Employer National Insurance contributions are an employer-side payroll tax. It is charged at a single rate on earnings above the secondary threshold, with no upper limit. For a small business hiring its first employees, employer NIC can quickly become the biggest payroll cost outside gross wages, which is why the Employment Allowance matters. Understanding how it is calculated, when reliefs apply and how to claim the allowance is an important part of managing UK payroll and HR.
How employer NIC works
Employers pay secondary Class 1 NIC on each employee’s earnings above a weekly or annual secondary threshold. Unlike income tax and employee NIC deducted from a worker’s pay, employer NIC is a business cost on top of the wage.
| Item | How it works |
|---|---|
| Secondary threshold | Employer NIC is due on earnings above it, per pay period |
| Secondary rate | One rate on all earnings above the threshold |
| Employment Allowance | Annual reduction in the employer NIC bill for eligible employers |
| Class 1A on benefits in kind | Same rate as secondary Class 1, paid annually via the P11D(b) |
| Apprenticeship Levy threshold | £3m annual pay bill |
HM Treasury sets the rate, the thresholds and the Employment Allowance, usually at the Budget, and changes apply from 6 April. The current figures are on GOV.UK.
The employee separately pays primary Class 1 on earnings above the primary threshold — see our PAYE Real Time Information guide. Employer NIC is reported to HMRC alongside everything else through your full payment submission each pay period, so it is calculated automatically by compliant payroll software rather than worked out separately.
What employer NIC applies to
Secondary Class 1 NIC is charged on earnings, which is broader than basic salary. The main components are:
- Basic pay, overtime, bonuses and commission above the secondary threshold
- Cash allowances such as car or travel allowances paid through payroll
- Notional pay where share schemes are settled in readily convertible assets
Most benefits in kind — company cars, private medical cover and similar — instead attract Class 1A NIC at the same rate, declared annually rather than each pay period. If you provide benefits, our P11D guide explains the reporting that drives the Class 1A charge.
Reduced rates for specific groups
Employer NIC is reduced to 0% up to a higher upper threshold for some categories of worker, designed to encourage hiring.
| Category | Zero-rate band |
|---|---|
| Apprentices under 25 | Up to the Apprentice Upper Secondary Threshold, aligned with the Upper Earnings Limit |
| Employees under 21 | Up to the Upper Secondary Threshold, aligned with the Upper Earnings Limit |
| Veterans (first 12 months of civilian employment) | Up to the Veterans Upper Secondary Threshold |
| Freeport / Investment Zone employees | Up to the Freeport and Investment Zone threshold |
| Standard employee | Up to the secondary threshold, then the full rate |
These savings can shape recruitment decisions, especially for fast-growing SMEs. To claim a reduced rate you must record the correct NIC category letter for each affected employee in payroll, and keep evidence — such as a veteran’s discharge documents — to support it.
Employment Allowance in practice
A qualifying employer can reduce its employer Class 1 NIC bill by the annual Employment Allowance. Since 6 April 2025 there has been no cap based on the previous year’s employer NIC bill. Companies with only one employee paid above the secondary threshold, where that employee is also a director, do not qualify, which is a common trap for owner-managers planning their director’s salary.
- Tick the Employment Allowance box in your payroll software EPS
- Track the running balance — the reduction stops once the full allowance is used in the tax year
- Carry no unused balance forward; the allowance resets each tax year
- Connected employers can only claim one allowance between them
- Re-claim each tax year; it is not automatic
Larger employers and the levy
Once your annual pay bill passes £3m you also pay the Apprenticeship Levy at 0.5% of earnings, offset by a £15,000 annual allowance. It is collected through PAYE in the same way as employer NIC, so larger payrolls effectively manage two employer-side charges at once — our Apprenticeship Levy guide sets out how the funds can be recovered for training.
Planning the bill
Employer NIC is calculated by your payroll software and posted to the books as part of the payroll journal. Need someone to run payroll? Ask for accounting help.