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What Is National Insurance?
National Insurance (NI) is a UK payroll contribution, paid by both employees and employers, that funds state benefits including the state pension, unemployment support, and certain healthcare-linked entitlements. It is collected alongside Income Tax through the PAYE system but calculated separately, using its own rates and thresholds.
Employer National Insurance is paid entirely on top of an employee's gross salary; it is a separate cost to the business, not something deducted from the employee's pay.
National Insurance at a Glance
| Attribute | Description |
|---|---|
| Employee Rate (2026/27) | 8% on earnings between £12,570 and £50,270; 2% above |
| Employer Rate (2026/27) | 15% on earnings above the £5,000 secondary threshold |
| Employment Allowance | Up to £10,500 reduction on annual employer NI liability, for eligible employers |
| Collected Via | PAYE, alongside Income Tax |
| Funds | State pension, unemployment benefits, and other contributory entitlements |
| Class 1A Rate | 15%, applied to certain termination awards and benefits |
Why Does It Matter?
National Insurance is a significant, often underestimated cost of employing someone in the UK. Because the employer contribution is calculated on top of gross salary rather than deducted from it, it materially increases the true cost of a UK hire beyond the headline salary figure. Understanding both employee and employer rates is essential for accurate budgeting.
When Is It Used?
National Insurance calculations apply whenever a company:
- Runs payroll for a UK-based employee and needs to withhold the correct employee contribution.
- Budgets the true cost of a UK hire, including the separate employer contribution.
- Checks eligibility for the Employment Allowance to reduce its annual NI liability.
A French logistics company hires a UK operations manager at £50,000 gross annual salary. Beyond the salary itself, the company must pay employer National Insurance at 15% on earnings above the secondary threshold, a cost on top of gross pay, while separately withholding the employee's own NI contribution through PAYE.
Common Misconceptions
No. It is a separate contribution with its own rates and thresholds, though both are collected through PAYE.
No. It is an additional cost the employer pays on top of gross salary, not a deduction from it.
Not necessarily. The Employment Allowance can reduce an eligible employer's annual NI bill by up to £10,500.
No. Rates and thresholds can differ based on earnings level, and certain payments, like large termination awards, are taxed under separate NI rules.
National Insurance is a mandatory UK payroll contribution, funding state benefits, with separate employee and employer rates collected through PAYE. Employers need to factor in their own NI contribution, paid on top of gross salary, when budgeting the true cost of a UK hire.
Budgeting a UK hire?
We'll help you calculate employer and employee National Insurance so there are no surprises beyond the headline salary.
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