National Insurance and State Pensions

1. Employer Contributions

There are four classes of NICs. Employers are only concerned with Class 1, 1A and sometimes 1B. Class 2 and 4 apply to the self-employed. Class 3 are voluntary contributions paid by those who may not currently have to pay National Insurance contributions or are not entitled to receive National Insurance credits.

1.1 Employers pay Class 1 NICs for most of their employees, including:

  • company directors
  • casual and part-time workers
  • short-term contract workers (including those normally be classed as self-employed)

1.2 There are exceptions. Class 1 NICs is not due for employees:

  • who are under 16
  • who have reached State Pension age, although employers still pay NI
  • no employee’s contribution is paid at £149/week or less and employer’s contribution at 148/week or less Start-up employers outside London and the south-east do not have to pay £5,000 in NICs for the first ten staff hired in the first year of business. This applies to all businesses set up between 22 June 2010 and 5 September 2013.

1.3 Employers whose employees are not contracted-out of the State Second Pension pay:

  • 13.8% on weekly pay above £148 a weekly. There is no upper limit on the amount of Class 1 NICs an employer can pay.

1.4 Employers whose employees belong to a ‘contracted-out’ final salary occupational pension scheme (ie one where the pension is linked to the employee’s pay at or near retirement) pay:

  • 10.4% on earnings between £149 and £797, and 13.8% on earnings above this.

1.5 Employers pay Class 1A NICs at 13.8% on most employee benefits.

  • NICs on company cars and fuel for private use are paid on the same ‘cash equivalent’ as the figure used to calculate the employee’s tax liability.
  • Benefits given to lower-paid employees (earning less than £8,500 a year), excluding directors are exempt from Class 1A NICs.

1.6 Provision of some benefits by employers is exempt from Class 1A NICs (see 5.3).

BHP Infosolutions

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