National Insurance and State Pensions

1. Employer Contributions

There are four classes of National Insurance contributions. Employers are only concerned with Class 1, 1A and sometimes 1B. Class 2, 3 and 4 apply to the self-employed and the unemployed.

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 who would normally be classed as self-employed).

1.2 There are exceptions. Employers do not have to pay Class 1 NICs for employees:

• Who are under 16.
• Who earn £105 or less a week.

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

• 12.8 per cent on all weekly pay of £105 or more. There is no upper limit on the amount of Class 1 NICs an employer can pay.

1.4 Employers whose employees are members of 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:

• 9.3 per cent on earnings from £105 (the primary threshold) to £770 (the upper earnings limit), and 12.8 per cent on earnings above this.Employer contributions are slightly higher for contracted-out money purchase schemes (eg where the pension is linked to the amount paid into the fund).

1.5 Employers pay Class 1A NICs at 12.8 per cent on most benefits provided to employees.

• 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. See Company cars and tax.
• As with tax, benefits given to lower-paid employees (earning less than £8,800 a year, including benefits and expenses in certain circumstances, 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).