee on an annual salary of £30,000, you’ll pay about £3,174 in NICs each year.

It’s important to note that the employer NIC rate changes yearly, from April 2025 the standard rate will increase by 1.2%, meaning that for the tax year 2025/26, the employer NIC rate will be 15%.

But it’s not the only change that happens yearly. The threshold also changes and for the tax year 2025/26 the threshold will be reduced from £9,100 to 5,000 a year. Meaning that you will have to make contributions of 15% to earnings above £96 per week.

These payments can add up, especially when the new tax year starts. However, there are options to help soften the blow.

For example, if your business qualifies, you can claim the Employment Allowance, which gives you up to £5,000 off your National Insurance bill each year. And to help reduce this burden even further the Employment Allowance is increasing to £10,500 next year.

With these changes coming and to stay on the right side of the HRMC, you’ll need to keep an eye on your payroll calculations each pay period to ensure you’re paying the correct amount.

If in doubt, tools like payroll software or an outsourced payroll provider can make this task a breeze, keeping you on track with HMRC’s requirements and ready for any tax-year changes.

How to handle your employer NICs in a simple way

Handling NICs is a routine part of payroll in the UK. Whether you’re doing payroll in-house or outsourcing it, make sure your process is accurate and compliant with HMRC regulations.

Staying organised with your contributions not only avoids potential headaches but also gives you peace of mind.

How does employer National Insurance impact payroll?

As mentioned, Employer NICs are a routine part of payroll, and they directly increase your overall payroll costs.

Here’s what to keep in mind:

Higher total payroll costs

Since employer NICs are paid on top of employee salaries, your actual payroll expenses will be higher than the gross salaries alone. For example, if you’re paying an employee £30,000 a year, the NICs on top of that will bring your total cost closer to £33,174.

Factoring this into your budget ensures you’re prepared for the full cost of each hire.

Budgeting and forecasting

By factoring in employer NICs, you’ll have a more accurate view of your payroll expenses, which is particularly useful when planning for future hires or growth.

It’s important to budget for these contributions to avoid surprises when they’re due.

Payroll administration

Handling NICs can add complexity to payroll, especially if employees are on different pay scales. Many businesses use payroll software to automate NIC calculations, ensuring compliance with HMRC requirements and making payroll management more efficient.

Clear records also mean fewer issues when it’s time to report to HMRC, reducing potential headaches.

Employee payroll deductions vs. employer contributions

Remember, your employees also contribute National Insurance from their earnings, but this doesn’t affect the amount you’re paying.

Employee NICs are deducted from their gross pay, while employer NICs are paid on top of it. Essentially, it’s two sides of the same coin—both you and your employees contribute, but your contributions are separate from theirs.

If you’re interested in learning more about employee payroll deductions, see our article on What are payroll deductions?

Benefits in kind

If you payroll benefits in kind, your NICs are calculated and paid I each pay period rather than through a Class 1A NIC at the end of the tax year.

This approach essentially shifts NICs for benefits from a single, year-end payment to a series of smaller, ongoing payments, directly impacting your payroll budget by spreading the cost throughout the year.

By integrating the NICs for benefits in real time, you maintain a more consistent payroll expense and reduce the administrative burden of calculating and paying Class 1A NICs at year-end. To learn more, see unlocking payrolling benefits in kind for tax savings.

Get help with employer NICs from BrightHR Payroll

While employer National Insurance might seem like an added cost, it’s a crucial part of running a compliant and responsible business. These contributions not only help fund essential services but also support the security and wellbeing of your employees—today and in the future.

So, keeping on top of these payments isn’t just a legal obligation; it’s an investment in your team and the wider community.

And if you need any help, BrightHR Payroll offers a range of payroll options to help keep your business on the right side of the HRMC. From payroll software to a fully managed payroll service—so you can handle pay, the smart way.

Discover BrightHR Payroll or speak to one of our specialists by booking a free payroll demo today!