National Insurance explained

Class 1: what employees pay

If you are an employee on a standard category letter, you pay 8% of earnings between the primary threshold of £12,570 a year and the upper earnings limit of £50,270, then 2% on everything above. The rate falls rather than rises, which makes National Insurance regressive at the top and is the reason a very high earner has a lower combined marginal rate on National Insurance than a mid-career professional.

Someone on £40,000 pays 8% of £27,430, which is £2,194 for the year, or about £183 a month. Someone on £80,000 pays 8% of £37,700 plus 2% of £29,730, which is £3,016 plus £595, or £3,611. Double the salary produces only 65% more National Insurance.

The thresholds that matter

The lower earnings limit is the quiet one. You pay nothing between £6,708 and £12,570, but earning above the lower earnings limit still builds a qualifying year for the state pension and protects entitlement to statutory sick, maternity and paternity pay. That is why dropping below £129 a week matters far more than the zero National Insurance bill suggests, and why heavy salary sacrifice on a low salary can be a false economy. Figures are from HMRC rates and thresholds for employers.

The employer contribution

Employers pay 15% secondary Class 1 National Insurance on everything an employee earns above £5,000 a year, with no upper limit. On a £40,000 salary that is £5,250 on top of the salary itself. On £80,000 it is £11,250. This is the reason a job that costs an employer £50,000 pays a salary well below that, and the reason employer pension contributions and salary sacrifice arrangements are attractive on both sides of the payroll.

Employer National Insurance never appears as a deduction on your payslip, but it is part of the cost of employing you and shapes pay negotiations whether it is discussed or not. Our calculator shows the employer figure alongside your own so you can see the full cost of your role.

Why it behaves differently from income tax

Income tax under PAYE is normally cumulative. Your employer looks at your pay and allowance for the whole year to date and corrects any imbalance. National Insurance is calculated on each pay period separately against monthly or weekly thresholds, and it is never reconciled across the year for a standard employee.

That produces a genuine quirk. Take someone on £45,000 with a £5,000 bonus. Paid as a lump sum in one month, part of the bonus sits above the £4,189 monthly upper earnings limit and is charged at 2% rather than 8%. Spread evenly across twelve months, all of it would sit below the limit and be charged at 8%. The lump sum version costs about £274 less in National Insurance over the year for exactly the same money. This is covered further in how bonuses are taxed.

The self-employed: Classes 2 and 4

Self-employed people pay Class 4 contributions through Self Assessment at 6% of profits between £12,570 and £50,270, then 2% above. That is two percentage points below the employee rate in the main band, which is why identical income produces a slightly better result outside employment.

Class 2 is now largely notional. Once profits reach the small profits threshold of £7,105, Class 2 is treated as paid without any charge, so the qualifying year for state pension purposes is protected at no cost. Below £7,105 you can pay Class 2 voluntarily at £3.65 a week to keep the year qualifying, which is usually excellent value if the alternative is a gap in your record. Rates are published on gov.uk.

A sole trader with £50,000 of profit pays £2,246 of Class 4. An employee on a £50,000 salary pays £2,994 of Class 1. The £749 gap is the entire National Insurance advantage of self-employment - a smaller difference than most people expect, and easily outweighed by the absence of employer pension contributions, holiday pay and sick pay. We compare the two positions properly in self-employed vs employed.

What National Insurance actually buys

Unlike income tax, National Insurance builds entitlement. Contributions are recorded against your record year by year, and the years determine what you can claim.

• The new state pension. You generally need 35 qualifying years for the full amount and at least 10 for any entitlement at all.
• Contribution-based employment and support allowance and new style jobseeker's allowance, both of which depend on recent Class 1 contributions.
• Statutory maternity, paternity, adoption and sick pay, which depend on earning above the lower earnings limit rather than on the amount paid.
• Bereavement support payment for a surviving spouse or civil partner.

Check your record on gov.uk before assuming you are on track. Gaps from years abroad, low-paid work or self-employment below the threshold are common, and voluntary Class 3 contributions can sometimes fill them - though only up to a limited number of past years, so it is worth checking sooner rather than later.

See it on your own pay

The take-home pay calculator splits National Insurance out from income tax and shows the employer contribution too. If the figure on your payslip does not match, the checks in understanding your payslip usually explain why.

Common questions